2024 (4) TMI 880 - AT - Income Tax

Rectification u/s 154 - Characterization of receipts - Exemption of interest on enhanced compensation from tax denied u/s. 10(37) - HELD THAT - Sections 56(2)(viii) and 57(iv) came on the statute w.e.f. 01.04.2010 i.e. AY 2010-11 onwards. The decision in Ghanshyam (HUF) 2009 (7) TMI 12 - SUPREME COURT is for AY 1999-00. The said decision by the Hon ble Apex Court thus has no bearing on the said provisions invoked by the AO in bringing the impugned interest to tax. Even as observed by the Bench during hearing it is only where a Constitutional Court declares the same as ultra vires the Act (i.e. on a view that interest u/s. 28 of LAA is capital in nature) that would entitle the assessing authority to disregard the same. The Hon ble Apex Court per it s Constitutional Bench decision in Punjab Distilling Industries Ltd. 1965 (2) TMI 6 - SUPREME COURT explained that there is no conflict between a receipt being capital in nature and by fiction of law an income chargeable to tax under the Act. That is the nature of the receipt as capital which is the purport of the decision in Ghanshyam (HUF) (supra) would not per se preclude interest from being at the same time subject to tax. Further per it s larger bench decision in Sham Lal Narula (Dr.) 1964 (4) TMI 10 - SUPREME COURT not referred to in it s later decision in Ghanshyam (HUF)(supra) the Apex Court held the provisions of s. 28 and 34 of LAA as analogous i.e. compensatory and thus not part of compensation. The decision in P.V. Kurien 1962 (3) TMI 123 - KERALA HIGH COURT holding interest on enhanced compensation as capital in nature was negated by the Hon ble Court. The upshot thereof is that even de hors s. 56(2)(viii) applied by the AO it may not be possible to say that interest u/s. 28 of LAA is not income much less of it being regarded as so by him as mistaken liable to be rectified u/s. 154. Assessee s appeal is dismissed.

Summary

Issues Involved:
The appeal contesting the order u/s 154 of the Income Tax Act, 1961 for Assessment Year 2015-16 by the Commissioner of Income Tax (Appeals) dated 26.10.2022.

Details of the Judgment:

Issue 1: Dismissal of Appeal Contesting Order u/s 154

The Assessee appealed against the dismissal of his appeal contesting the order u/s 154 of the Income Tax Act, 1961, for Assessment Year 2015-16. The background facts reveal that the assessee received additional compensation in respect of his share in agricultural land sold during the previous year relevant to AY 2010-11. The Assessing Officer (AO) brought to tax 50% of the interest received by the assessee under sections 56(2)(viii) and 57(iv) of the Act. The assessee sought rectification of his assessment as the interest was allowed u/s 28 of the Land Acquisition Act, 1894, which was held as part of compensation by the Apex Court and exempt u/s 10(37) of the Act. The AO and CIT(A) did not find merit in the assessee's claim, leading to the second appeal. The Tribunal observed that the interest received by the assessee does not fall under section 28 of LAA and held that the interest is subject to tax as income. The Tribunal found no merit in the assessee's challenge and dismissed the appeal.

Summary of the Judgment:

The Appellate Tribunal ITAT Cochin heard the appeal regarding the dismissal of the assessee's challenge against the order u/s 154 of the Income Tax Act, 1961. The Tribunal examined the application of sections 56(2)(viii) and 57(iv) by the Assessing Officer in disallowing the assessee's claim for exemption of interest on enhanced compensation from tax. The Tribunal noted that the interest received by the assessee does not fall under section 28 of the Land Acquisition Act, 1894, and therefore is liable to be taxed as income. The Tribunal emphasized that the decision by the Apex Court in a similar case declared the interest as capital in nature, not exempt from tax. Considering the legal provisions and precedents, the Tribunal found no merit in the assessee's challenge and upheld the dismissal of the appeal.

Order pronounced in the open court on April 19, 2024.