Appeal details
Counselvise Citation
[2016] 123 COUNSELVISE.COM (IT) 2271 (ITAT-AHMEDABAD)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
4 year(s) 3 month(s) 18 day(s)
Appellant
Respondent
Appeal Type
Cross Objection
Pronouncement Date
11-05-2016
Appeal Filed By
Assessee
Order Result
Allowed
Bench Allotted
A
Next Hearing Date
12-04-2016
Assessment Year
2008-2009
Appeal Filed On
23-01-2012
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, A HMEDABAD , (BEFORE SHRI RAJPAL YADAV, J.M. & SHRI ANIL CHATURV EDI, A.M.) ( , ! ' ,#$ # %& ) ITA NO. 2963/AHD/2011 & C.O. NO.32/AHD/2012 (ASSESSM ENT YEAR: 2008-09) INCOME-TAX OFFICER, WARD 2(4), 2 ND FLOOR, AAYAKAR BHAVAN, RACE COURSE CIRCLE, BARODA SHRI BABU P. MATHEW 5-A, AKSHARDHAM SOCIETY, NR. AKOTA GARDEN PRODUCTIVITY ROAD, BARODA 390020 VS. & VS. SHRI BABU P. MATHEW 5-A, AKSHARDHAM SOCIETY, NR. AKOTA GARDEN PRODUCTIVITY ROAD, BARODA 390020 INCOME-TAX OFFICER, WARD 2(4), 2 ND FLOOR, AAYAKAR BHAVAN, RACE COURSE CIRCLE, BARODA PAN NO. ADQPM6065Q (APPELLANT) (RESPONDENT) / BY REVENUE : SHRI DINESH SINGH, SR. D. R. / BY ASSESSEE :SMT. URVASHI SHODHAN, A.R. DATE OF HEARING : 12 -04-2 016 DATE OF PRONOUNCEMENT : 11 -05-2016 ( # )/ 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. ITA NO.2963/AHD/11 & C.O. NO. 32/AHD/12 A.Y. 2008 -09 (ITO VS. SHRI BABU P. MATHEW) 2 2. THE RELEVANT FACTS AS CULLED OUT FROM THE MATERI ALS ON RECORD ARE AS UNDER: 3. THE ASSESSEE IS AN INDIVIDUAL CARRYING ON BUSINE SS AS A PROPRIETOR OF M/S. SUPER ENGINEERING SERVICES. ASSESSEE FILED ITS RET URN OF INCOME FOR A.Y. 2008-09 ON 29.09.2008 DECLARING TOTAL INCOME AT RS.4,50,04 0/-. THE CASE WAS SELECTED FOR SCRUTINY AND THEREAFTER, ASSESSMENT WAS FRAMED U/S. 143(3) OF THE ACT VIDE ORDER DATED 29.10.2010 AND THE TOTAL INCOME WAS DETERMINE D AT RS.30,08,360/-. AGGRIEVED BY THE ORDER OF ASSESSING OFFICER, ASSESS EE CARRIED THE MATTER BEFORE THE LD. CIT(A) WHO VIDE ORDER DATED 01.09.2011 (IN APPEAL NO. CAB/II-205/10- 11) GRANTED PARTIAL RELIEF TO THE ASSESSEE. AGGRIE VED BY THE ORDER OF LD. CIT(A), REVENUE AND ASSESSEE ARE NOW IN APPEAL BEFORE US AN D 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 C ASE AND IN LAW, THE LD.CIT (APPEALS) ERRED IN ALLOWING DEDUCTION @ 50% ON THE ADDITION OF RS.28,06,488/- TOWARDS THE INCOME OF INTEREST ON COMPENSATION RECEIVED DUR ING THE YEAR, CONSEQUENT UPON THE ORDER OF THE HON'BLE HIGH COURT OF GUJARAT, WITHOUT APPRECIATING THE FACT THAT THE AMENDMENT IN SECTION 57 OF THE ACT AS PER CLAUSE 27 OF THE BILL PROVIDED THAT DEDUCTION OF A SUM EQUAL TO FIFTY PER CENT SHALL BE ALLOWED O N THE INCOME OF THE NATURE REFERRED TO IN CLAUSE (VIII) OF SUB-SECTION (2) OF SECTION 56 O F THE ACT, AND THAT THE AMENDMENT WILL TAKE EFFECT FROM 1ST APRIL, 2010 AND WILL, ACCORDIN GLY, APPLY IN RELATION TO THE A.Y.2010- 11 AND SUBSEQUENT YEARS . 