2007 (10) TMI 319 - AT - Income Tax

Summary

Issues:
1. Charging of interest under sections 234A and 234B of the Income Tax Act.
2. Taxability of interest income on compensation/enhanced compensation.
3. Filing of return of income and payment of taxes after the settlement of a dispute.

Analysis:
1. The appeal by the Revenue challenged the direction of the CIT(A) to not charge interest under sections 234A and 234B. The dispute arose from the assessment framed under section 143(3) r/w section 147 of the Act. The Revenue contended that interest should be levied due to a delay in filing the return of income and paying taxes after the settlement of the dispute.

2. The core issue revolved around the taxability of interest income on compensation/enhanced compensation. The Special Bench of the Tribunal in the case of Dy. CIT vs. Padam Prakash established that such income is taxable only when the dispute related to land acquisition is finally settled. The dispute in this case was resolved on 30th July, 1996, which was after the due date for filing the return of income and paying advance tax. Therefore, the CIT(A) canceled the levy of interest under sections 234A and 234B.

3. The assessee's representative argued that due to the ongoing dispute until 30th July, 1996, the assessee could not have foreseen the need to pay advance tax or file the return of income for the relevant assessment year. The return was filed within the time allowed after receiving a notice under section 148, and taxes were paid accordingly. The Tribunal concurred with the assessee's position, emphasizing that interest under sections 234A and 234B is chargeable only if there is a failure to file the return of income or pay advance tax, which was not the case here.

4. The Tribunal upheld the CIT(A)'s order, stating that the assessee was not liable to file the return of income or pay advance tax before the dispute was settled. As there was no current income subject to taxation until the resolution of the dispute, the interest under sections 234A and 234B was not applicable. The decision highlighted the impossibility for the assessee to fulfill these obligations before the final settlement of the dispute.

5. Ultimately, the appeal by the Revenue was dismissed, affirming the decision of the CIT(A) and emphasizing that the interest under sections 234A and 234B was not chargeable given the circumstances of the case.