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Smt. Premlata Purshottam Paldiwal C/o. Paldiwal Nursing Home Versus The Commissioner of Income tax I, Nagpur

Accrual of interest income on FD's - compensation and interest was not final, but pending the decision of the High Court - Correct Appreciation of judgment of Paragon Construction (I) Private Limited .vrs. C.I.T. (2004 (9) TMI 39 - DELHI High Court) - Held that:- In the present facts although the interim order allowed the assessee to withdraw the amount of ₹ 63.33 lakhs, there was no stipulation in the interim order that in case the appellant loses, she was obliged to return the amount to .....

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. - The interest if awarded at the final hearing would not necessarily be related to the interest earned on the fixed deposit in the absence of any such direction being made in the interim order. Thus the impugned order of the Tribunal has correctly held that the decision of the Delhi High Court in Paragon Construction (supra) would have no application in view of the above distinction to the present facts. - In the present case it is an accepted position that the right to receive the int .....

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which the assessee would have gained out of benefit/income out of the amount of ₹ 63.33 lakhs would be net of tax. In those circumstances, the requirement for the appellant to pay to the State would be only the net amount received by her after payment of taxes due. Thus we find no merit in the submission that no tax is payable on the income earned on the fixed deposits as the same could be subject to proceedings of restitution under Section 144 of the Code of Civil Procedure. - Appeal .....

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common order relates to the assessment years 1998-1999, 1999-2000, 2000-2001, & 2001-2002. Hence the four appeals. 2. All the four appeals were admitted on 14th December, 2011 on the following identical substantial question of law : 'Whether the judgment of Delhi High Court in the case of Paragon Construction (I) Private Limited .vrs. C.I.T. (2005) 274 I.T.R. 413 (Del) has been correctly appreciated and distinguished by ITAT?' 3. It is an agreed position between the parties that abov .....

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Nagpur. This agricultural land was compulsorily acquired by Government of India issuing a notification dated 5th March, 1992 under Section 4 of the Land Acquisition Act, 1894. The Land Acquisition Officer in September, 1995 granted a compensation of ₹ 9.33 Lakhs (inclusive of interest) to the appellants on acquisition of the notified land. (b) As the appellant was aggrieved by above compensation it ensured a Reference was filed under Section 18 of the Land Acquisition Act by the Collector .....

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amount of ₹ 63.33 Lakhs on her furnishing a bank guarantee of ₹ 35 Lakhs and solvent surety for the balance to the satisfaction of the Court. Consequent to complying with the above, the enhanced compensation of ₹ 63.33 Lakhs was received by the appellant/assessee on 19th August, 1997. (d) The appellant/assessee thereafter deposited the entire amount of ₹ 63.33 Lakhs in Fixed Deposit with the Banks. The appellant/assessee earned interest of ₹ 3.40 Lakhs on the Fixed .....

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ssee's claim and by order dated 28th November, 2003, brought the interest of ₹ 3.40 Lakhs received on Fixed Deposit to tax as income from other sources for the subject assessment year. Identical orders were passed by the Assessing Officer for the other three assessment years. (e) Being aggrieved the appellant/assessee carried the issue in appeal to the Commissioner of Income Tax (Appeals) (CIT(A)). By consolidated order dated 14th September, 2004 for Assessment Year 199697 to 200102 th .....

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sequent to the interim order of the Court dated 14th September, 2004. These appeals were allowed by holding that the issue with regard to enhanced compensation had not yet been finally determined. Consequently, no income could have been said to have accrued during the subject assessment year as same was subject to final decision of the High Court in the pending appeal. It held that till issue of compensation was finally determined, no income on account of compensation and interest thereon can sa .....

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, one each for the Assessment Years 1996-97 to 2001-02 to the Tribunal. By the impugned order dated 30th May, 2011, the Tribunal recorded the fact that the parties are agreed that the original compensation and enhanced compensation received on account of land being acquired is not taxable, for the reason it is agricultural income. However, so far as interest on enhanced compensation under Section 28 of the Land Acquisition Act for Assessment Years 1996-97 and 1997-98 is concerned, it restored th .....