3.2 ON THE OTHER HAND, THE GROUNDS RAISED BY THE AS SESSEE IN C.O. NO.32/AHD/12 READS AS UNDER: 1. LD. CIT (A) ERRED IN LAW AND ON FACTS IN GRANT ING 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 TAXI NG INTEREST ON RECEIPT BASIS BECAME OPERATIVE FROM 01.04.2010 WHEREAS INTEREST R ECEIVED PRIOR TO THAT WOULD BE TAXABLE ON ACCRUAL BASIS. LD. CIT (A) OUGHT TO H AVE ACCEPTED THE CLAIM AND DIRECTED AO TO ALLOW INTEREST TO BE TAXED ON ACCRUA L BASIS. ITA NO.2963/AHD/11 & C.O. NO. 32/AHD/12 A.Y. 2008 -09 (ITO VS. SHRI BABU P. MATHEW) 3 FIRST, WE UP TAKE REVENUES APPEAL IN ITA NO.2963/A HD/2011 4. BEFORE US, AT THE OUTSET, LD. A.R. SUBMITTED THA T THE PRESENT APPEAL OF THE REVENUE NEEDS TO BE DISMISSED ON ACCOUNT OF LOW TAX EFFECT IN VIEW OF THE CBDT CIRCULAR NO. 21 OF 2015 DATED 10.12.2015 THE LD. D.R. FAIRLY ADMITTED THAT THE TAX EFFECT IS LESS THAN THE LIMIT PRESCRIBED BY THE AFORESAID CBDT CIRCULAR. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. ON PERUSING THE GROUNDS OF APPEAL RAISED BY THE REV ENUE, WE FIND THAT REVENUE IS AGGRIEVED BY THE ADDITION OF RS.28,06,488/-. AS PER THE ANNOUNCEMENT OF CENTRAL BOARD OF DIRECT TAXES (CBDT) DATED 10.1 2.2015 ( CIRCULAR NO. 21 OF 2015), NO DEPARTMENT APPEALS ARE TO BE FILED AGAINS T RELIEF GIVEN BY LD. CIT(A) BEFORE THE INCOME TAX TRIBUNAL UNLESS THE TAX EFFEC T, EXCLUDING INTEREST EXCEEDS RS. 10 LACS AND IT FURTHER STATES THAT THE INSTRUCT IONS WILL APPLY RETROSPECTIVELY TO THE PENDING APPEALS. IN THE PRESENT CASES, SINCE IT IS AN UNDISPUTED FACT THAT ON THE DEMANDS WHICH ARE IN DISPUTE IN VARIOUS APPEALS OF REVENUE, THE TAX EFFECT IS LESS THAN RS.10 LACS AND IN THE ABSENCE OF ANY MATERIA L ON RECORD BY THE REVENUE TO DEMONSTRATE THAT THE ISSUES IN THE PRESENT APPEALS ARE COVERED BY EXEMPTIONS SPECIFIED IN CLAUSE (8) OF THE CBDT CIRCULAR, WE AR E OF THE VIEW THAT THE MONETARY LIMIT PRESCRIBED BY THE INSTRUCTIONS OF THE AFOR ESAID CBDT CIRCULAR WOULD BE APPLICABLE TO THE PRESENT APPEALS OF TH E 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 COMPUTAT ION OF THE TAX EFFECT INVOLVED OR IF FOR ANY REASON, THE AFORESAID CBDT CIRCULAR I S 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 A NY OPINION ON MERITS OF THE CASE. ITA NO.2963/AHD/11 & C.O. NO. 32/AHD/12 A.Y. 2008 -09 (ITO VS. SHRI BABU P. MATHEW) 4 6. IN THE RESULT, THE APPEAL OF REVENUE IS DISMISSE D. NOW, WE TAKE UP ASSESSEES C.O. NO.32/AHD/2012 7. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, A.O . NOTICED THAT ASSESSEE HAD MET WITH A MOTOR VEHICLE ACCIDENT ON 18.04.1995 WHICH RENDERED HIM TOTALLY AND PERMANENTLY DISABLED. THE MOTOR ACCIDENT CLAIM S TRIBUNAL (MACT), BARODA VIDE ORDER DATED 12.05.2006 AWARDED COMPENSA TION OF RS.39.98 LACS TO THE ASSESSEE. SUBSEQUENTLY, IN TERMS OF THE ORDER OF HONBLE GUJARAT HIGH COURT DATED 07.03.2007, ASSESSEE RECEIVED RS.39.98 LACS A S COMPENSATION, BEING THE CLAIM FOR THE INJURIES SUSTAINED AND RS.