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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 ..... he brief facts of the case are that, for the year under consideration, the assessee had received additional compensation against compulsory acquisition of agricultural land by the Government of Gujarat, along with interest component of Rs. 30,91,191/-. The assessee had claimed the entire amount received on account of enhanced compensation, which consisted of interest component, as exempt income u/s 10(37) of the Act. The Assessing Officer observed that, in view of the amended provisions of Section 145(B) of the Act with effect from 01.04.2017, the interest component is taxable u/s 56(2)(viii) of the Act; accordingly amount of Rs. 15,45,596/-, being 50% of the interest component of Rs. 30,91,191/- was brought to tax u/s 56(2)(viii) of the Act. Subsequently, assessment order was passed by the Assessing Officer u/s 143(3) r.w.s. 143(3A) & 143(3B) of the Act on 31.01.2021, determining the income of the assessee at Rs. 29,45,847/- by making addition of Rs. 15,45,596/- against the returned income of Rs. 14,00,251/-. 4. Aggrieved by the order of the Assessing Officer, the assessee preferred appeal before the Ld. CIT(A) who dismissed the appeal of the assessee. 5. Aggrieved by the order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as separable from the enhanced compensation. Thus, taxability of interest on enhanced compensation of Rs. 79,44,141 is to be examined u/s 56 of the Act. 1.1. AR of the Appellant has relied upon decision of Hon'ble Supreme Court in Ghanshyam HUF's and also relied upon accounting principles as held by the decision of Hon'ble Supreme Court in Rama Bal vs. CIT (1990) 181ITR 400. 1.2. Rebuttal: It is submitted that insertion of section 145A, 145B, 56(2)(viii) and 57(iv) by the Finance (No. 2) Act, 2009 has changed the character of Interest under section 28 of the Land Acquisition Act from 'capital receipt' forming part of enhanced compensation as envisaged in section 45(5) of the Act to 'revenue receipt' chargeable to tax as 'income from other sources'. CBDT Circular No. 5 dated 03.06.2010 reported in (2010) 324 ITR (St.) 293, it is stated that the Hon'ble Supreme Court in the case of Rama Bai Vs. CIT (supra) 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. With a view to mitigate the hardship section 145A has been substituted and clause (viii) in subsection (2) of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payment of interest on compensation, and read as under:- "28. Collector may be directed to pay interest on excess compensation.- If the sum which, in the opinion of the court, the Collector ought to have awarded as compensation is in excess of the sum which the Collector did award as compensation, the award of the Court may direct that the Collector shall pay interest on such excess at the rate of [nine per centum] per annum from the date on which he took possession of the land to the date of payment of such excess into Court." 4.1. Payment of interest.- When the amount of such compensation is not paid or deposited on or before taking possession of the land, the Collector shall pay the amount awarded with interest thereon at the rate of nine per centum per annum from the time of so taking possession until it shall have been so paid or deposited. Provided that if such compensation or any part thereof is not paid or deposited within a period of one year from the date on which possession is taken, interest at the rate of fifteen per centum per annum shall be payable from the date of expiry of the said period of one year on the amount of compensation of part thereof which has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) of Section 145-B].]" 4.5. For the sake of clarity, Section145-B of the Act is reproduced as under:- "[145-B. Taxability of certain income.-(1) Notwithstanding anything to the contrary contained in Section 145, the interest received by an assessee on any compensation or on enhanced compensation, as the case may be, shall be deemed to be the income of the previous year in which it is received. (2) Any claim for escalation of price in a contract or export incentives shall be deemed to be the income of the previous year in which reasonable certainty of its realisation is achieved. (3) The income referred to in sub-clause (xviii) of clause (24) of Section 2 shall be deemed to be the income of the previous year in which it is received, if not charged to income-tax in any earlier previous year]" A conjoint reading of the aforementioned provisions i.e., Sections 56(2)(w77) and 145-B of the Act vividly stipulate that the income received by way of interest on compensation or on enhanced compensation shall be chargeable to tax under the head "income from other sources'. Therefore, since the position with respect to the imposition of tax on interest on compensation or enhanced ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s: "57. Deductions.