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TMI Blog2025 (3) TMI 524X X X X Extracts X X X X X X X X Extracts X X X X ..... - SUPREME COURT] As a necessary corollary, therefore, the payment made u/s. 28 of the 1894 Act is interest as envisaged u/s. 145A and cannot be treated as income from other sources. Appeal of the assessee is hereby allowed. X X X X Extracts X X X X X X X X Extracts X X X X ..... TAT Bengaluru in the case of Lakshmama (113 taxmann.com 572), following the decision of Hon'ble Jurisdictional High Court in the case of Movaliya Bhikhubhai Balabhai, wherein it was held that the interest received on enhanced compensation u/s 28 of Land Acquisition Act, 1984 is eligible for exemption u/s 10(37) of the Act. 7. The Ld. DR, on the other hand relied upon the orders of the authorities below and submitted that Section 10(37) of the Act envisages exemption for income which are chargebale under the head 'capital gains' and the interest income is chargeable under the head 'income from other sources; therefore, the exemption provided in Section 10(37) of the Act is not applicable in assessee's case. The arguments of the Ld. DR in writing are as under:- Sub: submission in case of Balvantbhai Gopalbhai Patel AJPPP2634R, AY2018-19- reg. Ref: hearing held on 19.12.2024 in ITA 1523/AHM/2024 Written submission from the Revenue is as under: 1. The solitary question which arises in the instant case is whether the interest on enhanced compensation received by her partakes the character of income from other sources under section 56(2)(viii), to be considered as separable from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agricultural land or otherwise and whether deduction of tax at source was permissible under any provision of law. 3.1. Rebuttal: Case lav; is not applicable in this case. The Hon'ble SC held as under: -it is Assessing Officer who has to come to conclusion whether land is agricultural land or not. Further held- thus, where Land Acquisition Collector while disbursing compensation, had deducted tax at source and deposited same with Income Tax Department, better course of action, which was in consonance with provisions of Act, for assessee should have been to approach concerned Assessing Officer(s) and raise issue that no tax was payable on compensation/enhanced compensation received by them as their land was agricultural land. 3.2. The cited decision pertains to TDS on compensation. The Hon'ble SC has clearly held that taxability of compensation rest with the Income Tax Department/AO. Therefore, the cited decision can not rescue her from rigour of Sec 56(2)(vii) r.ws 57(iv) of the Act as amended by Finance Act 2009 w.e.f 01.04.2010. 4. Analysis of Land Acquisition Act: It is significant to refer to Sections 28 and 34 of the Act of 1894, which deal with the payment of inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the excess amount under Section 28 of the 1894 Act depends upon a claim by the person whose land is acquired whereas interest under Section 34 is for the delay in making payment. This vital difference needs to be kept in mind in deciding this matter. Interest under Section 28 is part of the amount of compensation whereas interest under Section 34 is only for delay in making payment after the compensation amount is determined. Interest under Section 28 is a part of enhanced value of the land which is not the case in the matter of payment of interest under Section 34." 4.4. Amendment w.e.f. 01.04.2010 u/s 56 of the Act: However, vide Finance (No.2) Act, 2009 (with effect from 01.10.2010), Clause (viii) of sub-Section 2 to Section 56 of the Act was inserted and the same is extracted hereunder as:- "56. Income from other sources.- *** (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:- [(viii) income by way of interest received on compensation or on enhanced compensation referred to in [sub-section (1) of Section 145- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payable to the owner. 4.7. The decision in Sham Lal Narula(supra) was followed by the Hon'ble Supreme Court in the case of Bikram Singh v. Land Acquisition Collector [(1997) 10 SCC 243], wherein, it was held that interest under Section 28 of the Act of 1894 was in the nature of a revenue receipt and hence, the same was considered to be taxable. 4.8. In the case of Puneet Singh(supra), the High Court of Punjab and Haryana, while enunciating the effect of Section 145A(b) and Section 56(2)( w/7) of the Act, has held as under:- "19. The cumulative effect of section 145A(b) and section 56(2)(v7/7) would be that any interest received on compensation or on enhanced compensation shall be taxable under the head "Income from other sources" in the year of receipt. 20. However, by section 27 of the 2009 Act, a new clause (iv) in section 57 has been inserted with effect from April 1, 2010 whichlays down that in the case of income of the nature referred to in section 56(2) (viii), a deduction of a sum equal to 50 per cent, of such income would be allowable thereunder and no deduction would be allowed under any other clause of section 57. The said provision reads thus: "57. Deducti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed on said compensation as exempt - Assessing Officer completed assessment under section 143(3) and allowed assesses's claim - Subsequently Pr. Commissioner invoked revisionary power under section 263 on ground that Assessing Officer failed to do necessary inquiry about taxability of interest on enhanced compensation and passed order not in accordance with binding decision of Court in Mahender Pal Narang v. CBDT[2020] 120 taxmann.com 400/275 Taxman 222/423 ITR 13 (Punjab & Haryana) - He held that said interest should be treated as 'income from other sources' in view of amended provisions of section 56(2)(viii) by Finance Act, 2009 - Whether since impugned assessment order was passed on 11-2-2021, In view of amended provisions of section 56(2)(vlii) by Finance Act, 2009 w.e.f 1-4-2010, order of Principal Commissioner passed under section 263 could not be Interfered - Held, yes [Paras 18 and 26] [In favour of revenue] 8. Prayer: The 2010 amendment was a conscious departure by the Legislature from the earlier position and the said departure holds good law, as on date. There is no question with respect to the vires of the amendment or regarding any ambiguity in the lang ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cluding the interest on enhanced compensation. The AO held that the receipt of interest must be treated as income chargeable to tax under Section 56(2)(viii) of the Act and therefore, it allowed the statutory deduction of 50% of the interest income under Section 57(iv) of the Act. Accordingly, an amount of Rs. 4,01,06,580/- was added to the