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 IN COME OF INTEREST ON COMPENSATION OF ONLY RS.2,55,135/-. A.O. WAS OF THE VIEW THAT THE INTEREST ON COMPENSATION WHICH ACCRUED CONSEQUENT UPON THE ORDE R OF THE HONBLE HIGH COURT OF GUJARAT AND RECEIVED BY THE ASSESSEE SHOUL D BE TAXED ON RECEIPT BASIS. HE ACCORDINGLY TAXED THE INTEREST OF RS.28,06,488/- AS INCOME OF THE ASSESSEE. 8. AGGRIEVED BY THE ORDER OF ASSESSING OFFICER, ASS ESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) WHO GRANTED PARTIAL RELIEF TO THE ASSESSEE BY HOLDING AS UNDER: 3.3. I HAVE CONSIDERED THE SUBMISSIONS OF THE LEA RNED AUTHORIZED REPRESENTATIVE AND THE ORDER OF THE ASSESSING OFFICER. THE ADDITIONAL GROUND OF APPEAL IS ADMITTED IN VIEW OF THE FACT IT IS RELATED TO THE ORIGINAL GROUND AN D IN VIEW OF THE DECISION BY HON'BLE JURISDICTIONAL HIGH COURT CITED BY THE AUTHORIZED R EPRESENTATIVE. THE LEARNED AUTHORIZED REPRESENTATIVE ALSO SUBMITTED THE MEMORA NDUM EXPLAINING THE CLAUSES AMENDING THE PROVISION OF THE ACT, WHICH READS AS U NDER:- 'THE EXISTING PROVISIONS OF INCOME-TAX ACT PROVIDE THAT INCOME CHARGEABLE UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PR OFESSION' OR 'INCOME FROM ITA NO.2963/AHD/11 & C.O. NO. 32/AHD/12 A.Y. 2008 -09 (ITO VS. SHRI BABU P. MATHEW) 5 OTHER SOURCES ', SHALL BE COMPUTED IN ACCORDANCE WI TH EITHER CASH OR MERCANTILE SYSTEM OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSE SSEE. FURTHER, THE HON'BLE SUPREME COURT, IN THE CASE OF RAMA BAI V. CIT (181 ITR 400) HAS HELD THAT ARREARS OF INTEREST COMPUTED ON DELAYED OR ENHANCED COMPENSATION SHALL BE TAXABLE ON ACCRUAL BASIS. THIS HAS CAUSED UNDUE HAR DSHIP TO TAXPAYERS. WITH A VIEW TO MITIGATING THE HARDSHIP, IT IS PROPO SED TO AMEND SECTION 145A TO PROVIDE THAT THE INTEREST RECEIVED BY AN ASSESSEE O N COMPENSATION OR ENHANCED COMPENSATION SHALL BE DEEMED TO BE HIS INCOME FOR T HE 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 EFFECT FROM 1ST APRIL, 201 0 AND SHALL ACCORDINGLY APPLY IN RELATION TO ASSESSMENT YEAR 1998-99 AND SUBSEQUE NT ASSESSMENT YEARS. CLAUSE 26 OF THE BILL SEEKS TO AMEND SECTION 56 OF THE INC OME-TAX ACT RELATING TO INCOME FROM OTHER SOURCES. THE EXISTING PROVISION OF CLAUSE (VI) OF SUB-SECTIO N (2) OF THE SAID SECTION BRINGS ANY SUM OF MONEY, THE AGGREGATE VALUE OF WHICH EXCE EDS FIFTY THOUSAND RUPEES, WHICH IS RECEIVED WITHOUT CONSIDERATION BY AN INDIV IDUAL OR A HINDU UNDIVIDED FAMILY FROM PERSONS OTHER THAN 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 PROPE RTIES, INCLUDING A SUM OF MONEY, RECEIVED WITHOUT CONSIDERATION OR FOR INADEQ UATE CONSIDERATION. THIS AMENDMENT WILL TAKE EFFECT FROM 1ST OCTOBER, 2 009. IT IS ALSO PROPOSED TO AMEND SUB-SECTION (2) OF SAI D SECTION SO AS TO INSERT A CLAUSE WHICH PROVIDES THAT INCOME