Punjab & Haryana H.C : Whether in the facts and circumstances of the present case, the impugned orders A-1 and A-3 are legally sustainable in the eyes of law ?

High Court Of Punjab & Haryana

The New Friends Co-Operative House Building Society Ltd. vs. CIT & ANR.

Section 5, 45(5)(b)

Asst. Year 2001-02

Satish Kumar Mittal & Rakesh Kumar Garg, JJ.

IT Appeal No. 360 of 2007

10th April, 2008

Counsel Appeared :

Akshay Bhan, for the Appellant : Yogesh Putney, for the Respondents.

JUDGMENT

Rakesh Kumar Garg, J. :

The assessee has filed the present appeal under s. 260A of the IT Act, 1961 (for short ‘the Act’) against the order dt. 31st Jan., 2007 (Annex. A-3) passed by the Tribunal, Delhi ‘F’ Bench, New Delhi (for short ‘the Act’).

The assessee firm is a co-operative society and its main object is to acquire land and build houses on that land. The land acquired by the society was compulsorily acquired by the Government. During the year under consideration, the society has received enhanced compensation of Rs. 9,45,32,917 from the reference Court comprising of additional compensation of Rs. 6,40,00,000 and interest of Rs. 3.08 crores thereon. The assessee declared a capital loss of Rs. 2,52,55,221 carried forward to next year on long-term capital gain of Rs. 12.32 lacs. The assessee also declared net income of Rs. 30,89,258 on account of interest received. Accordingly, the assessee declared a returned income of Rs. 18,56,620.

The AO vide his order dt. 27th Feb., 2004 passed under s. 143(3) of the Act held that entire amount of Rs. 9.56 crores on account of enhanced compensation is taxable in asst. yr. 2001-02 only. The amount of Rs. 5.29 crores was held to be as a receipt under s. 45(5)(b) of the Act and interest of Rs. 4.27 crores was ordered to be taxed under the head “Income from other sources”. The conclusions drawn by the AO are reproduced as under :

“(i) The fact that enhanced compensation of Rs. 9.46 crores including interest is very much taxable, is not disputed by the assessee and therefore, this amount is held to be taxable.

(ii) The only point raised by the assessee is the year in which the said amount shall be taxed i.e., the year when the issue of enhanced compensation is finally decided and there is no appeal filed by the State Government against such final order of the Hon’ble High Court or the year in which enhanced compensation has been received.

(iii) The assessee has relied upon the decision of Hon’ble Supreme Court in CIT vs. Hindustan Housing & Land Development Trust Ltd. (1986) 58 CTR (SC) 179 : (1986) 161 ITR 524 (SC). For asst. yr. 1956-57 which has been further followed by Patna and Delhi Tribunal Benches mentioned by the assessee,

(iv) However it is very important to note that Government of India duly considered all these judicial pronouncements and made consequent amendments in the IT Act. As per the latest, position of law in cls. (a), (b) and (c) of s. 45(5) of IT Act, there remains no ambiguity and receipt of compensation, its enhancement or reduction by any Court thereafter has been separately considered. Therefore, the enhanced compensation is to be taxed in the year of such receipt. The assessee’s interest of reduction by any Court later on as pointed out by Hon’ble Supreme Court has been duly safeguarded as per cl. (c) of s. 45(5) that the assessee can recompute the same in the year of any such reduction later on.

(v) Therefore, it is held that the entire amount of Rs. 9.56 crores on account of enhanced compensation is taxable in assessment year of 2001-02 only. The amount of Rs. 5.29 crores shall be taxed under the head “Income from other sources”.

The assessee filed an appeal before the CIT(A), Faridabad, challenging the order dt. 27th Feb., 2004 passed by the assessing authority.

The CIT(A) vide his order dt. 4th Oct., 2004 accepted the appeal and the addition made on account of enhanced compensation and interest thereon was deleted holding that enhanced compensation and interest thereon cannot be charged to tax until the same had attained finality from the highest Court. The CIT(A) while allowing the appeal found that in the present case, the assessee had not acquired any absolute right on the enhanced compensation received as same was received with conditions and since the assessee did not acquire any right over the enhanced compensation and the interest thereon, the same cannot be charged to tax in the hands of the assessee. Not satisfied with the order of the CIT(A), the Revenue filed the appeal before the Tribunal, Delhi Bench “F”, New Delhi, challenging the above said order. However, it was conceded by the Revenue before the Tribunal that the issue involved in the present case is covered by the Special Bench decision of the Tribunal in the case of Dy. CIT vs. Padam Parkash (HUF) 104 TTJ (Del)(SB) 989, wherein it has been held that enhanced compensation for acquisition of land is chargeable to tax in the year in which such compensation is received. However, interest on enhanced compensation is to be assessed on accrual basis from year to year and it can be subjected to tax only after it is finally determined.

