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TMI Blog2024 (11) TMI 1157X X X X Extracts X X X X X X X X Extracts X X X X ..... sition Act 1894 of Rs. 4,78,95,440/- received by the appellant during the year, which was part of enhanced compensation for compulsory acquisition of his agricultural land exempt u/s 10(37) of the Income Tax Act 1961. 2. That having regard to the facts and circumstances of the case and in law, the Ld. Commissioner of Income Tax (Appeals) has erred both in law and on facts in confirming the action of the Ld. Assessing Officer charging interest u/s 234B and u/s 234D of the Income Tax Act 1961. 3. That the appellant craves the leave to add, modify, amend, or delete any of the grounds of appeal at the time of hearing or before decision of appeal. 3. The brief facts of the case are that the assessee is a farmer. He has furnished his original return of income for A.Y.2019-20 electronically on 15.06.2019, subsequently filed revised return of income on 19.07.2019 declaring taxable total income at Rs. 17,08,910/-. The case of the assessee has been selected for scrutiny by issuing notice u/s. 143 (2) of the Act. The assessee had ancestral rural agricultural land situated at Badha in the district of Gurgaon which was acquired by the Government of Haryana for public interest. The assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act against such award of compensation granted by the Land Acquisition Officer, the Court may also award additional amount under Section 23(1-A), solatium under Section 23(2) and interest u/s 28 of the Land Acquisition Act to the assessee apart from market value of land on the date of acquisition forming part of enhanced compensation. In subsequent appeal to High Court and/or Hon'ble Supreme Court, the Court may confirm, enhance, or reduce the market price of acquired land. It may be noted that the assessee is entitled to interest u/s 34 of Land Acquisition Act only if there is delay in payment of compensation on or before taking possession of the acquired land. He has further submitted that award of interest under section 28 of the Land Acquisition Act 1894 discretionary and is determine by the court and awarded by the court is part of enhanced compensation and receipt is in capital in nature. 8. Section 34 and 28 of the Land Acquisition Act 1894 are under:- Section 34 of the 1894 Act reads as under: - "34. Payment of interest When the amount of such compensation is not paid or deposited on or before taking possession of the land, the Collector shall pay the amount awarded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he land, as above provided, the Court shall in every case award a sum of 30 per cent on such market value, in consideration of the compulsory nature of acquisition. This is under section 23(2) of the 1894 Act. In short, section 23(2) talks about solatium. Award of solatium is mandatory. Similarly, payment of additional amount under section 23(1A) is mandatory. The award of interest under section 28 of the 1894 Act is discretionary. Section 28 applies when the amount originally awarded has been paid or deposited and when the Court awards excess amount. In such cases interest on that excess alone is payable. Section 28 empowers the Court to award interest on the excess amount of compensation awarded by it over the amount awarded by the Collector. The compensation awarded by the Court includes the additional compensation awarded under section 23(1A) and the solatium under section 23(2) of the said Act. This award of interest is not mandatory but is left to the discretion of the Court. Section 28 is applicable only in respect of the excess amount, which is determined by the Court after a reference under section 18 of the 1894 Act. Section 28 does not apply to cases of undue delay in ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Section 28 unlike interest under Section 34 is an accretion to the value, hence it is a part of enhanced compensation or consideration which is not the case with interest under Section 34 of the 1894 Act. So also additional amount under Section 23(1-A) and solatium under Section 23(2) of the 1961 Act forms part of enhanced compensation under Section 45(5)(b) of the 1961 Act....." It may also be apt to quote the following part of the decision of the Supreme Court in Ghanshyam (HUF)'s case (supra): 35 Section 45(5) read as a whole (including clause (c)) not only deals with reworking as urged on behalf of the assessee but also with the change in the full value of the consideration (computation) and since the enhanced compensation/ consideration (including interest under Section 28 of the 1894 Act) becomes payable/ paid under the 1894 Act at different stages, the receipt of such enhanced compensation/consideration is to be taxed in the year of receipt subject to adjustment, if any, under Section 155(16) of the 1961 Act, later on. Hence, the year in which enhanced compensation is received is the year of taxability. Consequently, even in cases where pending appeal, the court/trib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st payable under section 28 of the Act of 1894 has already been deducted at source. Consequently, the challenge to the above communication has become infructuous and hence, the prayer clause came to be modified. However, since the amount paid under section 28 of the Act of 1894 forms part of the compensation and not interest, the second respondent was not justified in deducting tax at source under section 194A of the IT Act in respect of such amount. The petitioner is, therefore, entitled to refund of the amount wrongly deducted under section 194A of the I.T. Act. 11. Reliance has also placed on the following judgments :- 1. CIT, Faridabad vs. Ghanshyam (HUF) [29] 182 Taxman 368 (SC) 2. CIT, Rajkot Vs. Govindbhai Mamaiya [2014] 52 taxman.com 27 (SC) 3. Surjit Kumar Chetal Vs. CIT-XV [2017] 86 taxmann.com 121 (Delhi) 4. Movaliya Bhikhubhai Balabhai v. ITO [2016] 70 taxmann.com 45 (Guj). 