-The income chargeable under the head' Income from other sources' shall be computed after making the following deductions, namely :. . . (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." 5. [2024] 161 taxmann.com 301 (Delhi) [08-04-2024] The Hon'ble Delhi HC in IT Appeal NO. 769 OF 2023 CM APP.L 65057 OF 2023- in case of Principal Commissioner of Income Tax-10 v. Inderjit Singh Sodhi (HUF)decided the issue in favour of the Revenue on 08.04.2024: Held - Section 56 of the Income-tax Act, 1961, read with sections 28, 34 and 145 of the Land Acquisition Act, 1894 - Income from other sources - Interest, etc. (Interest on compensation) - Assessment year 2016-17 - Whether interest, whether on compensation or on enhanced compensation, received for acquisition of land under section 28 and 34 of Land Acquisition Act, 1894 shall be considered as income from other sources under section 56(2)(viii) and shall be exigible to income-tax - Held, yes [Paras 29 and 30] [In favour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... guity in the language of the amendment. The only concern is regarding the enunciation of the applicable law. It is unequivocally mean that interest, whether on compensation or on enhanced compensation, shall be considered as income from other sources and shall be exigible to income tax u/s 56(2)(vii) r.w.s 57(iv) of the Act. Vijay Kumar Mangla JCIT, Ahmedabad." 8. Heard both the parties and perused the material available on record. 9. We find that similar issue stands adjudicated by the order of the Hon'ble High Court of Delhi in the case of CIT Vs. Indrajit Singh Sodhi (HUF). The examination of the issue are as under:- The Delhi High Court has held that interest received on compensation or enhanced compensation shall be taxable under head "Income from other sources". The court set aside the order of the Income Tax Appellate Tribunal ( ITAT ). The revenue challenged the order passed by the Income Tax Appellate Tribunal [ "ITAT"], whereby, the ITAT deleted the addition made by the Assessing Officer [ "AO" ] under Section 56(2)(viii) of the Income Tax Act, 1961 [ "Act" ] for the assessee, Inderjit Singh Sodhi ( HUF ). The appeal involves an examination of the taxability of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... must be treated as a part of compensation. A division bench of Hon'ble High Court of Delhi upheld the concurrent findings of the AO and CIT(A) and found that the view taken by the ITAT is unsustainable, as the same is based on an incorrect appreciation of law. The 2010 amendment was a conscious departure by the Legislature from the earlier position and the said departure holds good law, as on date. In the light of the judicial pronouncements and the concerned amendment, the court set aside the order of the ITAT. Consequently, the appeal of the revenue was allowed and the concurrent findings of the AO and CIT(A) are hereby affirmed. 10. The similar issue stands adjudicated by the order of the ITAT Delhi in the case of Manjeet Singh (ITA No. 1391/Del/2017 AY 2011-12), Shri Satbir Vs. ITO, Jind in ITA No. 1413 to 1415/CHD/2016 for the A.Ys. 2007-08 to 2009-10 order dated 09.07.2018. The facts and ratio thereof is as under:- "6. The brief fact relevant to the issue under consideration are that the lands of the assessee's were compulsorily acquired by the HSI IDC, Sirsa/Government of Haryana in the year 2005. Subsequently the compensation was enhanced by the Court. The enhanced ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f interest, rather it was a part of compensation of land which was not taxable as per the provisions of sect ion 10(37) of the Income Tax Act. The Ld. CIT(Appeals) after considering the submissions of the assessee as well as considering the nature of compensation and interest thereupon received by the assessee, held that the issue was squarely covered by the decision of the Hon'ble Supreme Court in the case of Ghanshyam (HUF) (supra) and accordingly, allowed the appeal of the assessee. 