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2023 (3) TMI 1570 - AT - Income TaxDisallowance of interest received by assessee by holding it to be revenue in nature - HELD THAT - There is no dispute regarding the principle compensation received by assessee pursuant to an award passed by Subordinate judge of Kozhikode. The award included additional compensation with interest at the rate of 9% pa. for a period of one year from 23.04.2014. The award also included interest of 15% pa. till the date of payment. In our considered view the interest of 9% received by assessee for a period of one year on the additional compensation was by way of accretion to the value and therefore would not fall within the ambit of the expression interest as envisaged u/s. 145A(b) of the act. Any interest received by the assessee at the rate of 15% for not depositing the compensation within the time frame as directed by the court would assume the character of income. We therefore are of the opinion that only such interest amount i.e. attributed for delayed deposit of the compensation can be treated as income in the hands of the assessee. In the present facts of the case AO treated the entire interest received to be income from other sources on which benefit of deduction u/s. 57(iv) has been allowed as deduction. This computation of disallowance is not in accordance with law. What could be considered for disallowance is only in respect of the interest amount computed at 15% received by the assessee. We therefore remand this issue to the AO for necessary verification. The assessee is directed to file the award passed or the intimation issued by the Collector bifurcating the interest payment computed at 9% and/or 15%. AO is directed to consider only the interest that is computed on the compensation at 15% for disallowance and to grant necessary deduction u/s. 57 of the act if any. Grounds raised by the assessee stands partly allowed for statistical purposes.
ISSUES PRESENTED and CONSIDERED
The core legal questions considered in this judgment include:
ISSUE-WISE DETAILED ANALYSIS 1. Nature of Interest under Section 28 of the Land Acquisition Act Relevant legal framework and precedents: Section 28 of the Land Acquisition Act allows for interest on excess compensation awarded by a court. The Supreme Court in CIT vs. Ghanashyam (HUF) held that interest under Section 28 forms part of the compensation. Court's interpretation and reasoning: The Tribunal considered whether the interest received by the assessee under Section 28 should be treated as part of the compensation or as income from other sources. The Tribunal noted that the interest at 9% for one year was by way of accretion to the value of the land, thus not falling within the ambit of "interest" as per Section 145A(b) of the Income Tax Act. Application of law to facts: The Tribunal concluded that the interest received at 9% under Section 28 is compensatory in nature and should not be treated as income from other sources. 2. Nature of Interest under Section 34 of the Land Acquisition Act Relevant legal framework and precedents: Section 34 of the Land Acquisition Act mandates additional interest at 15% for delayed payment of compensation beyond one year. Court's interpretation and reasoning: The Tribunal interpreted that the interest at 15% for delayed payment assumes the character of income and should be treated as income from other sources. Application of law to facts: The Tribunal decided that only the interest at 15% received for delayed deposit of compensation should be considered as income in the hands of the assessee. 3. Tax Treatment of Interest Received Relevant legal framework and precedents: Section 145A(b) and Section 56(2)(viii) of the Income Tax Act deal with the taxability of interest on compensation. Court's interpretation and reasoning: The Tribunal observed that the authorities below erred in treating the entire interest as income from other sources. It was determined that only the interest at 15% should be treated as income, allowing for deductions as per Section 57(iv). Application of law to facts: The Tribunal remanded the issue to the Assessing Officer for verification, directing that only the interest at 15% be considered for disallowance, with necessary deductions granted under Section 57. SIGNIFICANT HOLDINGS Core principles established: "The interest received u/s 28 of the Land Acquisition Act shall partake the character of revenue receipt as per the extant provisions of section 56(2)(viii) of the Income-tax Act, 1961." Final determinations on each issue:
The appeal filed by the assessee was partly allowed for statistical purposes, with directions for the Assessing Officer to reassess the taxability of the interest components in line with the Tribunal's findings.
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