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TMI Blog2014 (7) TMI 1002X X X X Extracts X X X X X X X X Extracts X X X X ..... e capital asset. Accordingly, additional compensation is treated as “deemed income” in the hands of the recipient even if the actual recipient happens to be a person different from the original transferor by reason of death, etc. For this purpose, the cost of acquisition in the hands of the receiver of the additional compensation is deemed to be nil. However, the compensation awarded in the first instance would continue to be chargeable as income under the head “capital gains”, in the previous year in which the transfer took place - addition made by AO was in accordance with law i.e. Section 45(5) of the Act – Decided in favour of Revenue. - Income Tax Appeal No. 171/2001 - - - Dated:- 18-7-2014 - Sanjiv Khanna And V. Kameswar Rao,JJ. For the Petitioner : Mr. Balbir Singh, Sr. Standing Counsel with Mr. Abhishek Singh Baghel, Advocates. For the Respondents : Coram ORDER Sanjiv Khanna, J. (Oral): This appeal by the Revenue under Section 260A of the Income Tax Act, 1961, (Act, for short) pertains to assessment year 1988-99. By order dated 9th January, 2002, the following substantial questions of law were admitted for adjudication:- (A) Whether the amoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome Tax Vs. Hindustan Housing and Land Development Trust, (1986) 161 ITR 524 (SC) cannot apply in view of the provisions of newly enacted Section 45(5) inserted with effect from 1st April, 1988. He accordingly computed the total taxable income as ₹ 67,71,560/-. 3. The respondent-assessee did not succeed in the first appeal, but the Tribunal by the impugned order dated 25th September, 2000 accepted the assessee s contention that ₹ 72,80,752/- was not taxable in the year in question, inter alia, relying upon an earlier order dated 23rd July, 1998, passed in the case of K.K. Kochhar. Copy of this order dated 23rd July, 1998 has been placed on record. The said order takes note of the decision of the Delhi High Court in the case of Harish Chander, 154 ITR 473 and CIT Vs. Devki Nand, 138 ITR 225 and it was held that Section 45(5) would not be applicable as the money had been paid on furnishing of bank guarantee etc. 4. The issue in question is in fact covered by the decision of the Supreme Court in Commissioner of Income Tax Vs. Ghanshyam (HUF), [2009] 315 ITR 1. In the said decision, the Supreme Court noticed the object, purpose and why Section 45(5) was enacted with e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompensation by different courts often resulted in mistakes in computation of tax. Therefore, with a view to remove these difficulties, the Finance Act, 1987 inserted Section 45(5) to provide for taxation of additional compensation in the year of receipt instead of in the year of transfer of the capital asset. Accordingly, additional compensation is treated as deemed income in the hands of the recipient even if the actual recipient happens to be a person different from the original transferor by reason of death, etc. For this purpose, the cost of acquisition in the hands of the receiver of the additional compensation is deemed to be nil. However, the compensation awarded in the first instance would continue to be chargeable as income under the head capital gains , in the previous year in which the transfer took place. At this stage, it may be noted, that, Section 45(1) stood further amended (w.e.f. 1-4-1991) so as to include reference to Section 54-H and Section 45(5)(a) which, as stated above, stood amended (w.e.f. 1-4-1988). The scope and effect of the above amendments made in Section 45, as also insertion of Section 54-H, by the Finance Act, 1991, has been elaborated in the fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the appeal, the State Government deposited in the Court ₹ 7,36,691 being the additional amount payable under the award and the assessee was permitted to withdraw that additional amount on furnishing a security bond for refunding the amount in the event of the said appeal being allowed. On receiving the amount, the assessee credited it in its suspense account on the same date. The question was: whether the additional amount of ₹ 7,24,914 could be taxed as income on the ground that it became payable pursuant to the award of the arbitrator. The Tribunal held that the amount did not accrue to the assessee as its income and was, therefore, not taxable in Assessment Year 1956-1957. The financial year in which the additional amount came to be withdrawn ended on 31-3-1956. It was held by this Court that although the award was made on 29-7-1955, enhancing the amount of compensation payable to the assessee, the entire amount was in dispute in the appeal filed by the State. Therefore, there was no absolute right to receive the amount at that stage. It was held that if the appeal was to be allowed in its entirety, the right to payment of enhanced compensation would have fallen al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal amount @ 12% 5,52,902 Interest u/s 28 53,55,190 Taxable income 67,71,557 Rounded off ₹ 67,71,560 9. Whether or not the solatium, addition in the amount at rate of 12 p.a and interest u/s 28 of Land Acquisition Act, 1894 was/is compensation, has been also answered. Referring to section 45(5) of the act, in Ghanshyam (supra) it has been observed:- 33. It is to answer the above questions that we have analysed the provisions of sections 23, 23(1A), 23(2), 28 and 34 of the 1894 Act. As discussed hereinabove, section 23(1A) provides for additional amount. It takes care of increase in the value at the rate of 12 per cent. per annum. Similarly, under section 23(2) of the 1894 Act, there is a provision for solatium which also represents part of enhanced compensation. Similarly, section 28 empowers the court in its discretion to award interest on the excess amount of compensation over and above what is awarded by the Collector. It includes additional amount under section 23(1A) and solatium under section 23(2) of the said Act. Section 28 of the 1894 Act applies only in respect of the excess amount determined by the court after reference under section 18 of the 1894 Act. It ..... X X X X Extracts X X X X X X X X Extracts X X X X
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