8. Subsequently the Assessing Officer moved an application for rectification of the u/s 154 of the Act before the CIT(A) pleading therein that the interest received on enhanced compensation u/s 28 of Land Acquisition Act was chargeable to tax as 'income from other sources' u/s 56(2) (viii) r.w.s. 57(iv) of the Act in the light of the decision of the Hon'ble Punjab & Haryana High Court in the case of 'Manjeet Singh (HUF), Karta Manjeet Singh Vs. Union of India & Others' in CWP No.15506 of 2013, date of decision 14.1.2014, wherein, the Hon'ble High Court has held that the interest received by the assessee u/s 28 as well as u/s 34 of the Land Acquisition Act on the addition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... compensation awarded by the collector is not paid or deposited on or before taking possession of land, such interest is pay able from the time of so taking possession till the date of payment of compensation. In the case in hand, the Ld. CIT (Appeals) vide his order dated 14.3.2016 had allowed the appeal of the assessee following the decision in case of Ghanshyam (HUF) (supra), wherein it has held Interest u/s 28 of the Land Acquisition Act 1984, unlike interest u/s 34 is an accretion to the value of the land, hence it is part of enhanced compensation or consideration which is not the case with interest u/s 34A. So also additional amount u/s 23(1A) and solatium u/s 23(2) form part of enhanced compensation. 12. The Ld. CIT(A), however, subsequently, while relying upon the decision of the Hon'ble High Court in the case of Bir Singh (HUF) (supra) and Manjeet Singh (HUF) (supra) & Others as noted above, recalled his orders dated 14.3.2016 and confirmed the additions made by the Assessing Officer. 13. Undisputedly, the issue involved in these appeals is regarding the taxability of interest received on enhanced compensation u/s 28 of the Land Acquisition Act, 1894. Now, there are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 23(2) of the 1894 Act there is a provision for solatium which also represents part of the 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(1-A) 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 depends upon the claim, unlike interest under section 34 which depends on undue delay in making the award. 50. It is true that "interest" is not compensation. 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. Interest under Section 28 unlike interest under Section 34 is an accretion to the value, hence it is a p art of enhanced compensation or consideration which is not the case with interest under Section 34 of the 1894 Act. So also additional ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, we hold that the interest received by the assessee during the impugned year on the compulsory acquisition of its land u/s 28 of the Land Acquisition Act, is in the nature of compensation and not interest which is taxable under the head income from other sources u/s 56 of the Act as held by the authorities below. The compensation being exempt u/s 10(37) of the Act is not disputed. In view of the same the order passed by the CIT(Appeals) upholding the addition made by the AO on account of interest on enhanced compensation is, not sustainable." 11. Before parting, the salient features of the orders of the Hon'ble Supreme Court are mentioned below: * The order of the Bikram Singh Vs Land Acquisition Collector is dated 12.09.1996 - Interest of any nature is taxable irrespective of its receipt. * The order of Ghanshyam (HUF) is dated 16.07.2009 "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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for undue delay. Interest under Section 28 unlike interest under Section 34 is an accretion to the value, hence it is a part of enhanced compensation or consideration which is not the case with interest under Section 34 of the 1894 Act. So also additional amount under Section 23 (1-A) and solatium under Section 23(2) of the 1961 Act forms part of enhanced compensation under Section 45(5)(b) of the 1961 Act." * In the case of Ghanshyam (HUF), the Hon'ble Supreme Court equated the interest received u/s 28 of LA with compensation. It was held that the interest is accretion to the value of compensation and hence it is a part of compensation. * In the case of Hari Singh (HUF), the Hon'ble Supreme Court reiterated the above proposition. 12. In the result, the appeals of the assessee's are allowed." 11. We have also gone through the judgment of Hon'ble Jurisdictional High Court in the case of Movaliya Bhikhubhai Balabhai vs. ITO; 388 ITR 343 (Guj), wherein Hon'ble Jurisdictional High Court dealt with additional compensation was awarded with interest and held as under: "i) In the case of CIT vs. Ghanshyam (HUF) 315 ITR 1 (SC), the Supreme Court held that it is clear tha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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