BY WAY OF INTERES T RECEIVED ON COMPENSATION OR ON ENHANCED COMPENSATION REFERRED TO IN SUB-SECT ION (2) OF SECTION 145A SHALL BE CHARGEABLE TO INCOME-TAX UNDER HEAD INCOME FROM OTHER SOURCES. THIS AMENDMENT WILL TAKE EFFECT FROM 1ST APRIL, 201 0 AND WILL, ACCORDINGLY, APPLY IN RELATION TO THE ASSESSMENT YEAR 2010-11AND SUBSEQUENT YEARS. ' CLAUSE 27 OF THE BILL SEEKS TO AMEND SECTION 57 OF THE INCOME-TAX ACT, WHICH RELATES TO DEDUCTIONS. THE EXISTING PROVISIONS CONTAINED IN THE SAID SECTI ON PROVIDES THAT THE INCOME CHARGEABLE UNDER THE HEAD' SHALL BE COMPUTED AFTER MAKING THE DEDUCTIONS SPECIFIED THEREIN. ITA NO.2963/AHD/11 & C.O. NO. 32/AHD/12 A.Y. 2008 -09 (ITO VS. SHRI BABU P. MATHEW) 6 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 O F THE SAID SECTION. THIS AMENDMENT WILL TAKE EFFECT FROM 1ST APRIL, 201 0 AND WILL, ACCORDINGLY, APPLY IN RELATION TO THE ASSESSMENT YEAR 2010-11 AN D SUBSEQUENT YEARS.' IN VIEW OF THE MEMORANDUM CITED ABOVE, WHICH STATES THAT AMENDMENT IN THE ACT ATTEMPTS TO RATIONALIZE THE 'PROVISION OF TAXATION OF INTEREST RECEIVED ON DELAYED COMPENSATION OR ENHANCED COMPENSATION AND SHALL APP LY TO ASSESSMENT YEAR 1998-1999 AND SUBSEQUENT YEARS, THE ADDITIONAL GROUND OF APPE AL OF THE ASSESSEE IS ALLOWED. THE ASSESSING OFFICER IS DIRECTED TO ALLOW 50% DEDUCTIO N FROM THE INTEREST ON COMPENSATION RECEIVED I.E. RS. 14,03,244/- (RS.28,06,486 / 2) FR OM THE INTEREST BROUGHT TO TAX ON RECEIPT BASIS. 9. AGGRIEVED BY THE ORDER OF LD. CIT(A), ASSESSEE I S 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 12 TH MAY-2006, UNITED INDIA INSURANCE COMPANY LTD. (UII CL) FILED APPLICATION FOR INTERIM STAY OF THE JUDGMENT. THE HONBLE GUJAR AT HIGH COURT VIDE ORDER DATED 07.03.2007 IN FIRST APPEAL NO. 879 OF 2007 GR ANTED INTERIM STAY OF THE EXECUTION OF THE AWARD ON CONDITION THAT THE INSURA NCE COMPANY SHALL DEPOSIT 90% OF THE AWARD AMOUNT TOGETHER WITH PROPORTIONATE COSTS AND INTEREST @ 7.5% FROM THE DATE OF CLAIM TILL THE DATE OF DEPOSIT AND SUCH DEPOSIT SHALL BE MADE BY 30 TH APRIL, 2007. THE APPEAL WAS DISPOSED OF BY THE HO NBLE GUJARAT HIGH COURT ON 06.07.2015, WHEREIN HONBLE GUJARAT HIGH COURT H ELD THAT THE NEGLIGENCE OF THE DRIVER OF MINI LUXURY BUS COULD BE TO THE EXTEN T OF 75% AND THAT OF THE ASSESSEE COULD BE TO THE EXTENT OF 25% AND, ACCORDI NGLY, HONBLE GUJARAT HIGH COURT HELD THAT ASSESSEE WOULD BE ENTITLED TO TOTAL COMPENSATION OF RS.39,22,000/- AND AFTER DEDUCTING 25% TOWARDS CONTRIBUTORY NEGLIG ENCE OF THE ASSESSEE, THE AMOUNT THAT THE ASSESSEE WILL BE ENTITLED TO RECOVE R FROM INSURANCE COMPANY ITA NO.2963/AHD/11 & C.O. NO. 32/AHD/12 A.Y. 2008 -09 (ITO VS. SHRI BABU P. MATHEW) 7 WOULD BE RS.29,41,500/- ALONG WITH INTEREST @ 9% PER ANNUM INSTEAD OF 7.5% PER ANNUM ,FROM THE DATE OF APPLICATION TILL REALIZ ATION. SHE POINTED TO THE RELEVANT ORDER OF THE