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Yashpal Singh v. Ito
Summary of the Tribunal's Opinion — ITA No. 755(Asr)/2013 (Assessment Year 2010-2011)
Factual and Procedural Background
This appeal arises from the order of the Commissioner of Income Tax (Appeals), Amritsar dated 03.12.2013 in respect of assessment year 2010-2011. The assessee, a junior assistant employed in the office of the Civil Surgeon, Gurdaspur, originally declared salary and later filed a revised return in which agricultural receipts arising from compulsory acquisition of agricultural land were shown as exempt under section 10(37) of the Income Tax Act, 1961.
The Collector (Land Acquisition, Colonization Department, Chandigarh) awarded enhanced compensation of Rs. 11,11,253 and interest on enhanced compensation of Rs. 17,78,766 (the Form 16 shows this interest and tax deducted at source of Rs. 1,77,877). The Assessing Officer (AO) issued a show cause notice relying on amendments effected by the Finance (No. 2) Act, 2009 — notably the amendment to section 145A(b) read with clause (viii) of sub-section (2) of section 56 — which, for the assessment year in question, were treated as making interest on compensation taxable as "Income from other sources."
The AO added Rs. 8,89,383 (being 50% of the interest after allowing deduction under clause (iv) of section 57) to the assessee's taxable income. The Commissioner of Income Tax (Appeals) confirmed the AO's addition. The assessee appealed to the Tribunal challenging the confirmation and relying principally on the Supreme Court decision in Commissioner of Income Tax, Faridabad v. Ghanshyam (HUF) (2009) 315 ITR 1 (SC), which treats interest awarded under section 28 of the Land Acquisition Act, 1894 as part of compensation.
Legal Issues Presented
- Whether interest awarded under section 28 of the Land Acquisition Act, 1894 (interest on enhanced compensation) constitutes part of "compensation" for purposes of the Income Tax Act and therefore falls within the exemption under section 10(37) in respect of compulsory acquisition of agricultural land.
- Whether the amendments introduced by the Finance (No. 2) Act, 2009 (specifically the amendment to section 145A(b) read with clause (viii) of sub-section (2) of section 56) — effective for the assessment year 2010-2011 — render such interest taxable under the head "Income from other sources," thereby displacing the effect of the Supreme Court's decision in Ghanshyam (HUF).
Arguments of the Parties
Assessee's Arguments
- The assessee relied on the Supreme Court decision in Commissioner Of Income Tax, Faridabad v. Ghanshyam (HUF) (2009) 315 ITR 1 (SC), submitting that interest awarded under section 28 of the Land Acquisition Act is an accretion to the enhanced value of the land and therefore forms part of compensation (not mere interest for delay) and is covered by the exemption in section 10(37).
- The assessee also relied on a number of High Court decisions (including CIT v. Smt. Parkash Kaur (P&H), Jagmal Singh v. State of Haryana (Civil Revision), CIT v. Keshwa Devi (HP), and CIT v. Joginder Singh (HP)) which, according to counsel, accept and follow the Supreme Court's mandate in Ghanshyam on the same issue.
Revenue's / Respondent's Arguments
- The Assessing Officer and the Department relied on the amendment by the Finance (No. 2) Act, 2009 which, by amendment to section 145A(b) and clause (viii) of sub-section (2) of section 56, treats interest received on compensation/enhanced compensation as income of the year in which it is received under the head "Income from other sources" effective for the assessment year 2010-2011. On that basis the AO added the taxable portion of the interest and the Department supported the AO's order before the CIT(A).