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much as in that case the interim order of the Court allowing the party to withdraw the amount provided for payment of interest in case the applicant/assessee loses at the final hearing of the proceeding seeking to challenge the award by an Arbitrator. In this case, the interim order of the Court dated 9th July, 1997 which allowed the appellant to withdraw the amount of ₹ 63.33 Lakhs did not provide for any such interest to be paid by the appellant/assessee in case it failed at the final h .....

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Mr. Thakkar, the learned counsel for the appellant, in support of the appeal submits as under : (a) The amount received as interest on fixed deposit of ₹ 63.33 Lakhs could not be said to have accrued to the appellant/assessee, as the income earned thereon was a continuance of the compensation and interest thereon, awarded by order dated 21.09.1996 of the Civil Judge, Senior Division. This is so as the compensation and interest was not final, but pending the decision of the High Court. (b) .....

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ciple of restitution as provided in Section 144 of the Civil Procedure Code the appellant/assessee would be obliged to return the amount of ₹ 63.33 Lakhs along with all further benefits obtained by her (including the interest on fixed deposit) on the aforesaid amount to the successful party. 7. As against the above, Mr. Parchure, learned counsel for the Revenue, submits as under : (a) In the present facts, the appeals are only concerned with the issue of bringing to tax, interest earned on .....

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tion (supra) would have no applicability to the present facts. This is as observed by the Tribunal for the reason that in the interim order dated 9th July, 1997 passed by the High Court allowing the appellant/assessee to withdraw the amount of ₹ 63.33 lakhs contained no stipulation that in case appellant/assessee loses before the High Court, then the assessee was obliged to return the amount of ₹ 63.33 Lakhs along with interest, as was the case in the case of Paragon Construction (su .....

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cts. The facts in Paragon Construction (supra) before the Delhi High Court were as follows: (a) The assessee therein was entitled to a sum of money from the Municipal Corporation consequent to award of the Arbitrator. (b) The assessee moved the High Court seeking a direction that the Arbitrator be directed to file the original award in Court for making it the rule of the Court. This was objected to by the Corporation. In those proceedings the Corporation deposited the amount of the award without .....

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ant loses, she was obliged to return the amount to the State along with interest. Therefore, the facts in the present case are completely distinguishable from the decision of the Delhi High Court in Paragon Construction (supra). The requirement of returning the amount along with interest thereon by a subsequent order of the Court is uncertain. Therefore, such an uncertain event cannot by itself divest the accrual of interest income on the fixed deposit in subject assessment year in the hands of .....

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of any such direction being made in the interim order. Thus the impugned order of the Tribunal has correctly held that the decision of the Delhi High Court in Paragon Construction (supra) would have no application in view of the above distinction to the present facts. 9. In fact the above findings of ours would dispose of the substantial question of law in favour of the Revenue. However, we have considered the further submissions made by the appellantassessee challenging the impugned order. Thi .....

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ved by her in land acquisition proceedings. It is a settled issue between the parties that the amounts received at the interim stage in the land acquisition proceedings cannot be brought to tax not only for the reason that it is agricultural income but also for the reason that final determination of the enhanced compensation receivable by the appellant-assessee has not yet been finally determined. Mr. Thakar very fairly states that it is not appellant's claim that interest received on the fi .....

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to be determined by the Court. Therefore, when the compensation received at the interim stage cannot be brought to tax, as it only accrues at the final determination then on the same basis the interest earned on the amount of fixed deposit should also follow the principal amount of ₹ 63.33 lakhs received at interim stage. 10. The above submission ignores the facts that once the interim compensation has been received by the appellantassessee pending the final disposal by the High Court, sh .....

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s fit. Therefore, the fixed deposit which is made in the Bank at the time of deposit loses its character as compensation amount received at the interim stage from the High Court. This link/connection is broken. It is a deposit made in the Bank by the appellantassessee in her own capacity as an individual and not as a trustee appointed by the Court to make fixed deposit for the benefit of any accrual or interest arising therefrom for the benefit of successful party in the litigation before it. Th .....

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