GUJARAT HIGH COURT AND ALSO P LACED ON RECORD A COPY OF THE SAME. SHE THEREFORE SUBMITTED THAT SINCE THE RATE OF INTEREST AWARDED BY MACT WAS NOT FINAL AND THE INSURANCE COMPANY HAD FILED A PPEAL BEFORE THE HIGH COURT, THE INTEREST AWARDED BY MACT TO ASSESSEE CANNOT BE TAXED AS THE AMOUNT HAD NOT ATTAINED FINALITY AND THAT THE AMOUNT SHOULD BE CONSIDERED AS INCOME ONLY WHEN THE AWARD REACHED FINALITY. SHE ALSO PLACED RELIANCE ON THE DECISION OF CO- ORDINATE BENCH OF JAIPUR TRIBUNAL IN THE CASE OF SM T. SHARDA PAREEK VS. ACIT [2012] 19 TAXMANN.COM 218 (JAIPUR) AND PLACED ON RE CORD 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 TA XABILITY 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 COMPENSATION OF RS.39,98,167/- FOR THE INJU RIES SUSTAINED BY THE ASSESSEE. AGAINST THE ORDER OF MACT, INSURANCE COM PANY CARRIED THE MATTER BEFORE THE HONBLE GUJARAT HIGH COURT. HONBLE HIG H COURT VIDE ORDER DATED 06.07.2015 HELD THE ASSESSEE TO BE NEGLIGENT TO TH E EXTENT OF 25% AND THEREFORE, THE AMOUNT OF COMPENSATION THAT THE ASSESSEE WAS EN TITLED TO RECOVER FROM INSURANCE CO. WAS REDUCED TO RS.29,41,500/- ALONG WITH INTEREST @ 9% P.A. INSTEAD OF 7.55% P.A., FROM THE DATE OF APPLICATIO N TILL REALIZATION. THE AFORESAID ORDER OF HONBLE HIGH COURT RENDERING OF THE DECIS ION ATTAINED FINALITY IN JULY 2015. WE FIND THAT THE CO-ORDINATE BENCH OF TRI BUNAL IN THE CASE OF SMT. SHARDA PAREEK VS. ACIT (SUPRA) HAS HELD THAT THE AM OUNT OF INTEREST IS ASSESSABLE WHEN THE COMPENSATION PLUS INTEREST AWARDED BY MACT REACHED ITS FINALITY. THE ITA NO.2963/AHD/11 & C.O. NO. 32/AHD/12 A.Y. 2008 -09 (ITO VS. SHRI BABU P. MATHEW) 8 RELEVANT OBSERVATION OF THE CO-ORDINATE BENCH IS RE PRODUCED HEREUNDER FOR READY REFERENCE: 10.1. HOWEVER, THE MOOT QUESTION IS WHETHER THE INTEREST SO RECEIVED IS TAXABLE IN THE YEAR UNDER CONSIDERATION OR NOT. THE ID. CIT(A) HAS CONFIRMED THE ACTION OF THE AO BY OBSERVING THAT INTEREST HAS BEEN ACCRUED AND FOR THAT PURPOSE HE HAS PLACED RELIANCE ON VARIOUS CASE LAWS WHEREBY IT HAS BEEN HELD THAT INTEREST IS ACCRUED ON THE BASIS OF YEAR TO YEAR. IN THOSE CASES THE INTEREST WAS RECEI VED ON COMPENSATION AWARDED ON ACCOUNT OF ACQUISITION OF LAND. BUT HERE IS THE QUE STION OF INTEREST AWARDED ON COMPENSATION ON ACCOUNT OF DEATH BY ACCIDENT. IN CA SE OF LAND ACQUISITION, THE STATUTORY BODY AS WELL AS THE AGRICULTURISTS FILED APPEAL BEFORE HIGH COURT TO ENHANCE THE COMPENSATION OR TO REDUCE THE COMPENSATION AS T HE 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 COMPENSAT ION AWARDED ON ACCOUNT OF DEATH OF THE PERSON DUE TO ACCIDENT. MACT HAS AWARDED SOME C OMPENSATION AND HAS ALSO DIRECTED TO PAY INTEREST TO THE ASSESSEE. THE INSUR ANCE COMPANY HAS FILED APPEAL BEFORE THE HON'BLE JURISDICTIONAL HIGH COURT AND THE HON'B LE JURISDICTIONAL HIGH COURT HAS ADMITTED THE APPEAL OF THE INSURANCE