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TMI Blog2018 (10) TMI 1984X X X X Extracts X X X X X X X X Extracts X X X X ..... ed as part of compensation exempt from tax, we hereby hold that the order passed by the Assessing Officer cannot be held to be erroneous so far as it is prejudicial to the interests of revenue. The order passed by the Ld. PCIT under section 263 is therefore quashed. Appeal of assessee allowed. X X X X Extracts X X X X X X X X Extracts X X X X ..... ovindbhai Mamaiya (dated 4.9.2014) iii) C.A. No, 13053/2017 CIT vs. Chet Ram (HUF) (dated 12.9.2017) iv) C.A. No. 15041/2017 Union of India and ORS vs. Hari Singh and ORS v) C.A. No. 18475/2017 Income Tax Officer TDS-2 Rajkot vs. Muktanandgiri Maheshgiri 3.2 That the learned Principal Commissioner of Income Tax has further erred both in law and on fact in invoking section 56(2)(vii) read with section 57(iv) of the Act to make the impugned addition. It is therefore prayed that, impugned order made under section 263(1) of the Act dated 26.2.2018 be held to be without jurisdiction and, therefore be quashed and appeal of the appellant be allowed. Furthermore addition so made be deleted and appeal of the appellant be allowed. 3. The order of the Ld. Pr. CIT passed under section 263 giving the facts of the case amendment in the Section 56, case laws relied on, and the rationale of the decision is reproduced below: Return declaring an income of Rs. 4,66,040/- plus agri. Income at Rs. 2,00,000/was filed by assessee on 29.03.2014 for the Assessment Year 2013-14. Apart from it, assessee has also shown the exempt income of Rs. 1,61,14,384/- in Schedule El of the Income-tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ount of compensation or enhanced compensation is eligible to tax as "Income from Other Sources" after allowing deduction of a sum equal to 50% of such income in the year of receipt. 2.4 In view of the above, the interest of Rs. 75,60,310/- received by assessee during the year under consideration u/s 28 of the L.A. Act, 1894 on compensation/enhanced compensation is taxable as income from other sources, after deduction @ 50% of the said interest. However, the A.O. has failed to tax the same in the assessment order under section 143(3). Such failure on the part of the A.O prima facie renders the assessment order erroneous in so far as it is prejudicial to the interest of revenue and the same is, therefore, required to be modified/cancelled u/s 263 of the Act. Therefore, show cause notice was issued to the assesseee on 01.02.2018 as to why an appropriate order under section 263(1) should not be passed. 3. In response thereto, Sh. S.K. Jain, CA and AR of the assessee appeared and filed written submission as under :- 3.1 That assessee has furnished return of income on 29.03.2014 declaring an income of Rs. 4,66,040/- and agriculture income of Rs. 2,00,000/- for the inst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evident from the impugned notice it has not been alleged that the claim has been allowed without examination of the issue. It is thus neither a case of lack of enquiry by the Assessing Officer or inadequate enquiry during the proceedings. Infact in the objection u/s 147 of the Act assessee had objected to reopening of the assessment on the ground that since issue has been examined and allowed u/s 143(3) of the Act as the issue is squarely covered by the judgments of Hon'ble Apex Court. 6 It is next submitted that when the reasons recorded for reopening the assessment were the very same reasons for which notice u/s 263 of the Act then invocation of section 263 of the Act is not tenable. It is submitted that in support of the above submission assessee seeks to place reliance on following judgements: i) 2 taxmann.com 260 (Del.) CIT vs. Suresh Paul Bansal ii) 287ITR 286 (Del) CIT vs. Vikram Aditya and Associated iii) ITA 170/2017 (Del) CIT vs. Prudent Advisory Services (P) Ltd. 7 That in the impugned notice it has been alleged that element of interest awarded by the Court on enhanced compensation u/s 28 of the Land Acquisition Act, 1894 falls for taxation u/s 56 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... makes the arrear of interest computed on delayed or enhanced compensation shall be taxable in the year of receipt, which does not have any effect on the binding decision of Apex court in the case of CIT Vs. Ghanshyam Dass (HUF) reported in 315 ITR 1 further affirmed in CIT vs. Govindbhai Mamaiya reported in 367 ITR 498 (SC) wherein it has been held that the interest earned under Section 28 of Land Acquisition Act, which is on enhanced compensation, is treated as a accretion to the value and therefore, part of the enhanced compensation. 8.2 In view of the aforesaid it is thus submitted that claim of the assessee is in accordance with law. 4. I have carefully considered the submission of the AR of the assessee. The AR of the assessee relied heavily on the decision of Hon'ble Apex High Court in the case of Ghanshyam HUF (Supra) dated 16.07.2009. In this context, subsequent to the above decision, the following 3 (three) amended provisions of Income Tax Act, 1961 were introduced by the Finance Act, 2009 w.e.f. 01.04.2010 :- 1. Clause (viii) of sub-section 2 of Section 56: "Income by way of interest received on compensation or on enhanced compensation referred to in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uisition and has to be reckoned as part of the market value of the land.' The learned counsel for respondents submitted that as this court has treated additional amount under Section 23(1 A) as part of the market value, additional amount is payable on the solatium. There is no logic in the contention as the decision nowhere holds that solatium is part of market value nor holds that additional amount under Section 23(1 A) is payable on the solatium amount. Be that as it may. More