5. Hon'ble Supreme Court in the case of Shri Brahmaparkash & Ors. Vs. HSIIDCL & Ors. 6. UOI & Ors. V. Hari Singh & Ors. reported at [2018] 91taxmann.com 2 (SC) 7. ITO-TDS 2, Rajkot V. Muktanandgiri Maheshgiri in Civil Appeal No.18475 of 2017 dated 10.11.2017 8. Hon'ble Supreme Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sation) - Whether interest awarded on compensation in motor accident claim cases from date of Claim Petition till passing of award or in case of Appeal, till judgment of High Court in such Appeal, is not 'income' and therefore would not be exigible to tax Held, yes Whether further, provision of deducting tax at source cannot govern taxability of amount which is being paid, hence, section 194A provision relating to deduction of tax at source also cannot make interest income chargeable to tax if it otherwise is not, as it is not a charging provision Held, yes Whether however, interest which maybe paid for delay in depositing awarded amount, would not form part of compensation and, therefore, would fall in bracket of interest income and would be exigible to tax under normal provisions - Held, yes [Paras 59 and 61] [In favour of assessee] 14. Ld AR of the assessee has submitted that memorandum explaining the provisions in the finance bill (No-2)2009 was placed before the parliament and these amendments were made to remove the hardship of the assessee as per the decision of the Hon'ble Supreme Court in the case of Rama Bai v CIT [1990] 181 400 (SC). These amendments were not in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l Narang v DBDT New Delhi [2020]120 taxmann.com 400(P&H) Hon'ble High Court has taken the dissenting view from the view of the Hon'ble Gujarat High Court in the case of Movaliya Bhikhubhai Balabhai (Supra) and held that interest received on compensation or enhanced compensation is to be treated as income from other sources. Reliance has placed on the following judgments;- 1. Bikram SinghVs. Land Acquisition Collector 2. TMK Vs Govindaraju ChettyVs. Commissioner of Income Tax 3. PCIT vs. Inderjit Singh Sodhi (HUF) ITA 769/2023 &CM APPL 65057/2023 Decided on 08-04-2024 by Hon'ble High Court. 18. In the case of Mahender Pal Narang v DBDT New Delhi [2020]120 taxmann.com 400(P&H) the Hon'ble Punjab & Haryana High Court (Jurisdictional High Court) held that ;- 27. The interpretation aforesaid has the legislative acceptance by way of incorporation of Section 145A(b) and 56(1) (vii) w.e.f. 1-4-2010 by Finance (No. 2) Act, 2009 whereby now irrespective of system of accountancy being followed by the assessee, the interest on enhanced compensation shall be taxable in the year of receipt." The High Court of Punjab & Haryana again in the case of Mahender Pal Narang v. DBDT, while dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 1894 Act continues to part take the character of compensation and will not fall within the ambit of expression "interest". In view of discussion above, we with utmost respect are not in agreement with the view taken by Gujarat High Court. There is another aspect, le, the language of sections 56(2)(viii) and 57(iv) of the 1961 Act is plain, simple and unambiguous. There is no scope of taking outside aid for giving an interpretation to newly inserted sub-sections and clauses. 13. In view of the above, it is held that the interest received on compensation or enhanced compensation is to be treated as 'income from other sources' and not under the head 'Capital gains'." (Emphasis supplied). Views of the various Benches of the Tribunal: The Bangalore Bench of the ITAT in the case of Smt. Lakshmamma v. ITO, following the decision rendered by the High Court of Gujarat in the case of Movaliya Bhikhubhai Balabhai (supra), has taken the view that interest received enhanced compensation under section 28 of Land Acquisition Act, 1894 (Predecessor on Act) is eligible for exemption under section 10(37) of the Act in view of the reasoning of the Supreme Court in Ghanshyam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... est under the said Act. Conclusion: The judgments rendered by the Hon'ble High Court of Punjab & Haryana taking the view that interest on compensation and enhanced compensation received by the assessee under sections 28 and 34 of the Predecessor Act are taxable as 'income from other sources' in view of the law laid down in Dr. Shamlal Narula's case(supra) and necessary amendment made thereafter in the provisions of Section 56(2) (viii) of the Act by the Legislature, lays down the law correctly. The construction put forth by three Judges Bench in Dr. Shamlal Narula's case(supra) which has held the field for sufficiently long time without having been overruled and/or adversely commented upon by a Constitutional Bench, and thereafter, an amendment in line therewith, would be nothing but an approval