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2016 (5) TMI 686 - ITAT AHMEDABAD

2016 (5) TMI 686 - ITAT AHMEDABAD - TMI - Taxability of interest on compensation awarded by the MACT - revenue or capital receipt - Held that:- Relying upon the decision of the Hon’ble Punjab & Haryana High Court in Drawing and Disbursing Officer Versus Income Tax Officer [2011 (3) TMI 1671 - PUNJAB AND HARYANA HIGH COURT ], we hold that interest component in compensation awarded by MACT is part of compensation and has to be treated as capital receipt and not income till the assessee received th .....

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gh, Sr. D. R. For the Respondent : Smt. Urvashi Shodhan, A.R. ORDER Per Anil Chaturvedi, Accountant Member These two appeals, of which one is filed by Revenue and the other i.e. Cross Objection by assessee, are against the order of CIT(A)-II, Baroda, dated 01.09.2011 for the assessment year 2008-09. 2. The relevant facts as culled out from the materials on record are as under: 3. The assessee is an individual carrying on business as a proprietor of M/s. Super Engineering Services. Assessee filed .....

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order of ld. CIT(A), Revenue and assessee are now in appeal before us and have raised following grounds: 3.1 The ground raised by the Revenue in the present appeal No.2863/Ahd/2011 reads as under:- 1. On the facts and in the circumstances of the case and in law, the ld.CIT (Appeals) erred in allowing deduction @ 50% on the addition of ₹ 28,06,488/- towards the income of interest on compensation received during the year, consequent upon the order of the Hon'ble High Court of Gujarat, wi .....

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reads as under: 1. Ld. CIT (A) erred in law and on facts in granting part relief on additional ground whereas not accepting the contention of the appellant that interest granted from date of claim on compensation received belatedly was taxable on accrual basis and not on receipt basis. Ld. CIT (A) failed to appreciate the fact that provisions of section 145A (b) of the Act taxing interest on receipt basis became operative from 01.04.2010 whereas interest received prior to that would be taxable .....

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5. We have heard the rival submissions and perused the material on record. On perusing the grounds of appeal raised by the Revenue, we find that Revenue is aggrieved by the addition of ₹ 28,06,488/-. As per the announcement of Central Board of Direct Taxes (CBDT) dated 10.12.2015 ( Circular No. 21 of 2015), no Department appeals are to be filed against relief given by ld. CIT(A) before the Income Tax Tribunal unless the tax effect, excluding interest exceeds ₹ 10 lacs and it further .....

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ructions of the aforesaid CBDT Circular would be applicable to the present appeals of the Department and therefore the present appeals of Revenue are not maintainable on account of low tax effect. However, in case there is any error in the computation of the tax effect involved or if for any reason, the aforesaid CBDT Circular is not applicable, it would be open to the Revenue to seek revival of the appeal. In such circumstances, we dismiss the appeals of Revenue without expressing any opinion o .....

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Court dated 07.03.2007, assessee received ₹ 39.98 lacs as compensation, being the claim for the injuries sustained and ₹ 28.06 lacs towards interest on claim from 01.04.1997 to 31.03.2008. A.O. noticed that in the computation of total income that was filed by assessee , assessee had shown income of interest on compensation of only ₹ 2,55,135/-. A.O. was of the view that the interest on compensation which accrued consequent upon the order of the Hon ble High Court of Gujarat an .....

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ated to the original ground and in view of the decision by Hon'ble jurisdictional High Court cited by the Authorized Representative. The Learned Authorized Representative also submitted the Memorandum explaining the clauses amending the provision of the Act, which reads as under:- "The existing provisions of Income-tax Act provide that income chargeable under the head "Profits and gains of business or profession" or "Income from other sources ", shall be computed in .....

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compensation shall be deemed to be his income for the year in which it is received, irrespective of the method of accounting followed by the assessee. Further, it is proposed to insert clause (viii) in sub-section (2) of section 56 to provide that income by way of interest received on compensation or on enhanced-compensation referred to in sub-section (2) of section 145A shall be assessed as "income from other sources" in the year in which it is received. This amendment will take effe .....

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han relatives as defined under that section within the purview of income-tax. Certain exceptions have also been provided under the proviso to the said clause. The proposed amendment seeks to tax specified properties, including a sum of money, received without consideration or for inadequate consideration. This amendment will take effect from 1st October, 2009. It is also proposed to amend sub-section (2) of said section so as to insert a clause which provides that income by way of interest recei .....

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argeable under the head" shall be computed after making the deductions specified therein. It is proposed to amend section 57 of the said Act so as to provide that in the case of income of the nature referred to in clause (viii) of sub-section (2) of section 56, a deduction of a sum equal to fifty per cent of such income and no deduction shall be allowed under any other clause of the said section. This amendment will take effect from 1st April, 2010 and will, accordingly, apply in relation t .....

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14,03,244/- (Rs.28,06,486 / 2) from the interest brought to tax on receipt basis. 9. Aggrieved by the order of ld. CIT(A), assessee is now in appeal before us. 9.1 Before us, ld. A.R. reiterated the submissions made before the A.O. and ld. CIT(A) and further submitted that against the order and award of MACT dated 12th May-2006, United India Insurance Company Ltd. (UIICL) filed application for interim stay of the judgment. The Hon ble Gujarat High Court vide order dated 07.03.2007 in First Appe .....