CO. AND INSURA NCE COMPANY HAS RAISED A VERY VALID POINT WHICH HAS BEEN MENTIONED IN THE WRITTEN SUBMISSIONS WHICH IS PART OF THIS ORDER ALSO. THERE MAY BE POSSIBILITY THAT COMPENSAT ION CAN BE REDUCED CAN BE CANCELLED IN TOTO OR CAN BE UPHELD. APPEAL IS ADMITTED, THERE IS NO DISPUTE. IF THE COMPENSATION IS UPHELD, THEN OF COURSE, INTEREST IS ALSO TO BE UPHE LD. HOWEVER, THE RATE MAY BE LESS OR MORE. IF THE AWARD GRANTED BY MACT IS ANNULLED OR R EDUCED, 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 T HE AMOUNT IS REDUCED OR ANNULLED, THEN THERE IS NO PROVISION UNDER THE IT ACT FOR REFUND O F TAX PAID BY THE ASSESSEE FOR A PARTICULAR YEAR. IN THAT SITUATION THE ASSESSEE WIL L BE IN A ADVERSE POSITION AND NO COURT HAS HELD IN ANY CASE THAT ANY PERSON AGGRIEVED SHOU LD BE IN ADVERSE POSITION. THIS IS A CASE OF DEATH BY ACCIDENT AND IF THE LEGAL HEIR DIR ECTED TO REFUND THE COMPENSATION ALONG WITH INTEREST THEN THERE IS NO REMEDY TO THESE LEGA L HEIRS. THEREFORE, IN VIEW OF THESE FACTS AND CIRCUMSTANCES, WE ARE OF THE CONSIDERED V IEW THAT INTEREST SO AWARDED IS LIABLE TO BE ASSESSED IN THE YEAR IN WHICH IT REACHED ITS FINALITY. FROM THE ABOVE CASE, IT HAS BEEN CLEARLY ESTABLISHE D AND PROVED THAT THE RATE OF INTEREST AWARDED BY THE MACT IS NOT FINAL. THE INSURANCE COM PANY HAS FILED APPEAL BEFORE HON'BLE JURISDICTIONAL HIGH COURT AND THE APPEAL HA S BEEN ADMITTED AND IT MAY BE POSSIBLE THAT ORDER OF MACT MAY BE APPROVED OR DISA PPROVED. 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 REVENU E OR COMPENSATION BUT IT CANNOT BE TAXED IN THE YEAR UND ER CONSIDERATION AS THE SAME HAS NOT REACHED ITS FINALITY. ACCORDINGLY, WE HOLD THAT THE AMOUNT OF INTEREST AWARDED IN THE YEAR UNDER CONSIDERATION OR RECEIVED BY THE LEGAL H EIRS IS NOT ASSESSABLE IN THE YEAR UNDER CONSIDERATION AS THE SAME WILL BE CONSIDERED IN THE YEAR WHEN THE COMPENSATION PLUS INTEREST AWARDED BY MACT REACHED ITS FINALITY. WE ORDER ACCORDINGLY. ITA NO.2963/AHD/11 & C.O. NO. 32/AHD/12 A.Y. 2008 -09 (ITO VS. SHRI BABU P. MATHEW) 9 10.1. SUBSEQUENTLY, WHILE DICTATING THE ORDER , ON THE ISSUE OF TAXABILITY OF INTEREST AWARDED BY MACT, WE HAVE COME ACROSS THE D ECISION OF HONBLE PUNJAB & HARYANA HIGH COURT RENDERED IN THE CASE OF DRAWIN G AND DISBURSING OFFICER VS. ITO (ITA NO.495 & ORS OF 2009) ORDER DATED 30 /3/2011. THE SUBSTANTIAL QUESTION BEFORE THE HONBLE HIGH COURT WERE AS UNDE R:- 'I)WHETHER INTEREST ALLOWED BY THE LD. MACT IN ACCI DENT CASE ON THE AMOUNT OF AWARD CAN BE TERMED AS 'INCOM E FROM INTEREST' OR THE SAME IS A PART OF COMPENSATION FOR THE DELAY CAUSED IN LEGAL PROCEEDINGS? II) WHETHER THE DEPARTMENT CAN INITIATE ACTIO N AFTERWARDS WHEN IT HAS ALREADY MADE THE ASSESSMENT AND NO INFI RMITY WAS POINTED OUT AT THE TIME OF ASSESSMENT? III) WHETHER AN ORDER PASSED BY THE COURT IS A BSOLUTE AND HAS TO BE COMPLIED WITH IN TOTO? IV) WHETHER THE JUDGMENT DEBTOR CAN MAKE DEDUC TIONS AND IF SO, WHETHER IT WOULD AMOUNT TO CONTEMPT OF C OURT? V) WHETHER INTEREST ALLOWED ON COMPENSATION A MOUNT CAN BE EQUATED WITH INTEREST EARNED ON PRINCIPAL AM OUNT? VI) WHETHER THE INTEREST AWARDED BY THE MACT I S NOT A PART OF COMPENSATION?' 