of such a decision. The Principle of stare decisis is also applicable to the judgments of the Supreme Court. The decision rendered by a Division Bench in Ghanshayam's case (supra) may be binding on another Division Bench but would not have a binding effect over and above the construction put forth by a Larger Bench of the Supreme Court; and therefore, the decisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... part of compensation and even otherwise interest component of compensation received under section 28 being not expressly exempted there under. Had the intention of the Legislature been to exempt the interest on compensation or enhanced compensation under section 10(37) of the Act, then a provision would have been engrafted there under in view of the pronouncement earlier thereto rendered by the Hon'ble Supreme Court in Ghanshyam's case(supra), more so when the provisions of Section 56(2)(viii) were introduced in the Act providing there under that interest of compensation or enhanced compensation would be taxable as income from other sources. The intention of the Legislature is thus, pellucid. The issue in question now stands settled with the decision of the Hon'ble Supreme Court of India in Mahnder Pal Narang vs. CBDT, Ministry of Finance [2021] in [2021] 126 taxmann.com 105 (SC). I light of the above submission, along with the decision of the Ld.CIT(A) upholding the order of the AO, it is prayed that the finding of the Revenue may be upheld. 19. In the case of PCIT-10 vs Inderjit Singh Sodhi (HUF) ITA 769/2023 & CM Appeal no 65057/2023 the Hon'ble Delhi High Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 24. A conjoint reading of the aforementioned provisions i.e., Sections 56(2)(viii) and 145-B of the Act vividly stipulate that the income received by way of interest on compensation or on enhanced compensation shall be chargeable to tax under the head 'income from other sources'. Therefore, since the position with respect to the imposition of tax on interest on compensation or enhanced compensation, as it exists today, came into being only in the year 2010, the conclusions drawn from the decision in Ghanshyam (supra), which was passed in the year 2009, are unsustainable in the facts of the present case. 25. Further, much reliance has been placed by the ITAT upon the decision of the Hon'ble Supreme Court in the case of CIT v. Govindbhai Mamaiya [(2014) 16 SCC 449], which relies upon the case of Ghanshyam (supra) to hold that the interest on enhanced compensation received under Section 28 of the Act of 1894 is exigible to tax on receipt basis. However, a deeper analysis of the decision in Govindbhai Mamaiya (supra) would show that it does not deal with any issue pertaining to the change in the taxability, put in place through the concerned amendment of 2010. Therefor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the delayed payment of the compensation amount and, therefore, is a revenue receipt liable to tax under the Income Tax Act." 9. This position of law has been consistently reiterated by this Court in the case of T.N.K. Govindaraju Chetty v. CIT [(1967) 66 ITR 465: AIR 1968 SC 129], Rama Bai v. CIT [1990 Supp SCC 699 : (1990) 181 ITR 400] and K.S. Krishna Rao v. CIT [(1990) 181 ITR 408 (SC)). Thus by a catena of judicial pronouncements, it is settled law that the interest received on delayed payment of the compensation is a revenue receipt exigible to income tax. It is true that in amending the definition of "interest" in Section 2(28-A), interest was defined to mean interest payable in any manner in respect of any money borrowed or debt incurred including a deposit, claim or other similar right or obligation and includes any service, fee or other charges in respect of the moneys borrowed or debt incurred or in respect of any credit facility which has not been utilised. It is seen that the word "interest" for the purpose of the Act was interpreted by the inclusive definition. A literal construction may lead to the conclusion that the interest received or payable in any manner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the foregoing discussion, we affirm the concurrent findings of the AO and CIT(A) and find that the view taken by the ITAT is unsustainable, as the same is based on an incorrect appreciation of law. The 2010 amendment was a conscious departure by the Legislature from the earlier position and the said departure holds good law, as on date. There is no question with respect to the vires of the amendment before us or regarding any ambiguity in the language of the amendment. The only concern is regarding the enunciation of the applicable law and we hold the same to unequivocally mean that interest, whether on compensation or on enhanced compensation, shall be considered as income from other sources and shall be exigible to income tax. 30. We, accordingly, answer the substantial question of law which has arisen in the instant appeal in affirmative and in favour of the Revenue. We, thus, hold that the ITAT has erred in relying upon the decision of Ghanshyam (supra), ignoring the changes brought about by Finance (No.2) Act, 2009, which came into effect in the year 2010. 20. We find that Hon'ble Punjab &Haryana High Court in Mahender Pal Narang vs. DBDT New Delhi [2020]120 taxmann.com 400 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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