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2025 (6) TMI 1308 - AT - Income TaxAddition u/s. 45(5)(b) - additional compensation received by the assessee and interest on additional compensation u/s. 56(2)(viii) - according to the assessee was received on account of interim order by the Hon ble High Court of Bombay in the appeal filed by the State Government of Maharashtra not accepting the award passed by the Civil Court - assessee is a non-resident and a senior citizen residing in Australia as an Overseas Citizen of India (OCI) owned a land admeasuring 2, 76, 500 sq. mtrs at village Panaje Taluka Uran District Raigad. These lands were acquired by the Special Land Acquisition Officer (SLAO) during the year 1986 for which an order was passed u/s. 11 of the Land Acquisition Act (LAA) 1894 awarding compensation HELD THAT - In the present case the enhanced compensation received by the assessee is with an embargo thereby leading to a likelihood of returning the same or part of the same depending upon the outcome of the appeal by the judgment of Hon ble High Court of Bombay. Grant of stay changes the character of the order and is to be treated accordingly. On this aspect reference is made to the judgment of T.V. Patel (P) Ltd. 2023 (12) TMI 285 - BOMBAY HIGH COURT where on similar issue it held that if a dispute is pending before a Civil Court no income could be said to have accrued or arisen to an assessee pending adjudication of said dispute for the purpose of section 5 of the Act - if the matter is pending before the judicial forum and pending adjudication if certain amount is deposited in the said judicial forum or the amount is allowed to be withdrawn by the party the consistent view in such a scenario taken by the Courts is that till the case is decided finally by the judicial forum it cannot be said that the assessee has acquired a right to receive the income for the purposes of section 5 of the Act. According to the Hon ble Court the time of accrual for taxing income gets postponed till the dispute is adjudicated by the Civil Court. While making these observations Hon ble Court referred to the decision of Hon ble Supreme Court in the case of E.D. Sassoon and Co. Ltd. 1954 (5) TMI 2 - SUPREME COURT whereby it observed that there was no absolute right to receive the amount at the time of withdrawing the sum because if the appeal of the State Government was allowed in its entirety the right to payment of the enhanced compensation would fall altogether. Thus we find that the taxability of additional compensation along with interest thereon received by the assessee falls in the proviso to section 45(5)(b) making it subject to tax in the year when the final order is passed by the Hon ble High Court of Bombay against the appeal filed by the State of Maharashtra challenging the award given by the Court of Civil Judge Senior Division Raigad at Alibag. Interest component of the additional compensation has to be treated similarly for the year of taxability and therefore similar view is taken for the same though it is chargeable to tax u/s.56(2)(viii) under head Income from other sources . Accordingly addition made for bringing it to tax in the year under consideration is deleted which in fact is to be brought to tax in the year when the final order is passed by the Hon ble High Court of Bombay. Penalty u/s. 271(1)(c) - Since in the quantum appeal addition has been deleted the penalty imposed u/s. 271(1)(c) on the said addition loses its ground. Sub clause (iii) to section 271(1)(c) provides for imposition of penalty on the amount of tax sought to be evaded by reason of concealment of particulars of income or furnishing of inaccurate particulars of income.
The core legal questions considered in this judgment are:
1. Whether the reopening of the assessment under section 147 of the Income-tax Act, 1961 was valid and justified in the facts of the case. 2. Whether the enhanced compensation received by the assessee pursuant to an interim order of the Civil Court is taxable in the assessment year 2016-17 under section 45(5)(b) of the Act, or whether the proviso to this section applies deferring taxability to the year in which the final order is passed by the appellate court. 3. Whether the interest received on delayed payment of compensation is taxable under section 56(2)(viii) as income from other sources in the year of receipt or deferred similarly to the compensation amount. 4. Whether penalty under section 271(1)(c) for concealment of income is sustainable in view of the facts and the legal position on taxability of the enhanced compensation and interest. 5. Whether the delay in filing the appeal before the Commissioner of Income Tax (Appeals) (CIT(A)) should be condoned. Issue-wise Detailed Analysis: 1. Validity of Reopening of Assessment under Section 147 The reopening was triggered by the assessee's disclosure of additional compensation received pursuant to a court order but not offered to tax in the original return. The Assessing Officer (AO) invoked section 147 on the basis that income had escaped assessment. The CIT(A) upheld the reopening. The Tribunal did not explicitly discuss the reopening's validity in detail but noted the reopening was based on information furnished by the assessee itself. The reopening was therefore not found to be invalid or bad in law. 2. Taxability of Enhanced Compensation under Section 45(5)(b) Legal Framework and Precedents: Section 45(5) of the Income-tax Act deals with capital gains arising from compulsory acquisition of capital assets. Clause (b) provides that