10.2. THE HONBLE 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 EARNIN G 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 IN WHICH HE WOULD HAVE BEEN HAD THE LOSS OF LIFE OR INJURY NOT BEEN SUFFERED. IN GOBALD MOTO R SERVICE LTD. AND ANOTHER VS. R.M.K.VELUSWAMI AND OTHERS AIR 1962 SC 1, IT WAS OB SERVED:- ITA NO.2963/AHD/11 & C.O. NO. 32/AHD/12 A.Y. 2008 -09 (ITO VS. SHRI BABU P. MATHEW) 10 THE SAME PRINCIPLE WAS RESTATED WITH FORCE AND CLA RITY BY VISCOUNT SIMON IN NANCE V. BRITISH COLUMBIA ELECTRIC RAILWAY CO. LTD., 195L AC 601. THERE, THE LEARNED LORD WAS CONSIDERING THE AN ALOGOUS PROVISIONS OF THE BRITISH COLUMBIA LEGISLATION, AND HE PUT THE PR INCIPLE THUS AT P. 614: 'THE CLAIM FOR DAMAGES IN THE PRESENT CASE FALLS UN DER 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 ACCIDEN T HE COULD REASONABLY HAVE LOOKED FORWARD, WHAT SUMS DURING THAT PERIOD W OULD HE PROBABLY HAVE APPLIED OUT OF HIS INCOME TO THE MAINTENANCE O F HIS WIFE AND FAMILY?'. 21. HAVING REGARD TO NATURE OF RECEIPT OF COMPENSAT ION AS PER AWARD UNDER THE M.V.ACT, COMPENSATION IS IN THE NATURE OF CAPITAL R ECEIPT FOR DEATH OR INJURY AND CANNOT BE HELD TO BE IN THE NATURE OF INCOME. LEARN ED COUNSEL FOR THE REVENUE ALSO FAIRLY ACCEPTS THIS LEGAL POSITION. IT APPEARS TO BE FOR THIS REASON THAT THE SAID RECEIPT IS NOT SOUGHT TO BE TREATED AS INCOME. 22. WE MAY NOW CONSIDER THE QUESTION WHETHER INTERE ST ON ACCOUNT OF DELAY IN ADJUDICATION BECOMES PART OF COMPENSATION OR CAN BE TREATED AS A SEPARATE COMPONENT OF INCOME. 23. SECTION 171 OF THE M.V.ACT AUTHORIZES THE TRIBU NAL TO AWARD INTEREST ON THE CLAIM MADE UNDER THE ACT FROM THE DATE OF MAKING TH E 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 S UCH DATE NOT EARLIER THAN THE DATE OF MAKING THE CLAIM AS IT MAY SPECIFY IN T HIS BEHALF. 24. IN THE CONTEXT OF COMPENSATION UNDER THE PROVIS IONS OF LAND ACQUISITION ACT, 1894, THE HON'BLE SUPREME COURT IN COMMISSIONER OF INCOME-TAX VS. GHANSHYAM (HUF), (2009) 315 ITR 1 SC HELD THAT INTE REST PAID BY THE COLLECTOR UNDER SECTION 34 OF THE SAID ACT WAS PART OF COMPEN SATION AND WAS TREATED TO BE AT PAR WITH THE COMPENSATION FOR PURPOSES OF TAXABI LITY. THE RELEVANT OBSERVATIONS THEREIN ARE:- ..SECTION 28 OF THE 1894 ACT APPLIES ONLY IN RESP ECT OF THE EXCESS AMOUNT DETERMINED BY THE COURT AFTER REFERENCE UNDE R SECTION 18 OF THE 1894 ACT. IT DEPENDS UPON THE CLAIM, UNLIKE INTERES T UNDER SECTION 34 WHICH DEPENDS ON UNDUE DELAY IN MAKING THE AWARD. I T IS TRUE THAT ITA NO.2963/AHD/11 & C.O. NO. 32/AHD/12 