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Commissioner Of Income Tax, Faridabad v. Ghanshyam (HUF), (2009) 315 ITR 1 (SC) (also cited as 2009) 182 Taxman 368 (SC) | The Supreme Court held that interest awarded under section 28 of the Land Acquisition Act is part of the amount of compensation (an accretion to the enhanced value) whereas interest under section 34 is interest for delay and not part of compensation. | The Tribunal applied this authority to conclude that the interest the assessee received under section 28 was part of compensation and therefore eligible for exemption under section 10(37); relying on Ghanshyam, the Tribunal directed deletion of the addition. |
| CIT v. Smt. Parkash Kaur, (2011) 330 ITR 332 (P&H) | The opinion records this case as one of the High Court decisions relied upon by the assessee that follows the Supreme Court's mandate in Ghanshyam. | The Tribunal noted this decision among others as supporting the assessee's position that interest under section 28 is to be treated as part of compensation. |
| Jagmal Singh v. State of Haryana (Civil Revision No. 7740 of 2012) — decision dated 18 July 2013 | Listed by the assessee as a supporting authority; the text indicates it was relied on as following Ghanshyam. | The Tribunal recorded this decision as one of several High Court decisions relied on by the assessee in support of the legal proposition advanced from Ghanshyam. |
| CIT v. Keshwa Devi, (2012) 19 Taxman 220 (HP) | Recorded as another High Court decision relied upon by the assessee that accepts Ghanshyam's principle. | The Tribunal treated this decision as reinforcing the assessee's position and cited it among the authorities in support of allowing the appeal. |
| CIT v. Joginder Singh (Appeal No. 120-2008) — order dated 30 Oct. 2012 (HP) | Also listed as a High Court decision relied on by the assessee which follows the Supreme Court's interpretation in Ghanshyam. | The Tribunal noted this case among other High Court decisions that buttressed the assessee's contention that interest under section 28 forms part of compensation. |
Court's Reasoning and Analysis
The Tribunal's analysis proceeded from the undisputed factual premise that the enhanced compensation and the interest at issue were awarded by the Additional District Judge under section 28 of the Land Acquisition Act by an order dated 14.03.2008. The Tribunal considered the competing legal positions:
- It examined the Supreme Court's analysis in Ghanshyam which distinguishes between interest awarded under section 28 and interest under section 34. The Court in Ghanshyam observed that while interest as a concept is different from compensation, interest under section 28 depends on a claim by the land-owner and operates as an accretion to the value (part of enhanced compensation), whereas interest under section 34 is compensatory for delay in payment and is not an accretion to compensation.
- The Tribunal acknowledged the Revenue's reliance on the legislative changes effected by Finance (No. 2) Act, 2009 (amendment to section 145A(b) and clause (viii) of sub-section (2) of section 56) which the AO treated as making interest on compensation taxable as income from other sources for the assessment year 2010-2011. The AO took the view that this amendment applied to interest awarded under both section 34 and section 28.
- The Tribunal evaluated whether the amendment displaced the Supreme Court's conclusion in Ghanshyam. On the facts before it, because the award was under section 28 and Ghanshyam had held that section 28 interest is part of compensation (an accretion to enhanced value), the Tribunal concluded that the interest received by the assessee must be treated as compensation and covered by the exemption in section 10(37) for compulsory acquisition of agricultural land.
- The Tribunal also noted that a number of High Court decisions relied upon by the assessee accept and follow the Supreme Court's mandate in Ghanshyam on this point; these authorities reinforced the Tribunal's conclusion.
- On this basis the Tribunal found the CIT(A) was not justified in confirming the AO's addition and directed the AO to delete the addition made.
Holding and Implications
APPEAL ALLOWED
Holding (direct effect): The Tribunal allowed the assessee's appeal, holding that the interest awarded under section 28 of the Land Acquisition Act, 1894 in the present case forms part of the compensation (an accretion to the enhanced value) and is therefore exempt under section 10(37) of the Income Tax Act. The Tribunal directed the Assessing Officer to delete the addition of Rs. 8,89,383 that had been made under the head "Income from other sources."
Implications: The decision orders deletion of the assessment addition in the instant case and treats the section 28 interest as part of compensation for the relevant assessment year. The opinion rests on the application of the Supreme Court's decision in Ghanshyam and subsequent High Court decisions cited by the assessee. The Tribunal did not indicate that it was creating new legal precedent beyond applying the existing authorities cited.
Note: This summary is confined to and strictly derived from the contents of the provided opinion text. No information has been added beyond what the opinion itself records.
