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TMI Blog2007 (2) TMI 244X X X X Extracts X X X X X X X X Extracts X X X X ..... ble to the facts of the present case. We are, therefore, of the opinion that the Assessing Officer has rightly brought to tax the amount of enhanced compensation in the assessment year 1992-93. We, therefore, decide this issue against the assessee. Assessability of Interest on the enhanced compensation - whether it should be assessed on accrual basis or receipt basis - After carefully considering the principles laid down in the different precedents in the case of Padam Prakash (HUF), we are of the opinion that the Assessing Officer has rightly brought to tax the interest on the enhanced compensation on accrual basis. In our opinion, the correct working of the interest needs reconsideration by the Assessing Officer. We, therefore, restore this issue to the file of the Assessing Officer to examine the year-wise working of the interest on the enhanced compensation brought to tax after considering the order of Sub-Court granting interest to the assessee. Only for the limited purpose of correctly verifying the working of the interest assessed under the head 'Income from other sources', this issue is restored to the Assessing Officer. If necessary the Assessing Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee has challenged the impugned orders of the Commissioner of Income-tax (Appeals)-I, Kochi all dated 16-12-2004 for the assessment years 1987-88, 1988-89, 1990-91, 1991-92 and 1992-93. The facts as well as the issues are identical in all these appeals, hence these appeals were heard together and are being disposed of by this common order for the sake of convenience. 2. The assessee has filed concise grounds in all the appeals as the original grounds were consisting of lot of facts and arguments also. We will take up first the issue regarding the year of assessment of the enhanced compensation which arises in the assessment year 1992-93 in ITA No. 330 (Coch.) of 2005. 3. The facts in brief can be stated as under: The Government of Kerala has acquired the assessee's immovable property consisting of approximately 80 cents of land and 5500 sq.ft. of building under the Land Acquisition Act. The Government acquired the said property on 10-7-1986 and taken the possession on 10-9-1986. The Tehsildar passed the LA Award on 10-7-1986 fixing the compensation of Rs. 4,20,970/- which was later on reduced to Rs. 3,67,516/-. There was some dispute in respect of the ownership over ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the assessee and the ld. Departmental Representative Shri A.S. Bindhu for the revenue. The learned Sr. counsel has filed written summary of his arguments advanced at Bar which is twofold and is as under: In the first stage, it was submitted that in the case of Keshav Mills Ltd. v. CIT [1953] 23 ITR 230, the Hon'ble Supreme Court laid down the proposition of law that the receipt of income refers to the first occasion when the recipient gets the money under his control. It was contended that the release of money by the Sub-Court on bank guarantee cannot constitute a receipt in assessment year 1992-93 as the money has not come under the assessee's control then. It was further contended that the assessee was not free to make investments as provided under sections 54, 54F etc., as the money was not under his control. The receipt could at best be said to have occurred when the bank guarantee expired, i.e., 19-9-1994, i.e., in the assessment year 1995-96 as a result of which the amount assessed in the hands of the assessee in the assessment year 199293 is legally wrong. It is further argued that the State Government had gone in further appeal against the entire award of the Sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax Act are as follows:- The assessees in some cases are facing hardship when such compensation or consideration is subsequently reduced by any Court, Tribunal or other authority since there is no existing provision providing for re-computing of the capital gain charged in the year of receipt of compensation or consideration. With a view to mitigate this hardship, it is proposed to amend sub-section (5) by inserting a new clause (c) to provide that where such amount of the compensation or consideration is subsequently reduced by any Court, Tribunal or other authority, the capital gain of that year, in which the compensation or consideration received was taxed, shall be computed accordingly. It is proposed to insert a new sub-section (16) in section 155 to provide that the Assessing Officer shall amend the order of assessment to revise the computation of the said capital gain of that year by taking the compensation or consideration so reduced by the Court, Tribunal or any other authority to be the full value of consideration. These amendments will take effect from 1-4-2004 and will, accordingly, apply in relation to the assessment year 2004-05 and subsequent years: (260 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dered. In Smt. Santavva's case, the Assessing Officer brought to tax an amount received by the assessee by furnishing security under section 45(5)(b) of the Act treating it as income of the year in which the amounts were received. However, the Tribunal held that the amounts were not liable to tax as the receipts had a condition attached to it and an absolute right had not accrued to the assessee. On appeal, it was held by the High Court that the sum of Rs. 8 lakhs was received by the assessee not as enhanced compensation but as payment in pursuance of the interim orders of the Court and Supreme Court by furnishing security to the satisfaction of the court. The mere fact that some amounts have been received by furnishing security in pursuance of the interim orders pending final determination would not make the amounts received by the assessee 'compensation' or 'consideration' that could be subjected to tax under section 45(5)(b). The ld. counsel submitted that a same view was taken in the case of T. Girijammal. The ld. counsel further submitted that in the decision of the Hon'ble Bombay High Court