taxable income of the respondent-assessee and vide assessment order dated 23.12.2018, the total income of the respondent-assessee was assessed to be Rs. 4,04,15,500/-. On appeal, the CIT(A) found that since Section 56 of the Act was amended by the Finance (No.2) Act, 2009, which led to the introduction of Section 56(2)(viii) of the Act with effect from 01.04.2010, therefore, the decision relied upon by the respondent-assessee herein was not applicable as the same pertained to the year prior to the said amendment. While relying upon the judgment of the Supreme Court in the case of Ghanshyam, the ITAT drew an equivalence between the interest received under Section 28 of the 1894 Act and the enhanced compensation. It was further held that since the interest amounts to accretion to the value of compensation, therefore, the same must be treated a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atio of the decision of the Hon'ble Supreme Court in the case of Rama Bai (supra) and held that the interest received by the assessee's on the enhanced compensation was to be proportionately al located to different assessment years as having accrued year after year from the date of delivery of possession of the lands till the date of such order. The Assessing Officer observed that the lands of the assessee's were acquired in the year 2005, whereas the interest on the enhanced compensation had been received in the year 2008. He, therefore, calculated the proportionate interest pertaining to each assessment year and added the same as taxable receipt under the head 'other sources' and accordingly, added the proportionate amount of interest in the imp ugned years in the reopened assessment proceedings u/s 147 r.w.s. 143(3) of the Act. 7. Before the Ld.CIT (Appeals), the assessee relied upon the decision of the Hon'ble Supreme Court in the case of CIT Vs. Ghanshyam (HUF) (2009) 315 ITR 1 (SC) and contended that as per the ratio laid down in the said decision the interest received u/s 28 of the Land Acquisition Act, 1894 does not partake the character of interest, rathe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (supra). He, therefore, vide the impugned order passed u/s 154 of the Act held that the interest received by the assessee on enhanced compensation on account of acquisition of land was taxable as 'income from other sources'. He, therefore, confirmed the additions made by the Assessing Officer passed in the reopened assessment proceedings carried out u/s 147 r.w.s. 143(3) of the Act. 10. Now the assessee has come up in appeal before us agitating the above orders passed by the CIT(Appeals) u/s 154 of the Act. 11. We have heard the rival content ions. It is pertinent to note here that interest under the Land Acquisition Act can be awarded under sect ion 28 or/and under sect ion 34 of the Land Acquisition Act, 1894. Interest awarded under sect ion 28 of Land acquisition Act, 1894 is the interest on the excess amount of compensation awarded by the court over the amount awarded by the collector. It is awarded by the Court payable by the collector from the date on which the collector took the possession of the land to the date of payment of such excess into Court. Whereas interest under sect ion 34 of the Land Acquisition Act, 1894 is given when the amount of compensation awar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ings 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 covered by another judgment of this Court in Commissioner of Income Tax, Faridabad vs. Ghanshyam (HUF) reported in (2009) 8 SCC 412, 6 albeit, in favour of the Revenue. In that case, the court drew distinction between the "interest" earned under Section 28 of the Land Acquisition Act and the "interest" which is under Section 34 of the said Act. The Court clarified that whereas compensation given to the assessee of the land acquired would be 'income', the enhanced compensation/consideration becomes income by virtue of Section 45(5)(b) of the Income Tax Act. The question was whether it will cover "interest" and if so, what would be the year of taxability. The position in this respect is explained in paras 49 and 50 of the judgment which make the following reading: "49. As discussed hereinabove, Section 23(1-A) provides for additional amount. It takes care of the increase in the value at the rate of 12% per annum. Similarly, under Section 23(2) of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... am (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 paid was for agricultural land or not, the Assessing Officer(s) will keep in mind the provisions of Section 28 of the Land Acquisition Act and the law laid down by this Court in 'Commissioner of Income Tax, Faridabad v. Ghanshyam (HUF)' [2009 (8) SCC 412] in order to ascertain whether the interest given under the said provision amounts to compensation or not." The said decision as rightly pointed out by the Ld. counsel for assessee have been rendered by the Hon'ble Apex Court subsequent to the decision passed by the Hon'ble Jurisdictional High Court in the case of Manjeet Singh(HUF) (supra) which had dealt with the decisions of the Hon'ble Apex Court in Ghanshyam, HUF (supra). Therefore, in view of the same, the proposition laid down in Ghanshyam, HUF (supra) remains and which having been laid down by the Hon'ble Apex Court is the law of the land and has to be followed by all lower authorities. In view of the above, we hold that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the 1961 Act forms part of enhanced compensation under section 45(5)(b) of the 1961 Act. In fact, what we have stated hereinabove is reinforced by the newly inserted clause (c) in section 45(5) by the Finance Act, 2003 with effect from 1-4-2004." * The order in the case of Manjit Sing h (HUF) has been considered in the case of Ghanshyam (HUF). * The order in the case Hari Singh & Others in CA No.1504/2017 dated 15.09.2007 - held - While determining as to whether the compensation paid was for agricultural land or not, the Assessing Officer(s) will keep in mind the provisions of Section 28 of the Land Acquisition Act and the law laid down by this Court in CIT v. Ghanshyam (HUF) [2009] 182 Taxman 368/315 ITR 1 (SC) in order to ascertain whether the interest given under the said provision amounts to compensation or not. * The order in the case Govindbhai Mamaiya 367 ITR 498 (SC) dated 04.09.2014 - Reiterated that "it is equally true that Section 45(5) of the 1961 Act refers to compensation. But as discussed hereinabove, we have to go by the provisions of the 1894 Act which awards "interest" both as an accretion in the value of the lands acquired and interest for undue delay. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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