TMI Blog2004 (6) TMI 579X X X X Extracts X X X X X X X X Extracts X X X X ..... of section 45(5) which specifically provides that enhanced compensation is to be taxed in the year of receipt) and interest received thereon despite correctly holding on the other hand that the income from capital gain and interest thereon should be charged in the year of receipt in which enhanced compensation is received. ( ii )In holding that deduction under sections 54B and 54F of the Income-tax Act, 1961 should be allowed from the date of actual receipt of enhanced compensation received by the assessee against the income which has been charged to tax treated in ground No. 1 above. ( iii )In directing the Assessing Officer to allow credit of TDS without specifying the exact circumstances in which the same shall be allowed. ( iv )In directing the Assessing Officer that the status shown by the assessee should not be changed. ( v )In cancelling the assessments framed under section 148 for the assessment years other than assessment year during which payments have been actually received, when the issue of taxability of interest on enhanced compensation stands finally concluded by the Hon ble Supreme Court s judgments reported in 181 ITR 400 (SC) 165 ITR 231, and 181 ITR 408 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deduction under section 80L amounting to Rs. 12,000 the assessee disclosed net income from interest at Rs. 67,97,299 in the return of income. The computation of taxable income for assessment year 1998-99 is placed in the paper book at page 65 as above. The assessee also appended a note with the computation, which reads as under: "Note : That, the money received by the assessee do not belong to him as the money may be refunded back by the assessee to the Government, on the basis of any surety given by the assessee to the Government, so till the decision of the Punjab Haryana High Court, the assessee is custodian of the money received by him. So it is neither a capital of revenue receipt of the assessee and it is a Amanat. CIT U.P. v. Hira Lal Mittal Sons [1972] 86 ITR 463 (All.). But in the interest of justice, I am willing to pay tax on interest income subject to no interest and penalty thereon and that may be revised by me after the judgment of the Punjab Haryana High Court." 3.3 Thus the assessee disclosed the entire additional compensation as well as interest received from L DO in the return of income for assessment year 1998-99. The Assessing Officer made the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 12,95,342 Assessment year 1997-98 Rs. 12,95,342 Assessment year 1998-99 Rs. 2,51,970 + Rs. 43,952 3.7 Despite query from the Bench, the discrepancies in the figure of additional compensation as well as interest, as referred to above, have not been reconciled by the learned representatives of both sides appearing before us. 3.8 Now with regard to the remaining six cases of the respondent-assessees, facts are substantially similar. In these cases also the information regarding additional compensation as well as accrued interest filed by the learned counsel in the charts included in the paper books, do not tally with the respective figures as adopted by the Assessing Officer while making the impugned assessments. In these cases also we find that additional compensation has been received by these assessees on the basis of the award of the District Judge, Faridabad. These six assessees have offered the receipt of interest on enhanced compensation for assessment year 1998-99 in their returns. However, for assessment year 1998-99, additional compensation has not been included in the computation and separate notes have been appended wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... security by way of undertaking by a third party would not alter the legal and factual position of the case regarding the actual payment of compensation from the government. He argued that payment received by the assessee by way of compensation does not loose its character as payment in terms of the provisions of section 45(5) merely because security has been furnished in compliance with the directions of the High Court. Learned D.R. further submitted that once the entire basis of assessing the additional compensation has been amended by the legislature by inserting section 45(5) which makes it mandatory that additional compensation is to be assessed on payment basis, the fact that the compensation awarded by the District Judge is the subject matter of dispute before the High Court, is absolutely of no consequence. It is further submitted that the additional compensation is not to be assessed on accrual basis and right to receive the additional compensation is not the criteria for assessing the same under section 45(5). Learned D.R. further added that the statutory mandate as enshrined under section 45(5), is to assess the additional compensation on payment basis and not accrual bas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of assessment, section 155(7A) was introduced. The additional compensation is awarded in several stages by several appellate authorities and necessitated rectification of the original assessment at each stage. This caused great difficulty in carrying out the required rectification and in effecting the recovery of additional demand. With a view to resolve these difficulties the Finance Act, 1987 inserted new sub-section (5) in section 45 to provide for taxation of additional compensation in the year of receipt instead of in the year of transfer of the capital asset. The compensation awarded in the first instance, however, continued to be chargeable as income under the head "capital gains" in the previous year in which the transfer took place. Subsequently, Finance (No. 2) Act, 1991 amended sub-section (5) and provided that the capital gains computed with reference to the compensation awarded in the first instance is also to be assessed in the previous year in which such compensation has been received. Thus, the entire focus of the legislative changes centers round the concept of taxing the capital gain in relation to compulsory acquisition of land on actual payment basis and not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o longer be applicable in as much as the right to receive the additional compensation is not the basis for taxing the compensation as capital gain. The basis of taxation of compensation and enhanced compensation is the actual receipt by the assessee. 