TMI Blog2010 (8) TMI 96X X X X Extracts X X X X X X X X Extracts X X X X ..... r assessment year 1997-98, proposing to raise the following substantial question of law:- "Whether on the facts and in the circumstances of the case, the Hon'ble ITAT was right in law in holding that interest received on enhanced compensation is not taxable in the year of receipt, in view of the decision of the Apex Court in the case of CIT Vs. TNK Govindarjulu Chetty, despite the fact that the assessee is not following the mercantile system of accounting." 2. Briefly stated, the facts of the case are that the agricultural land belonging to Smt. Ganga Devi was acquired by the Haryana Urban Development Authority (HUDA) on 20.3.1989. Smt. Ganga Devi died on 24.11.1991 and the matter regarding enhancement of compensation was pursued by her son and sole legal heir Khushi Ram who received enhanced compensation amounting to Rs.38,64,062/- including interest of Rs.14,72,006/- on 29.9.1996 for the period from 20.3.1989 to 19.9.1995. Khushi Ram expired on 28.7.2000 leaving behind two sons, namely, S/Shri Karambir Singh and Sushil Kumar. A notice under Section 148 of the Act was served upon Karambir Singh legal heir of late Shri Khushi Ram who filed his return of income on 26.3.2002 dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ew of judgment of the Hon'ble Supreme Court in CIT v. Ghanshyam, (2009) 315 ITR 1. 4. We have heard learned counsel for the revenue. None appears for the assessee. 5. The issue that arises in this appeal for consideration is whether the interest which was received by the assessee-landownerrespondent on 29.9.1996 relating to the period 20.3.1989 to 19.9.1995 on delayed payment of enhanced compensation, is to be taxed in the assessment year 1997-98 or not. 6. We analyze the concerned provision first. Section 145 of the Act relates to method of accounting. Originally enacted, Section 145 provided that income under the head "profits and gains of business or profession" or "income from other sources" shall be computed in accordance with the method of accounting regularly followed by an assessee. Accordingly the assessee was entitled to choose any one of the following system of accountancy:- (a) cash or receipts system; or (b) mercantile or accrual system; or (c) mixed or hybrid system. 7. Finance Act 1995 with effect from 1.4.1997 relating to assessment year 1997-98 and subsequent years, substituted Section 145 which reads thus:- "145 (1). Income chargeable under the h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation with expert bodies like the Institute of Chartered Accountants. 44.3 The amendment will take effect from Ist April, 1997 and will, accordingly, apply in relation to assessment year 1997-98 and subsequent years." 9. The Central Government is empowered by the amended provision to specify the accounting standards which are required to be followed by an assessee for computing income under the head "Profits and gains of business or profession" or "Income from other sources", by notifying the same in official gazette. It may be noticed that the Central Government has issued notification No. S.O.69(E) dated 25.1.1996 published in [(1996) 218 ITR St. 1] in exercise of power under Section 145 (2) of the Act for assessees following mercantile system of accounting. 10. On plain reading of the said Section, it is concluded that prior to amendment by Finance Act, 1995 w.e.f. 1.4.1997, assessee had option of choosing any one of the method of accountancy, i.e. (a) cash system; (b) mercantile system or (c) hybrid or mixed system. However, after the amendment, as assessee has an option to adopt either cash system or mercantile system only. Therefore, income chargeable under the he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act had laid down that income by way of interest received had to be spread over all the assessment years to which it related for the purpose of income tax from the time it became due. Reliance was placed on the judgment of Apex Court in Rama Bai, Krishna Rao and Govindarajulu Chatty's cases. 16. After examining the aforesaid case law, it is discerned that in all these cases, the assessee had adopted mercantile system of accountancy and it was no where recorded therein that the assessee was following cash system of accountancy. It was authoritatively held in such circumstances that the interest received had to be spread over all the years to which it related to. 17. Now we advert to decision of the Apex Court in Ghansham's case on the basis of which the matter has been remanded to this Court for considering its effect on the decision of the case. Hon'ble Supreme Court was dealing with the issue relating to assessability of capital gains to income tax under the provisions of Section 45 (5) of the Act. Section 45 was amended by the Finance Act, 1987 w.e.f. 1.4.1988 where under sub-section (5) was inserted as an overriding provision. It was held that the enhanced compensation ..... X X X X Extracts X X X X X X X X Extracts X X X X
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