1. This appeal of the assessee arises from the order of the CIT(A), Amritsar, dated 03.12.2013 for the assessment year 2010-2011. The assessee has raised following grounds of appeal:
1. That the ld. CIT(A), showing scant respect to the order of Highest Court of land, in the case of Ghanshyam (HUF), (2009) 315 ITR 1 (SC), has committed a grave legal error to hold that interest of Rs. 17,78,877/- received u/s. 28 of the Land Acquisition Act, 1894, on enhanced compensation, was not part of compensation but liable to tax under the head ‘Income from other sources’.
2. That the ld. CIT(A), went all the way wrong to hold that interest u/s. 28 of I.A Act, 1894 was for delay in granting the compensation/addl. compensation, a view apparently opposed to the clear mandate of Hon'ble Apex Court in the case of Ghanshyan (supra), holding that the said interest, unlike interest u/s. 34 of the I.A Act, 1894, was an accretion to the value and hence part of enhanced compensation.
3. That the ld. CIT(A), also fell into grave error in endorsing the ITO's view and to hold that Hon'ble Apex Court decision supra, was not applicable in view of the provisions of section 145A(b) read with section 56(2)(viii) introduced by Finance (No. 2) Act, 2009, w.e.f 01.04.2010
4. That having wrongfully held that the impugned interest u/s. 28 of I.A Act, 1894 was not part of additional compensation, consequential denial of its exemption u/s. 10(37) of the I.T Act, 1961, is another act of ld. CIT(A), which is opposed to the near facts and the settled legal position.
5. That the ld. CIT(A)'s stand is contemptuous not only for defying the decision of Hon'ble Apex Court supra, but also in ignoring the subsequent decisions of Hon'ble P & H High Court and various other High Court's cited before the ld. CIT(A), fully accepting and following the mandate of Hon'ble Supreme Court, supra, on identical issue.
6. That by any reckoning, the impugned order of ld. CIT(A) being contrary to law and the facts of the case, deserves not to be sustained.
7. That having been put to undue litigation, the assessee prays to be granted appropriate cost in the matter.
2. The brief facts of the case as per AO's order are reproduced for the sake of convenience as under:
“2. The assessee is working a Junior Asstt. in the office of the Civil Surgeon, Gurdaspur and declared gross salary of Rs. 2,71,289/- in his original return. However, the assessee in his revised return filed on 16.11.2010 has declared Rs. 1,741/- on account of “Income from other sources”, Agricultural Income of Rs. 1,58,455/- for rebate purposes in addition to income declared in his original return. The assessee has also shown total receipts of Rs. 28,90,019/- as an exempt income u/s. 10(37) of the Income Tax Act, 1961 on account of “Agricultural Land Compulsory acquired”. The assessee has also filed a copy of Form No. 16 dated 16.02.2010 issued by the Collector Land Acquisition, Colonization Department, Chandigarh, a perusal of which indicates that the assessee has been awarded enhanced compensation amounting to Rs. 11,11,253/- and interest on enhanced compensation amounting to Rs. 17,78,766/- on account of agricultural land measuring 36 Kanals 10 Marlas, situated at Vill. Awankha, Dinanagar, Distt. Gurdaspur acquired by the aforesaid department and tax of Rs. 1,77,877/- has accordingly bee deducted at source on the aforesaid interest. The assessee has deposited the said proceeds of Rs. 27,12,147/- i.e total payment of enhanced compensation of Rs. 11,11,253/- and interest thereon at Rs. 28,90,019/- less TDS of Rs. 1,77,877/- in his saving bank a/c. No. 94640100469178 dated 19.03.2010, maintained with P.N.B G.T Road, Kanwan, P. Parmanand. Since the assessee has filed a certificate dated 23.08.2012 from the Sub Divisional Magistrate, Gurdaspur, certifying therein that land acquired by the aforesaid authorities was situated beyond the two kilometers from the local limit of Municipal Committee, Dinanagar and was being used as an Agricultural land, capital gains on the said is exempt u/s. 10(37) of the Act, being compulsory acquisition of agriculture land.