in the case of CIT v. Smt. Godavaridevi Saraf [1978] 113 ITR 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent wherever in future if the compensation awarded by the lower authorities is further reduced. Though there was a direction in section 155(7A) of the Act, but still it was not possible to keep track of the unending litigation between the assessees and the Government. The ld. DR vehemently submitted that the Hon'ble Special Bench of the ITAT has considered the entire case law on this issue whether the enhanced compensation is to be assessed on receipt basis or whether the assessment of the enhanced compensation should be deferred to the year in which the dispute in relation enhanced compensation has reached finality. The ld. DR submitted that clause (c) of section 45(5) was not available in the decisions relied on by the ld. Sr. counsel and the Special Bench has correctly taken the view that it is declaratory or clarificatory in nature and it is having retrospective effect from 1-4-1988, though the same was introduced by Finance Act, 2003 with effect from 1-4-2004. The ld. DR supported the order of the Assessing Officer. 7. We have heard the rival submissions of the parties. We have also carefully considered the facts as per material placed before us. We have also carefully ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 39;s case. The ld. counsel also placed reliance on the decision of the Constitution Bench of the Hon'ble Supreme Court in the case of Varas International (P.) Ltd. on the contention that whether any particular amendment is having retrospective or prospective operation then that amended provision itself should indicate either in terms or by necessary implication that it operates retrospectively. 7.2 There is no dispute regarding the binding force of the legal principles laid down by the Hon'ble Supreme Court as well as by the Hon'ble High Court. There is no dispute in this case in respect of charging the capital gain on the enhanced compensation but the only dispute is in respect of the year in which it should be charged to tax and in our opinion, sub-section (5) of section 45 is relevant on the issue. Sub-section (5) in section 45 was inserted by the Finance Act, 1987 to provide for taxation of the additional compensation in the year of receipt instead of the year of transfer of the said capital asset. It was further provided that the additional compensation will be deemed. to be the income in the hands of the recipient even if the actual recipient happens to be a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection (16) in section 155 to provide that the Assessing Officer shall amend the order of assessment to revise the computation of said capital gain of that year by taking the compensation or consideration so reduced by the Court, Tribunal or any other authority to be the full value of consideration. These amendments will take effect from April 1, 2004 and will, accordingly, apply in relation to the assessment year 2004-05 and subsequent years. 7.4 In the case of Padam Prakash (HUF) the following questions were framed for the consideration of the Special Bench:- 1. Whether, on the facts and in the circumstances of the case, enhanced compensation and interest is to be taxed in the year of receipt, notwithstanding that order under which compensation and interest is received, is challenged before the higher courts and litigation is pending? 2. Whether, on the facts and in the circumstances of the case, will it make any difference to the taxability of compensation and interest if the same are received on furnishing of security? As far as the facts relating to the case of Padam Prakash (HUF) are concerned, those are more or less identical to the facts of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that as per sub-section (5) of section 45 of the Income-tax Act, enhanced, or further enhanced compensation is to be taxed on receipt basis, as per the scheme of sub-section (5) of section 45, we are of the view that it does not make any difference whether compensation is received as per interim order or on certain conditions or without any condition. This simple answer follows from obvious and plain language. What is required to be considered is that compensation had been paid and received. If for any reason, it subsequently reduced then assessment is required to be modified to take the reduced compensation of income. Thus the statutory provision leaves no scope for not taxing compensation on receipt basis under any situation. There is no way to read in clear language of the statute that receipt, if conditional or allowed as per interim order of the High Court is no receipt of compensation and would not be taxed in the year of the receipt. If the arguments of counsel for the assessee and interveners are adopted, it would tantamount to adopting a narrow and pedantic construction and reduce legislation to futility. Therefore, we do not find any substance in the arguments advanced ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of the Hon'ble Karnataka High Court in the case of Smt. Santavva and decision of the Hon'ble Madras High Court in the case of T. Girijammal. In our opinion, the argument of the ld. Sr. counsel is not sustainable as the Hon'ble Special Bench has also by reference considered the said decisions; while arriving at the final conclusion. In the present case also, enhanced compensation was paid to the assessee in September, 1991. In our opinion, on receipt basis, the Assessing Officer has rightly brought to tax the capital gain on the said enhanced compensation. In our further opinion, the principle laid down by the Hon'ble Special Bench of the Income-tax Appellate Tribunal in the case of Padam Prakash (HUF)are squarely applicable to the facts of the present case. We are, therefore, of the opinion that the Assessing Officer has rightly brought to tax the amount of enhanced compensation in the assessment year 1992-93. We, therefore, decide this issue against the assessee. 