TMI Blog2014 (9) TMI 587X X X X Extracts X X X X X X X X Extracts X X X X ..... of generation of income. This basic test to determine the status of AoP is absent in the present case. - Decided against the revenue. Spread of interest over the years - taxability of the interest on enhanced compensation - Held that:- This issue is covered by judgment of this Court in Commissioner of Income Tax, Faridabad vs. Ghanshyam (HUF) [2009 (7) TMI 12 - SUPREME COURT], 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 become ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and two other persons who relinquished their rights in favour of the three brothers. A part of this bequeathed land was acquired by the State Government and compensation was paid for it. On appeal, the compensation amount was enhanced and additional compensation alongwith interest was awarded. 3. The respondents filed their return of income for each assessment years claiming the status of 'individual'. Two questions arose for consideration before the Assessing Officer. One was as to whether these three brothers could file separate returns claiming the status of the 'individual' or they were to be treated as 'Association of Persons' (AoP). Second question was regarding the taxability of the interest on enhanced com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted in (1997) 4 SCC 677. After taking note of some previous judgments on this issue, the Court summed up the legal position in paras 19 and 20 which are reproduced below:: 19. In the case of CIT v. Indira Balkrishna, AIR 1960 SC 1172, this Court held that association of persons meant an association in which two or more persons joined in a common purpose or common action. As the words occurred in a section which imposed a tax on income, the association must be one the object of which was to produce income, profits or gains. In that case, the co-widows of a Hindu governed by Mitakshara law inherited his estate which consisted of immovable properties, shares, money lying in deposit and a share in a registered firm. The Appellate Tribunal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It was further held that even a minor could join an association of persons if his lawful guardian gave his consent. The income in that case arose under two heads - house property and dividends from shares. The question before this Court was whether the dividend income should be assessed in the hand of an association of persons or individuals. One Sinnamani Nadar executed a settlement deed in favour of his four grandsons. The property covered by the settlement deed comprised of a house property which had been let out and some shares. The donees were to enjoy the income of these properties during their lifetime. Thereafter, the properties were to devolve on their children. In that case, it was pointed out that Income Tax return was filed in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome', 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 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. Here again, we would like to reproduce the discussion contained in paras 53 and 54 which gives the rational in coming to the said conclusion. Paras 53 and 54 read as under: 53. The scheme of Section 45(5) of the 1961 Act was inserted w.e.f. 1-4-1988 as an overriding provision. As stated above, compensation under the L.A.Act, 1894, arises and is payable in multiple stages which does not happen in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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