It is worth while to mention here that by virtue of amendment in section 145A(b) of the Act vide Finance (No. 2) Act of 2009, it has been provided that interest received by the 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 under the head Income from other sources” under clause (viii) of sub-section 2 of section 56 of the I.T Act, 1961. As the assessee's counsel in his reply dated 3.10.2012 has wrongly interpreted the judgment of the Hon'ble Supreme Court of India in the case of Commissioner Of Income Tax, Faridabad v. Ghanshyam (Huf) .) (2009) 182 Taxman 368 (SC), in which it has been stated that interest on enhanced compensation awarded u/s. 28 of the Land Acquisition Act, 1894, received by the assessee forms part of compensation u/s. 45(5) of the Act and also claimed to be exempt under sub-section 37 of section 10 of the Act. Since the interest awarded by the acquisition authorities to the assessee on account of compulsory acquisition of agricultural land at Rs. 17,78,766/- is chargeable to tax by the amendment section 145A(b) of the Act under the head ‘Income from other sources’ w.e.f 01.04.2010 (A.Y 2010-2011), the assessee has categorically been asked to explain vide this office show cause notice dated 16.10.2012 as to why an addition of Rs. 8,89,383/- i.e total interest awarded at Rs. 17,78,766/- less deduction of Rs. 8,89,383/- allowable under clause (iv) of section 57 of the Act should not be made.”
3. The assessee submitted the reply to the show cause notice and ultimately, the AO made an addition of Rs. 8,89,383/- and the relevant findings are reproduced for the sake of convenience, as under:
“I have gone through the assessment records as well as contention of the assessee's counsel putforth by him in his reply dated 02.11.2012 and found that interest of Rs. 17,78,766/- was awarded to the assessee on the enhanced compensation by the Addl. Distt. Judge vide his order dated 14.03.2008 u/s. 28 of the Land Acquisition Act. By virtue of amendment in section 145A(b) of the Act vide Finance (No. 2) of 2009 which is effective from 01.04.2009 (A.Y 2010-2011), interest received by an assessee on compensation or on enhanced compensation as the case may be, forms part of the assessee's income of the year in which same is received under the head “Income from other sources” under clause (viii) of sub-section (2) of section 56 of the Act. The contention taken by the assessee's counsel that amendment made by the Finance (No. 2) Act, 2009 is not clear with regard to chargeability of interest awarded u/s. 28 of the Land Acquisition Act does not carry any weight as the said amendment has clearly provided for taxability of interest awarded either u/s. 34 of the Land Acquisition Act, 1894 on account of interest on delayed payment or under section 28 of the said act on account of interest on enhanced compensation. After taking into consideration the facts of the case referred supra, interest awarded to the assessee amounting to Rs. 17,78,766/- by the Collector Land Acquisition Colonization Department, Chandigarh is chargeable to tax by virtue of amendment made by the Finance (No. 2) Act, 2009 which is applicable w.e.f from 01.04.2010 (A.T 2010-2011) and as discussed above, the ratio of decision of the Apex Court in the case titled as CIT, Faridabad v. Ghanshyam (HUF) (2009) 182 Taxman 368 (SC) does not apply in the assessee's case as the assessment year involved in the said case was 1999-2000 i.e prior to the amendment of provision of section 145(b) as well as amendment of clause (viii) of sub-section (2) of section 56 of the Act by the Finance (No. 2) Act, 2009. Having regard to the above referred facts, an addition of Rs. 8,89,383/- is hereby made under the head “Income from the other sources” in the assessee's total income on account of your interest received by him on the enhanced compensation on the acquisition of your land situated at vill. Awankha during the previous year relevant to A.Y under consideration after allowing deduction there from @ 50% as provided in clause iv of section 57 of the Act.”
4. The Ld. CIT(A) confirmed the action of the Assessing Officer.
5. The Ld. counsel for the assessee read the decision of the Hon'ble Supreme Court in the case of Commissioner Of Income Tax, Faridabad v. Ghanshyam (Huf) .), (2009) 182 Taxman 368 (SC) and argued that the amount received by the assessee is under section 28 of the Land Acquisition Act, 1894 and not u/s. 34 of the said Act. The relevant para of the decision of Hon'ble Supreme Court in the case of Commissioner Of Income Tax, Faridabad v. Ghanshyam (Huf) .), (2009) 315 ITR 1 is reproduced as under:
“24. To sum up, interest is different from compensation. However, interest paid on the excess amount u/s. 28 of the 1894 Act depends upon a claim by the person whose land is acquired whereas interest u/s. 34 is for delay in making payment. This vital difference needs to be kept in mind in deciding this matter. Interest u/s. 28 is part of the amount of compensation whereas interest u/s. 34 is only for delay in making payment after compensation amount is determined. Interest u/s. 28 is part of enhanced valued of the land which is not the case in the matter of payment of interest u/s. 34.”