any enhancement of compensation by a court or tribunal is taxable as capital gains in the year of receipt. However, a proviso was inserted by Finance Act, 2014 (effective 01.04.2015) clarifying that compensation received pursuant to an interim order of a court is taxable only in the year in which the final order is passed. The proviso was introduced to mitigate uncertainty about the timing of taxability when compensation is received under an interim order pending final adjudication. Relevant judicial precedents were cited, including the Supreme Court decision in Collector Land Acquisition vs. Mst. Katiji emphasizing liberal interpretation of procedural provisions, and the Bombay High Court decision in T.V. Patel (P) Ltd. vs. DCIT holding that income accrual is postponed until final adjudication in pending disputes. Court's Interpretation and Reasoning: The Tribunal carefully examined the facts that the enhanced compensation was awarded by the Civil Court but was stayed by the Bombay High Court pending appeal by the State Government. The assessee was allowed to withdraw the compensation only after furnishing bank guarantees and indemnity bonds, indicating the amount was not unconditionally received and there was a possibility of refund. The Tribunal held that the compensation was received pursuant to an interim order and thus the proviso to section 45(5)(b) applies, deferring taxability to the year in which the final order is passed by the High Court. The Tribunal distinguished the decision in CIT vs. Ghanshyam (HUF) relied upon by the CIT(A), noting that it pertained to pre-proviso law and thus is not applicable to the facts post insertion of the proviso. The Tribunal also referred to the Code of Civil Procedure's restitution provisions and the Land Acquisition Act's applicability, reinforcing that the amount received conditionally under stay cannot be treated as final income. Application of Law to Facts: The Tribunal applied the proviso to the facts, noting the stay order and conditional release of funds, concluding that the enhanced compensation and interest are not taxable in AY 2016-17 but in the year when the final order is passed. Treatment of Competing Arguments: The Revenue argued that the compensation was taxable in the year of receipt as per the Civil Court's order and the Ghanshyam (HUF) decision. The Tribunal rejected this, emphasizing the statutory proviso and the interim nature of the High Court's order. Conclusion: The addition of Rs. 22,49,01,802 as capital gains and Rs. 44,29,98,502 as interest income for AY 2016-17 was deleted. 3. Taxability of Interest under Section 56(2)(viii) The interest on delayed compensation was taxed as income from other sources. The Tribunal held that the interest is inseparable from the compensation and similarly subject to the proviso deferring taxability until the final order. Thus, interest income is also not taxable in AY 2016-17. 4. Penalty under Section 271(1)(c) Penalty was imposed for concealment of income on the addition of enhanced compensation and interest. Since the additions were deleted, the basis for penalty fell away. The Tribunal held that penalty under section 271(1)(c) cannot be sustained when the addition itself is deleted. The penalty appeal was allowed accordingly. 5. Condonation of Delay in Filing Appeal The assessee filed the appeal before CIT(A) with a delay of 1119 days. The CIT(A) initially held that no sufficient cause was shown and dismissed the appeal for delay but paradoxically proceeded to decide the appeal on merits. The Tribunal analyzed the provisions of section 249(2) and (3) and noted that appeal can be admitted beyond prescribed time if sufficient cause is shown. It relied on Supreme Court precedents emphasizing liberal construction of "sufficient cause" and the importance of substantial justice over technicalities. The Tribunal noted that 715 days of delay were attributable to the Covid-19 pandemic period excluded by Supreme Court suo moto order, reducing the effective delay to 404 days. The assessee's reliance on advice of tax consultants and medical issues of the CA were accepted as sufficient cause. It was also observed that since CIT(A) had entertained the appeal on merits, the delay was impliedly condoned. The Tribunal accordingly condoned the delay and admitted the appeal. Significant Holdings: "The proviso to section 45(5)(b) ... has an important part to play to interpret the provisions of the Act and has to be given a purposive construction ... making the aforesaid amount of compensation taxable in the year when the final order is passed." "The grant of stay changes the character of the order and is to be treated accordingly ... till the case is decided finally by the judicial forum, it cannot be said that the assessee has acquired a right to receive the income for the purposes of section 5 of the Act." "Penalty under section 271(1)(c) ... cannot be imposed when the addition on which penalty is based has been deleted." "The expression 'sufficient cause' is to be construed liberally so as to advance substantial justice ... the cause of substantial justice deserves to be preferred." Core principles established include the application of the proviso to section 45(5)(b) deferring taxability of compensation received pursuant to interim orders until final adjudication, the inseparability of interest income from the principal compensation for tax purposes, and the liberal approach towards condonation of delay in appeals to promote justice. Final determinations:
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