In view of the stand taken by the Revenue, the Tribunal directed the AO to tax the compensation in the year of receipt and interest on enhanced compensation in the assessment year relevant to the previous year in which it is finally determined.

In spite of the fact that the Revenue has conceded before the Tribunal over the issues involved in the case, yet the present appeal has been filed raising the following questions of law :

(i) Whether in the facts and circumstances of the present case, the impugned orders A-1 and A-3 are legally sustainable in the eyes of law ?

(ii) Whether in the facts and circumstances of the present case the Tribunal was right in law in holding that the amount of interest on enhanced compensation in consequence upon judgment of District Judge and the amount having been utilized/invested in discretion of the assessee, was not includible in the total (income) of the assessee ?

We have heard learned counsel for the parties. Shri Akshay Bhan, advocate, learned counsel for the assessee has argued that the point in issue is covered in favour of the assessee by a decision of this Court in IT Appeal No. 427 of 2005 decided on 25th Feb., 2008 in the case of Chandi Ram vs. CIT & Ors. [reported at (2008) 4 DTR (P&H) 25—Ed.] and IT Appeal No. 490 of 2007, CIT vs. Hardwari Lal (HUF) decided on 26th March, 2008 [reported at (2008) 219 CTR (P&H) 583 : (2008) 7 DTR (P&H) 76—Ed.].

In support of the appeal, Shri Akshay Bhan, advocate has also argued that the issue involved has been authoritatively settled by the Hon’ble Supreme Court of India, while dismissing the SLP filed by the Revenue against the decision of the Bombay High Court in the case of CIT vs. Abdul Manan Shah Mohammed (2001) 248 ITR 614 (Bom). Besides the above, the learned counsel has also placed a reliance upon a judgment of Karnataka High Court in the case of Chief CIT vs. Smt. Shantavva (2004) 188 CTR (Kar) 162 : (2004) 267 ITR 67 (Kar).

On the other hand, Shri Yogesh Putney, advocate, learned counsel for the Revenue/respondent, has argued to support the order of the AO on the ground that no remedy will be available to the Revenue if the enhanced compensation as well as interest are finally upheld after the prescribed time of issue of notice under s. 148 of the Act. He further argued that in view of the clear provisions of s. 45(5) of the IT Act, the amount of enhanced compensation and interest thereon received by the appellant assessee is liable to be taxed in the year of its receipt.

12. We find force in the argument raised by Shri Akshay Bhan, advocate, learned counsel for the assessee/appellant. The point in issue is squarely covered by our judgment in IT Appeal No. 427 of 2005 Chandi Ram vs. CIT & Ors. (supra) IT Appeal No. 490 of 2007 CIT & Ors. vs. Hardwari Lal (HUF) (supra). Not only this, the same view has also been taken by this Court in IT Appeal No. 177 of 2005 decided on 14th Nov., 2005. The issue regarding the taxability on enhanced compensation thereon has also been clearly dealt with by the Bombay High Court in the case of CIT vs. Abdul Mannan Shah Mohammed (supra) against which the SLP filed by the Revenue has been dismissed by the Hon’ble Supreme Court of India. The relevant part of the judgment is reproduced here below : “The agricultural land owned by the assessee was acquired by the Government in 1989 under the Land Acquisition Act. The assessee filed a civil suit. An award of Rs. 33,80,172 was made in favour of the assessees. Being aggrieved, the State Government moved the High Court against the decision of the reference Court. At this stage, it may be mentioned that the said amount of Rs. 33,80,172 included an amount of Rs. 13,50 lakhs as interest on the additional compensation, pending the appeal. The assessee was permitted to withdraw the amount on giving security. The question which arise for determination of compensation is whether the additional compensation which was deposited in the Court and permitted to be withdrawn was taxable at that stage. Secondly, whether the said amount could be taxed when it was specifically deposited by the Government in appeal to the High Court. In the case of CIT vs. Hindustan Housing & Land Development Trust Ltd. (1986) 58 CTR (SC) 179 : (1986) 161 ITR 524 (SC), the Supreme Court has held that when the Government has appealed against the award the additional amount of compensation was deposited in the Court, it was not taxable at that stage as the additional compensation would not accrue as income when it was specifically disputed by the Government in appeal. In view of the said judgment of the Supreme Court, there is no merit in this appeal. No substantial question of law arises. The judgment of the Supreme Court on facts, squarely applies to the facts of the present case. Hence, the appeal is dismissed.”

13. In view of the above settled proposition of law, the questions raised by the assessee are answered in the negative, i.e., against the Revenue and in favour of the assessee. Thus the appeal filed by the assessee is allowed.

[Citation : 327 ITR 39]