It is to answer the above questions that we have analysed the provisions of section 23, 23(IA), 23(2), 28 and 34 of the 1894 Act. As discussed hereinabove, section 23(IA) provides for additional amount. It takes care of increase in the value @ 12% per annum. Similarly, u/s. 23(2) of the 1894 Act, there is a provision for solatium which also represents part of 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 u/s. 23(IA) and solatium u/s. 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 u/s. 18 of the 1894 Act. It depends upon the claim, unlike interest u/s. 34 which depends upon undue delay in making the award. It is true that “interest” is not compensation. It is equally true that sec. 45(5) of the Act refers to compensation. But as discussed hereinabove, we have to go by the provisions of 1894 Act which awards “interest” both as an accretion in the value of the lands acquired and interest for undue delay. Interest u/s. 28 unlike interest u/s. 34 is an accretion to the value, hence, it is a part of enhanced compensation or consideration which is not the case with the interest u/s. 34 of the 1894 Act. So also additional amount u/s. 23(IA) and solatium u/s. 23(2) of the 1961 (sic-1894) Act forms part of enhanced compensation u/s. 45(5)(b) of the 1961 Act. In fact, what we have stated hereinabove is reinforced by the newly inserted clause (c) of section 45(5) by the Finance Act, 2003 w.e.f 1.4.2004 The newly inserted clause envisages a situation wherein the assessment for any year:—
- the capital gain arising from the transfer of a capital asset is computed by taking the
- compensation or consideration referred to in clause (a) of section 45(5) or as the case may be
- enhanced compensation or compensation referred to in clause (b) of Sec. 45(5).
And subsequently such compensation or consideration is reduced by any court, Tribunal or other authority.”
6. The Ld. counsel for the assessee relied upon the issue on the decisions of various courts of law:
i) CIT v. Smt. Parkash Kaur, (2011) 330 ITR 332 (P&H).
ii) Jagmal Singh v. State of Haryana Civil Revision No. 7740 of 2012 date of decision - 18 July, 2013
iii) CIT v. Keshwa Devi, (2012) 19 Taxman 220 - HP
iv) CIT v. Joginder Singh appeal No.-120-2008 order dated 30 Oct. 2012 - HP.
7. The Ld. DR, on the other hand, relied upon the orders of both the authorities below.
8. We have heard the rival contentions and perused the facts of the case. There is no dispute to the fact that the enhanced compensation is awarded by the Additional District Judged vide his order dated 14.03.2008 under section 28 of the Land Acquisition Act, as has been affirmed by the AO in his order reproduced hereinabove. It is also not under dispute that the Hon'ble Supreme Court, in the case of Commissioner Of Income Tax, Faridabad v. Ghanshyam (Huf) .), (2009) 315 ITR 1 has laid down that the amount received under section 28 is part of the amount of compensation whereas interest u/s. 34 is only for delay in making payment after compensation. In the present case, the amount is received u/s. 28 of the Land Acquisition Act, 1894 and therefore, according to us this is a compensation and cannot take part of the compensation u/s. 45(5) and is exempt u/s. 10(37) of the Income Tax Act, 1961. Accordingly, the Ld. CIT(A) is not justified in confirming the action of the A.O and in view of the decision of Hon'ble Supreme Court in the case of Commissioner Of Income Tax, Faridabad v. Ghanshyam (Huf) .), (2009) 315 ITR 1 and other decisions relied upon by the ld. counsel for the assessee, we direct the A.O to delete the addition made. Thus, all the grounds of the assessee are allowed.
9. In the result, the appeal filed by the assessee in ITA No. 755(Asr)/2013 is allowed.
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