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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 ..... ed on behalf of the respondent at the time of hearing. We therefore proceed to decide the appeals after hearing the submission of the ld. DR. 3. The facts under which this appeal arises for consideration are as follows. An extent of 5 acres 26 guntas in Sy.No.11/1 at Haveli, Bagalkot was compulsorily acquired by the Special Land Acquisition Officer [hereinafter referred to as the SLAO ], Bagalkot under the provisions of the Land Acquisition Act, 1894 vide Notification dated 29.07.2000. There were five co-owners of the land so acquired. The assessee is a 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 recei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s claimed that interest received by them is nothing but compensation and therefore even for the interest portion received, exemption u/s. 10(37) of the Act is applicable. The AO, however, was of the view that interest on enhanced compensation was chargeable to tax under the provisions of section 57(iv) r.w.s. 56(2)(viii) r.w.s. 145A(b) of the Act. These provisions read as follows:- Deductions. 57. The income chargeable under the head Income from other sources shall be computed after making the following deductions, namely :- ( i) .. ( ii) ( iii) . ( iv) in the case of income of the nature referred to in clause (viii) of sub-section (2) of section 56, a deduction of a sum equal to fifty per cent of such income and no deduction shall be allowed under any other clause of this section. Income from other sources. 56. ( 1) Income of every kind which is not to be excluded from the total 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 par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7. Aggrieved by the order of the AO, the assessee preferred appeal before the CIT(Appeals). The contention of the assessee before the CIT(Appeals) was that interest on enhanced compensation awarded to the assessee was in terms of section 28 of the Land Acquisition Act, 1894 and such interest was in the nature of compensation falling within the ambit of section 10(37) of the Act. The assessee in support of its contention placed reliance on the decision of the Hon ble Gujarat High Court in the case of Movaliya Bhikhubhai Balabhai v. Income-tax Officer-TDS-1-Surat [2016] 70 taxmann.com 45 (Guj) . 8. The CIT(Appeals) accepted the plea of the assessee and held that interest to the extent of ₹ 90,37,666 which was interest awarded u/s. 28 of the Land Acquisition Act, 1894 partook the character of compensation for land acquired and fell within the ambit of section 10(37) of the Act and to that exempt was exempt. The remaining sum of ₹ 2,49,592 was brought to tax as income from other sources 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 rece ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tioner was calculated and in terms of the statement showing the amount of compensation to be deposited in the court, computed an amount of ₹ 20,74,157/- as payable to the petitioner by way of interest under section 28 of the Act of 1894. The petitioner made an application under section 197(1) of the Income Tax Act, 1961 (Act) for deciding the tax liability of interest and to issue a certificate as to NIL tax liability. The application was rejected on the ground that the interest amount on the delayed payment of compensation and enhanced value of compensation is taxable as per the provisions of section 57(iv) read with sections 56(2)(viii) and 145A(b) of the Act under the head income from other sources. Being aggrieved by such order, the Assessee filed writ petition before Hon ble Gujarat High Court. The question before the Court was whether interest awarded u/s.28 of the Act of 1894 is akin to compensation and chargeable to tax u/s.45(5) of the Act or under the head Income from other sources u/s.57(iv) read with Sec.56(2)(viii) 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 fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 2) Act, 2009 with effect from 1st April, 2010, and hence, would have no applicability cases pertaining to AY 2010-11 and afterwards. Such an argument was repelled by the Hon ble Gujarat High Court as follows: 11. It has been vehemently contended on behalf of the first respondent that the above decision has been rendered prior to the substitution of section 145A of the I.T. Act by Finance (No. 2) Act, 2009 with effect from 1st April, 2010, and hence, would have no applicability to the facts of the present case. The scope and effect of the substitution (with effect from 1st April, 2010) of section 145A, as also amendment made in section 56(2) by Act 33 of 2009 have been elaborated in the following portion of the departmental circular No. 5/2010, dated 3.6.2010, as follows: Rationalizing the provisions for taxation of interest received on delayed compensation or on enhanced compensation.- 46.1 The existing provisions of Income Tax Act, 1961, provide that income chargeable under the head Profits and gains of business or profession or Income from other sources , shall be computed in accordance with either cash or mercantile system of accounting regularly e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itioner is not liable to pay any tax under the head income from other sources on the interest paid to it under section 28 of the Act of 1894. 14. The petitioner had earlier challenged the communication dated 9th February, 2015 whereby its application for a certificate under section 197 of the I.T. Act had been rejected, and subsequently, tax on the interest payable under section 28 of the Act of 1894 has already been deducted at source. Consequently, the challenge to the above communication has become infructuous and hence, the prayer clause came to be modified. However, since the amount paid under section 28 of the Act of 1894 forms part of the compensation and not interest, the second respondent was not justified in deducting tax at source under section 194A of the I.T. Act in respect of such amount. The petitioner is, therefore, entitled to refund of the amount wrongly deducted under section 194A of the I.T. Act. 14. In the light of the aforesaid decision of the Hon ble Gujarat High Court and in the light of the admitted factual position in the present case, we are of the view that the CIT(Appeals) was fully justified in allowing exemption u/s. 10(37) of the Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X
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