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TMI Blog2018 (9) TMI 342X X X X Extracts X X X X X X X X Extracts X X X X ..... co-owner who held 1/5th share in the land acquired by the Govt. Aggrieved by the award as originally passed awarding compensation for the land acquired by the Govt., the co-owners had filed a reference for enhanced compensation. The SLAO, Bagalkot vide order dated 23.06.2012 awarded enhanced compensation and interest which was paid on 18.05.2012. The details of enhanced compensation and interest on enhanced compensation awarded is as follows:- [in Rs.] [in Rs.] Assessee's share (1/5th) [in Rs.] Total enhanced compensation received 3,14,97,643 62,99,529 9% interest for one year 28,34,788 15% interest for the rest of the period 4,36,01,501 Total interest received 4,64,36,289 92,87,258 Total amount received 7,79,33,932 1,55,86,786 4. The question is with regard to taxability of a sum of Rs. 92,87,258 which each of the assesses received as interest on enhanced compensation. Under the provisions of section 10(37) of the Income-Tax Act, 1961 ["the Act"] enhanced compensation received on acquisition of agricultural lands is exempt. The provisions of section 10(37) of the Act reads as follows:- "Sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otal income under this Act shall be chargeable to income-tax under the head "Income from other sources", if it is not chargeable to income-tax under any of the heads specified in section 14, items A to E. (2) In particular, and without prejudice to the generality of the provisions of sub-section (1), the following incomes, shall be chargeable to income-tax under the head "Income from other sources", namely :- (i) .......................... to (vii) .......................... (viii) income by way of interest received on compensation or on enhanced compensation referred to in clause (b) of section 145A;" Method of accounting in certain cases. "145A. Notwithstanding anything to the contrary contained in section 145,- (a) .................. (b) interest received by an assessee on compensation or on enhanced compensation, as the case may be, shall be deemed to be the income of the year in which it is received." 6. The AO rejected the claim of exemption u/s. 10(37) of the Act and held that interest is chargeable to tax in the year of receipt, irrespective of the period for which the interest is calculated. The following were the relevant observations of the AO:- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urces after allowing deduction of 50% u/s. 57(iv) of the Act. The following were the relevant observations of the CIT(Appeals):- "8.1 From the facts it is observed that interest received of Rs. 90,37,666/- is under section 28 of Land Acquisition Act, 1894 out of total interest received of Rs. 92,87,258/-. Interest received under section 28 is eligible for exemption under section 10(37) of Income-tax Act, as discussed in above paras. Assessing Officer is directed to allow the interest received under section 28 of Land Acquisition Act at par with enhanced compensation and allow exemption u/s 10(37) of Income-tax Act, 1961. The balance interest of Rs. 2,49,592/- (Rs.92,87,258 / minus Rs. 90,37,666/-) is to be treated as income from other sources and be taxed after allowing 50% of deduction u/s 57 of Income-tax Act,1961. The Assessing Officer is directed to work out taxable income accordingly." 9. Aggrieved by the aforesaid orders of the CIT(Appeals), the revenue has preferred the present appeals before the Tribunal. 10. We have heard the submissions of the ld. DR, who relied upon the order of the AO. We have considered the submissions of the ld. DR. It is not disputed by the AO t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and 145A(b) of the Act. The Hon'ble Gujarat High Court held that interest under section 28 of the Act of 1894 is an accretion to compensation and forms part of the compensation and, therefore, exigible to tax under section 45(5) of the Act. In coming to the aforesaid conclusion, the Hon'ble Gujarat High Court followed the decision of Hon'ble Supreme Court in the case of CIT v. Ghanshyam (HUF) [2009] 182 Taxman 368, wherein it was held that interest under section 28 of the Act of 1894 is part of the amount of compensation whereas interest under section 34 thereof is only for delay in making payment after the compensation amount is determined. Interest under section 28 is a part of the enhanced value of the land which is not the case in the matter of payment of interest under section 34. On the applicability of the provisions of Sec.57(iv) read with 56(2)(viii) and Sec.145A(b) of the Act, the Hon'ble Gujarat High Court held :- "Section 145A of the I.T. bears the heading "Method of accounting in certain cases". Section 145A(b) provides that notwithstanding anything to the contrary contained in section 145, interest received by an assessee on compensation or on enhanced compensation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome from other sources", shall be computed in accordance with either cash or mercantile system of accounting regularly employed by the assessee. Further the Hon'ble Supreme Court in the case of Smt. Rama Bai v. CIT (1990) 84 CTR (SC) 164 : (1990) 181 ITR 400 (SC) has held that arrears of interest computed on delayed or enhanced compensation shall be taxable on accrual basis. This has caused undue hardship to the taxpayers. 46.2 With a view to mitigate the hardship, section 145A is amended to provide that the interest received by an assessee on compensation or enhanced compensation shall be deemed to be his income for the year in which it was received, irrespective of the method of accounting followed by the assessee. 46.3 Further, clause (viii) is inserted in sub-section (2) of the section 56 so as to provide that income by way of interest received on compensation or enhanced compensation referred to in clause (b) of section 145A shall be assessed as "income from other sources" in the year in which it is received. 46.4 Applicability. - This amendment has been made applicable with effect from 1st April, 2010, and it will accordingly apply in relation to assessment yea ..... X X X X Extracts X X X X X X X X Extracts X X X X
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