importantly, what requires to be noticed is that the entire consideration and analysis in that decision was with reference to the question whether solatium, additional amount and interest are part of 'enhanced compensation' for the purposes of Section 45(5) (b) of the Income Tax Act, 1961. The observations therein should be understood in the context of the provisions of the Income Tax Act. For example the decision also holds that interest payable under Section 28 of the Act is 'enhanced compensation' for the purposes of Section 45(5) (b) of Income Tax Act, which if taken as the interpretation with reference to the Land Acquisition Act, 1894, will be contrary to the Constitution bench ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roperty under the Acquisition Act would not be eligible to income-tax? It is seen that this Court has consistently taken the view that it is a revenue receipt. The amended definition of "interest" was not intended to exclude the revenue receipt of interest on delayed payment of compensation from taxability. Once it is construed to be a revenue receipt, necessarily, unless there is an exemption under the appropriate provisions of the Act, the revenue receipt is exigible to tax. The amendment is only to bring within its tax net, income received from the transaction covered under the definition of interest. It would mean that the interest received as income on the delayed payment of the compensation determined under Section 28 or 31 of the Acquisition Act is a taxable event." (ii) Hon'ble Apex Court in its three judge bench in the case of Dr. Sham Lai Narula (supra) held : Therefore, the interest awarded under s. 28 of the Act, just like under s. 34 thereof, cannot be a compensation or damages for the loss of the right to retain possession but only compensation payable by the State for keeping back the amount payable to the owner." 7. In view of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erest' means interest payable in any manner in respect of any moneys borrowed or debt incurred (including a deposit, claim or other similar right or obligation) and includes any service fee or other charge in respect of the moneys borrowed or debt incurred or in respect of any credit facility which has not been utilised." The expression 'interest' occurring in sub-section (28A) of Section 2 of the Act widens the scope of the term 'interest' for the purposes of the Act. 14. Another three Judges bench of the Apex Court in Bikram Singh vs. Land Acquisition Collector, (1997) 224 ITR 551 following Dr. Shamlal Narula's case (supra) and taking into consideration definition of "interestln Section 2(28A) of the Act had recorded that interest under Section 28 of the 1894 Act was a revenue receipt and is taxable. It was held as under:- "The controversy is no longer res integra. This question was considered elaborately by this Court in Dr. Shamlal Narula vs.Commissioner of Income-tax, Jammu [51 ITR 151]. Therein, K. Subba Rao, J., as he then was, considered the earlier case law on the concept of "interest" laid down by the Privy Coun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the revenue receipt of interest on delayed payment of compensation from taxability. Once it is construed to be a revenue receipt, necessarily, unless there is an exemption under the appropriate provisions of the Act, the revenue receipt is exigible to tax. The amendment is only to bring within its tax net, income received from the transaction covered under the definition of interest. It would mean that the interest received as income on the delayed payment of the compensation determined under Section 28 or 31 of the Acquisition Act is a taxable event." 15. Now, we advert to the judgment of the Apex Court in Ghanshyam (HUF)'s case (supra) on the basis of which learned counsel for the assessee had sought reconsideration of judgment of this Court in CIT v.Bir Singh, ITA No. 209 of 2004 decided on 27.10.2010 where Division Bench of this Court has held that element of interest awarded by the court on enhanced amount of compensation under Section 28 of the 1894 Act falls for taxation under Section 56 as 'income from other sources' in the year of receipt. 16. The reliance was placed upon following observations in Ghanshyam (HUF)'s case (supra):- "To sum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 100/HYD/2016 07.12.2016 Smt. P. Susheela vs. ITO, (xiv) 83 taxmann.com 304 dated 21.04.2017 DCIT vs. Dinesh Sharmaare also not sustainable in view of the decision of Hon'ble Punjab & Haryana High Court in the case of Naresh Kumar Jain & others Vs. State of Haryana and others in CWP No. 14728 of 20T7 dated 12.07.2017. In all the above decisions relied upon by the AR, the judgement in Ghanshyam HUF (Supra) case was followed, for the reason of which the above judgements would be of no advantage on the issue of taxability of interest on enhanced compensation as held by Hon'ble Punjab & Haryana High Court in Naresh Kumar Jain & others (Supra) as under:- "9. In view of the above and also the amendments made by the Finance (No. 2) Act, 2009 w.e.f. 1.4.2010 noticed hereinbefore, no advantage can be derived by the petitioners from the judgment in Ghanshyam's case (supra). 10.Similarly, the judgment in Govindbhai Mamaiya's case (supra) relied upon the by the learned counsel would be of no help to the petitioners as in the said case, the judgment in Ghanshyam's case (supra) was followed. 