8. The next issue is regarding the assessment of interest on the enhanced compensation, whether it should be assessed on accrual basis or receipt basis. We have already narrated the relevant facts pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 87-88 to 1992-93 especially when the Court's judgment awarding enhanced compensation is dated 22-9-1990. In this connection, the ld. counsel relied on the decision of the Delhi Bench of the Tribunal in the case of Bhim Singh Lather wherein after elaborate consideration of several judicial pronouncements, the Hon'ble Third Member concurred with the Judicial Member and held that interest on additional compensation is taxable only in the year of final adjudication of the dispute and when there are pending proceedings there is no accrual of interest and it is taxable only in the year of final adjudication. The ld. counsel further contended that the interest on enhanced compensation is taxable only in the assessment year 2003-04, when the order of the High Court in LAA 281/92 was pronounced. It was further contended that the decision in the case of Padam Prakash (HUF) is in conformity with the decision of the Third Member in the case of Bhim Singh Lather and it was held that in case a dispute relating to interest payable on enhanced compensation is pending before the court of law and has not attained finality, the same will not accrue and not liable to tax. It was further argued ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estion stood concluded by the decision in the case of Smt. Rama Bai v. CIT [1990] 181 ITR 400 (SC). The ld. DR further submitted that another important fact is that the Andhra Pradesh, High Court in the case of CIT v. M. Sarojini Devi [2001] 250 ITR 759 has laid down that the Assessing Officer need not wait for the final disposal of the case by the Apex Court to tax interest. The assessee can claim refund if he succeeds in appeal to Supreme Court and if at any stage the decision comes which is against the assessee, the assessee can always claim refund from the Department. It was further submitted by the ld. DR that the most important judgment regarding this issue is the case of Mrs. Rama Bai wherein the matter was finally settled by the Hon'ble Supreme Court. That was a case where the reference to the Supreme Court was made through the President of the Income Tax Appellate Tribunal wherein the Hon'ble Supreme Court held that interest cannot be taken to have accrued on the date or order of the court granting enhanced compensation but has to be taken as having accrued year after year from the date of delivery of possession of the lands till the date of such order. According t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m of the Hon'ble Supreme Court cited above the principles of taxability of interest on the enhanced compensation have been settled that interest on the enhanced compensation should be taxed on accrual basis from the date of delivery of the possession of land and such interest cannot be assessed to income-tax in one lump sum in the year in which the order is made. 10.2 Here, we would like to refer to the decision of Special Bench of Tribunal in the case of Padam Prakash (HUF) wherein after considering the principles laid down in the case of Hindus tan Housing Land Development Trust Ltd. and Rama Bai's case it is held as under:- That as far us the question of interest income on enhanced compensation is concerned, the Legislature had made no change in the statutory provision and, therefore, decision of the Supreme Court in the case of Hindus tan Housing Land Development Trust Ltd. 161 ITR 524 as also the decision of Smt. Rama Bai v. CIT 181 ITR 400 (SC) would apply. The interest is to be assessed on accrual basis from year to year. However, the question of assessment of such interest on accrual basis would not arise unless it is finally determined. In case a dispute ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me from other sources', this issue is restored to the Assessing Officer. If necessary the Assessing Officer should modify the order. The Assessing Officer should of course give reasonable opportunity of being heard to the assessee as per the principles of natural justice. We, therefore, decide the issue of assessability of interest on the enhanced compensation against the assessee. 11. The next issue is regarding the estimation of the domestic expenses in the assessment years 1987-88 and 1988-89. There was a search action against late Shri K.T. Thomas, the original assessee. On the basis of statement recorded under section 132(4), the Assessing Officer made the following additions as unexplained family and legal expenses:- Sr. No. Asst. year Addition 1. 1987-88 Rs. 1,80,000 2. 1988-89 Rs. 1,80,000 It is not disputed in this case that this addition is made on the basis of the statement recorded during the course of search under section 132(4) in the year 1995. The copy of the said statement is placed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l and baseless. The revenue has not challenged this finding of the CIT (Appeals) before us. 14. We find substance in the argument of the ld. Sr. counsel that merely on the basis of some of the admissions and statements of the deceased assessee which was recorded during the course of search under section 132 estimation or addition cannot be made. When the CIT (Appeals) himself has come to the conclusion that the said estimation is only on the assumption and the Assessing Officer has not given any reason for quantifying the amount of Rs. 1,80,000/- per year. We find that the CIT (Appeals) has also sustained Rs. 1 lakh without giving any reasons and that is also on assumption. It is not the case of the Assessing Officer that any incriminating document or material was found during the course of search. Having regard to these facts, we do not find any justification to uphold the addition sustained by the CIT (Appeals). We, therefore, direct the Assessing Officer to delete the entire addition of Rs. 1 lakh sustained by the CIT (Appeals) relating to the alleged household expenses and legal expenses. This issue, is decided in favour of the assessee. 15. In the result, the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X
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