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and that of the assessee could be to the extent of 25% and, accordingly, Hon ble Gujarat High Court held that assessee would be entitled to total compensation of ₹ 39,22,000/- and after deducting 25% towards contributory negligence of the assessee, the amount that the assessee will be entitled to recover from Insurance Company would be ₹ 29,41,500/- along with interest @ 9% per annum instead of 7.5% per annum ,from the date of application till realization. She pointed to the relevan .....

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the case of Smt. Sharda Pareek vs. ACIT [2012] 19 taxmann.com 218 (Jaipur) and placed on record the copy of the same. Ld. D.R. on the other hand supported the orders of A.O. and ld. CIT(A). 10. We have heard the rival submissions and perused the material on record. The issue in the present case is with respect to taxability of interest on compensation awarded by the MACT. It is undisputed fact that Assessee had met with an accident and had made claim before the MACT. The MACT had awarded compen .....

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ill realization. The aforesaid order of Hon ble High Court rendering of the decision attained finality in July 2015. We find that the Co-ordinate Bench of Tribunal in the case of Smt. Sharda Pareek vs. ACIT (supra) has held that the amount of interest is assessable when the compensation plus interest awarded by MACT reached its finality. The relevant observation of the co-ordinate Bench is reproduced hereunder for ready reference: 10.1. However, the moot question is whether the interest so recei .....

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and Acquisition, the statutory body as well as the agriculturists filed appeal before High Court to enhance the compensation or to reduce the compensation as the case may be. However, in the present case there is no question of enhancing the compensation on account of land acquisition but the case is on account of compensation awarded on account of death of the person due to accident. MACT has awarded some compensation and has also directed to pay interest to the assessee. The Insurance Company .....

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to be upheld. However, the rate may be less or more. If the award granted by MACT is annulled or reduced, then in that case interest on that amount has to be annulled or reduced. There are so many cases also where interest granted by MACT or High Court was reduced by Hon'ble Supreme Court. We will discuss some of the cases in later paras. If the amount is reduced or annulled, then there is no provision under the IT Act for refund of tax paid by the assessee for a particular year. In that si .....

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, it has been clearly established and proved that the rate of interest awarded by the MACT is not final. The Insurance Company has filed appeal before Hon'ble Jurisdictional High Court and the appeal has been admitted and it may be possible that order of MACT may be approved or disapproved. But the order of MACT is not final. Therefore, in these circumstances and in view of various decisions, we are of the considered view that whether the interest awarded by MACT is revenue or compensation b .....

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by MACT, we have come across the decision of Hon ble Punjab & Haryana High Court rendered in the case of Drawing and Disbursing Officer vs. ITO (ITA No.495 & Ors of 2009) order dated 30/3/2011. The substantial question before the Hon ble High Court were as under:- "i) Whether interest allowed by the Ld. MACT in accident case on the amount of award can be termed as 'Income from interest' or the same is a part of compensation for the delay caused in legal proceedings? ii) Whet .....

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CT is not a part of compensation?" 10.2. The Hon ble High Court after considering the various decisions cited in the order, held as under:- 20. In the context of compensation received under the Motor Vehicle Act, the compensation is either on account of loss of earning capacity on account of death or injury or on account of pain and suffering. Such receipt is not by way of earning or profit. Award of compensation is on the principle of restitution to place the claimant in the same position .....

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he present case falls under two separate heads. First, if the deceased had not been killed, but had eked out the full span of life to which in the absence of the accident he could reasonably have looked forward, what sums during that period would he probably have applied out of his income to the maintenance of his wife and family?". 21. Having regard to nature of receipt of compensation as per award under the M.V.Act, compensation is in the nature of capital receipt for death or injury and .....

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ate of making the claim. It reads thus: 171. Award of interest where any claim is allowed: Where any Claims Tribunal allows a claim for compensation made under this Act, such Tribunal may direct that in addition to the amount of compensation simple interest shall also be paid at such rate and from such date not earlier than the date of making the claim as it may specify in this behalf. 24. In the context of compensation under the provisions of Land Acquisition Act, 1894, the Hon'ble Supreme .....

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Section 34 which depends on undue delay in making the award. It is true that interest is not compensation. It is equally true that Section 45(5) of the 1961 Act refers to compensation. But as discussed hereinabove, we have to go by the provisions of the 1894 Act which awards interest both as an accretion in the value of the lands acquired and interest for undue delay. Interest under Section 28 unlike interest under Section 34 is an accretion to the value, hence it is a part of enhanced compensat .....

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ression has been used qualified by the adjective "such", that is to say, as "such principal sum". Recognition of the method of capitalisation of interest so as to make it a part of the principal consistently with the contract between the parties or established banking practice does not offend the sense of reason, justice and equity. As we have noticed such a system has a long established practice and a series of judicial precedents upholding the same. Secondly, the underlying .....

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d of such use of the money which it would have made if the debtor had paid the amount of interest on the date due. The creditor needs to be compensated for deprivation. As held in Pazhaniappa Mudaliar v. Narayana Ayyar (supra), the fact situation is analogous to one as if the creditor has advanced money to the borrower equivalent to the amount of interest debited. We are, therefore, of the opinion that the expression "the principal sum adjudged" may include the amount of interest, char .....

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nings at different places in the language of same section, i.e. Section 34 of C.P.C. 26. The principle in Ghanshyam applies to award of interest from the date of claim to the date of receipt of the awarded amount under the Land Acquisition Act. 27. The apex Court in Tuticorin Alkali Chemicals and Fertilizers Limited v. Commissioner of Income Tax, (1997) 227 ITR 172 had noted that ordinarily, the interest received is income but it would not be of revenue nature where it is received by way of dama .....

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