7.4 The decision of Supreme Court in the case of Hindustan Housing Land Development Trust Ltd. ( supra ) had been rendered in July 1986 i.e., before the introduction of sub-section (5) to section 45 of the Income-tax Act. Since, heavy reliance has been placed by the learned counsel on this decision, we would refer to the facts and issues involved before the Hon ble Supreme Court and the proposition of law enunciated by Their Lordships in the said judgment. 7.4-1 The facts of the cases, as appearing at page 524 of the report, read as under: "Certain lands belonging to the respondent company, which carried on the business of dealing in land and maintained its accounts on the mercantile system, were first requisitioned and then compulsorily acquired by the State Government. The Land Acquisition Officer awarded a sum of Rs. 24,97,249 as compensation. On an appeal preferred by the respondent company, the arbitrator made an a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said to have accrued to it as income during the previous year ended March 31, 1956, relevant to the assessment year 1956-57 as long ago as E.D. Sasoon Co. v. CIT [1954] 26 ITR 27 (SC) this court considered the question as to the point at which income could be said to accrue or arise to an assessee for the purpose of the Indian Income-tax Act. In the majority judgment delivered by N.H. Bhagwati, J., it was explained that the words "arising or accruing" describe a right to receive profits, and that there must be a debt owed by somebody. "Unless and until there is created in favour of the assessee a debt due by somebody", it was observed, "it cannot be said that he has acquired a right to receive the income or the income has accrued to him". In the present case, although the award was made by the arbitrator on July 29, 1955, enhancing the amount of compensation payable to the assessee, the entire amount was in dispute in the appeal filed by the State Government. Indeed, the dispute was regarded by the court as real and substantial, because the assessee was not permitted to withdraw the sum of Rs. 7,36,691 deposited by the State Government on April 25, 1956, without furnishing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... islative amendment in unambiguous, clear and explicit language, the ratio of decision in the case of Hindustan Housing Land Development Trust Ltd. ( supra ) is no loner applicable. 7.5 Now coming to the finding of the learned CIT(A) that the proportion of the compensation in respect of which security has been offered by the assessee, would not be treated as payment for the purpose of section 45(5), we are unable to accept the finding of the learned CIT(A). In the case of Gajey Singh, the order passed by the Hon ble Punjab Haryana High Court while disposing of the stay application filed by the State Government, reads as under: "Stay application is disposed of with the direction that 50 per cent amount of the awarded compensation be disbursed to the respondent-claimants without security and for the remaining 50 per cent if the claimants gives security to the satisfaction of the executing court after giving notice to the State be disbursed to the claimants. The appellant-State is hereby directed to deposit half of the amount of compensation within three months and remaining half in another three months". 7.6 The assessee has been paid the entire amount of additiona ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... up of appeals before us, there is no compulsory acquisition of tenancy right by the Government, being subjected to capital gains. Furthermore, it is also relevant to note here that the aforesaid decision had been rendered on 13th September, 2000 by the Tribunal and therefore there was no occasion for the Tribunal to consider clause ( c ) which has been inserted after clause ( b ) of sub-section (5) of section 45 by the Finance Act, 2003, as reproduced above. 7.9 The aforesaid clause clearly envisages the situation that additional compensation as provided under clause ( b ), received by the assessee, may actually be disputed by the Government and ultimately a higher forum may direct reduction of such compensation. Insertion of clause ( c ) by the Legislature thus eloquently brings out the legislative intention that clause ( b ) is applicable irrespective of finality of litigation. There would be no need for insertion of clause ( c ) if the interpretation canvassed by the learned counsel that enhanced compensation disputed before court even if paid to the assessee, would not be hit by the mischief of clause ( b ). We feel that rule of harmonious interpretation of statute would ne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n record any supporting material whereas in other cases individual status has been accepted. Before us the learned counsel submitted that the same Assessing Officer had assessed Mani Ram, Trilok Singh, Chiranji Lal, Amar Lal and Kishan Singh under identical circumstances in the individual capacity. The Assessing Officer has assessed Rati Ram, who is one of the respondent/assessee, in the present appeals, as HUF, whereas his brothers Chiranji Lal and Amar Lal had been assessed in individual capacity. During to the course of arguments the learned DR has not been able to substantiate the stand of the Revenue, which in any case is contradictory on the issue. We would, accordingly, accept the contention of the learned counsel that status of individual claimed by the respondent/assessees in their returns has been rightly accepted by the learned CIT(A). Common ground, being ground No. 4 in all the appeals, is therefore rejected. 11. Ground No. 5 is regarding charging of interest on enhanced compensation. Vide para 3.6 above we have already indicated that the Assessing Officer has included the interest on the enhanced compensation on accrual basis for the various assessment years fro ..... X X X X Extracts X X X X X X X X Extracts X X X X
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