11. Examining the issue of taxability of interest under Section 28 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion Act, 1894 (for brevity, "1894 Act") on enhanced amount of compensation in respect of the acquired land falls for taxation under Section 56 of the Act as "income from other sources"and is exigible to tax in the year of receipt under cash system of accountancy. It had also been observed that where the assessee is not maintaining books of accounts by adopting any specific method, it shall be treated to be cash system of accountancy. In the present case, the interest received by the petitioner was on account of delay in making the payment of enhanced compensation and, therefore, would fall under Section 28 of the 1894 Act. Such payment could not par-take the character of compensation for acquisition of agricultural land and, thus, was not exempt under the Act. Once that was so, the tax at source had been rightly deducted by the payer." 14. In view of the above, the tax at source has been rightly deducted and the petitioners can claim the refund, if any, admissible to them by filing the income tax returns in accordance with law." 10. As against the provisions of Section 56(2)(viii) read with Section 57 (iv) and Section 145A(b) and the judicial po ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ainable. As in the assessment made u/s 143(3), the AO erroneously allowed the exemption u/s 10(37) to the assessee on the basis of decision in the case of Ghanshyam (supra), therefore, the AO initiated proceedings u/s 147 which was dropped subsequently after objection by the assessee. As AO was of the view that issue could not be resolved u/s 147, therefore, proposal was sent for revision u/s 263 of the Income Tax Act, 1961. Although the proposal was received from the AO, the notice u/s 263(1) was issued by the undersigned after examining the record and after being satisfied that the assessment order u/s 143(3) passed by the AO is prima facie erroneous in so far as it is prejudicial to the interest of revenue and it is a fit case to issue notice u/s 263. There is no provision under the Income Tax Act, 1961 which prohibits initiation of proceedings u/s 263 on the basis of proposal from the AO. There is also no provision under the Income Tax Act, 1961 that prohibits action u/s 263 after dropping the proceedings u/s 147 of the Income Tax Act, 1961. In this context, it is not material whether AO could have proceeded to complete the assessment u/s 143(3)/147 instead of dropping the proc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 75,60,310/-, to the assessed income of the assessee. 4. The Ld. Pr. CIT relied on the following for passing of order under section 263. i. The assessment record ii. Judgment of Hon'ble Punjab & Haryana High Court in the case of Manjit Singh(HUF) CWP 15006/2015 iii. Amended provisions of Income Tax Act,1961, introduced by Finance (No.2) Act, 2009 as clause (viii) in sub section2 of section 56, clause (iv) in Section 57 and Clause(b) in Section 145A inserted w.e.f 01/04/2010. iv. Tried to differentiate the Apex Court judgment in the case of Ghanshyam (HUF) with reference to Section 28 and 34. v. Relied on pronouncement of Apex Court in the case of Shyam Lal Narula Vs. CIT, Bikram Singh Vs. Land Acquisition Collector(LAC), Rama Bhai Vs. CIT, K.S. Krishna Rao Vs. CIT vi. Explanation 2 of Section 263 of Income Tax Act,1961. This similar issue has been dealt in number of cases by this Tribunal after following the developments over the period of time. The various cases are as under: 5. The Tribunal after considering all the case laws mentioned above by the Ld. Pr. CIT and also by the AR before the Ld. Pr. CIT has held that the interest received on enhanced compe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ghanshyam (HUF) (supra) or is to be taxed on the basis of apportionment for each year from the date of acquisition of lands till the receipt of the compensation in the light of the decision of the Hon'ble Supreme Court in the case of Rama Bai (supra); the second issue involved is as to whether the interest awarded u/s 28 of the Land Acquisition Act on enhanced compensation is to be treated as part of the enhanced compensation and will not be taxable separately as interest income under the Head 'income from other sources'? 14. We find that both these issues are covered by the aforesaid decision of the Hon'ble Supreme Court in the case of Ghanshyam (HUF) (supra) holding the same to be in the nature of compensation itself. The Court also dealt with the other aspect namely, the year of tax and answered this question by holding that it has to be tested on receipt basis, which means it would be taxed in the year in which it is received. The said findings given in the case of Ghanshyam (HUF) (supra) have been reiterated by the Hon'ble Supreme Court in the case of Govindbhai Mamaiya (supra) observing as under: "In so far as the second question is concerned, that is also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a part of income subject to tax, the interest earned under Section 28, which is on enhanced compensation, is treated as a accretion to the value and therefore, part of the enhanced compensation or consideration making it exigible to tax. After holding that interest on enhanced compensation under Section 28 of 1894 Act is taxable, the Court dealt with the other aspect namely, the year of tax and answered this question by holding that it has to be tested on receipt basis, which means it would be taxed in the year in which it is received. It would mean that converse position i.e. spread over of this interest on accrual basis is not permissible." 15. The Ld. counsel for assessee has further brought our attention the latest decision of the Hon'ble Supreme Court in the case of CIT Vs. Chet Ram (HUF) dated 12.9.2017 in Civil Appeal No.13053/2017 wherein also the Hon'ble Supreme Court has again reiterated the proposition laid down in the case of Ghanshyam (HUF) (supra), which we find has been further reiterated in the case of Union of India vs. Hari Singh & others in Civil Appeal No. 1504 of 2017 dated 15.9.2017, as under: "(2) While determining as to whether the compensation ..... X X X X Extracts X X X X X X X X Extracts X X X X
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