A.Y. 2008 -09 (ITO VS. SHRI BABU P. MATHEW) 11 INTEREST IS NOT COMPENSATION. IT IS EQUALLY TRUE THAT SECTION 45(5) OF THE 1961 ACT REFERS TO COMPENSATION. BUT AS DISCUSSED H EREINABOVE, WE HAVE TO GO BY THE PROVISIONS OF THE 1894 ACT WHICH AWARD S INTEREST BOTH AS AN ACCRETION IN THE VALUE OF THE LANDS ACQUIRED AND INTEREST FOR UNDUE DELAY. INTEREST UNDER SECTION 28 UNLIKE INTEREST UN DER SECTION 34 IS AN ACCRETION TO THE VALUE, HENCE IT IS A PART OF ENHAN CED COMPENSATION OR CONSIDERATION WHICH IS NOT THE CASE WITH INTEREST U NDER SECTION 34 OF THE 1894 ACT 25. IN CENTRAL BANK OF INDIA VS. RAVINDRA AND OTHER S AIR 2001 SC 3095, THE QUESTION WAS WHETHER INTEREST COMPONENT OF THE PRIN CIPAL SUM COULD CARRY FURTHER INTEREST. IT WAS OBSERVED:- 44. WE ARE OF THE OPINION THAT THE MEANING ASSIGNE D TO THE EXPRESSION 'THE PRINCIPAL SUM ADJUDGED' SHOULD CONTINUE TO BE ASSIGNED TO 'PRINCIPAL SUM' AT SUCH OTHER PLACES IN SECTION 34(1) WHERE TH E EXPRESSION HAS BEEN USED QUALIFIED BY THE ADJECTIVE 'SUCH', THAT IS TO SAY, AS 'SUCH PRINCIPAL SUM'. RECOGNITION OF THE METHOD OF CAPITALISATION O F INTEREST SO AS TO MAKE IT A PART OF THE PRINCIPAL CONSISTENTLY WITH THE CO NTRACT BETWEEN THE PARTIES OR ESTABLISHED BANKING PRACTICE DOES NOT OFFEND THE SENSE OF REASON, JUSTICE AND EQUITY. AS WE HAVE NOTICED SUCH A SYSTE M HAS A LONG ESTABLISHED PRACTICE AND A SERIES OF JUDICIAL PRECE DENTS UPHOLDING THE SAME. SECONDLY, THE UNDERLYING PRINCIPLE AS NOTICED IN SEVERAL DECIDED CASES IS THAT WHEN INTEREST IS DEBITED TO THE ACCOU NT OF THE BORROWER ON PERIODICAL RESTS, IT IS DEBITED BECAUSE OF ITS HAV ING FALLEN DUE ON THAT DAY. NOTHING PREVENTS THE BORROWER FROM PAYING THE AMOUN T OF INTEREST ON THE DATE IT FALLS DUE. IF THE AMOUNT OF INTEREST IS PAI D THERE WILL BE NO OCCASION FOR CAPITALISING THE AMOUNT OF INTEREST AND CONVERT ING IT INTO PRINCIPAL. IF THE INTEREST IS NOT PAID ON THE DATE DUE, FROM THAT DATE THE CREDITOR IS DEPRIVED OF SUCH USE OF THE MONEY WHICH IT WOULD HA VE MADE IF THE DEBTOR HAD PAID THE AMOUNT OF INTEREST ON THE DATE DUE. TH E CREDITOR NEEDS TO BE COMPENSATED FOR DEPRIVATION. AS HELD IN PAZHANIAPPA MUDALIAR V. NARAYANA AYYAR (SUPRA), THE FACT SITUATION IS ANALO GOUS TO ONE AS IF THE CREDITOR HAS ADVANCED MONEY TO THE BORROWER EQUIVAL ENT TO THE AMOUNT OF INTEREST DEBITED. WE ARE, THEREFORE, OF THE OPINION THAT THE EXPRESSION 'THE PRINCIPAL SUM ADJUDGED' MAY INCLUDE THE AMOUNT OF I NTEREST, CHARGED ON PERIODICAL RESTS, AND CAPITALISED WITH THE PRINCIPA L SUM ACTUALLY ADVANCED, SO AS TO BECOME AN AMALGAM OF PRINCIPAL IN SUCH CAS ES WHERE IT IS PERMISSIBLE OR OBLIGATORY FOR THE COURT TO HOLD SO. WHERE THE PRINCIPAL SUM (ON THE DATE OF SUIT) HAS BEEN SO ADJUDGED, THE SAME SHALL BE TREATED AS 'PRINCIPAL SUM' FOR THE PURPOSE OF 'SUCH PRINCIP AL SUM' - THE EXPRESSION EMPLOYED LATER IN SECTION 34 OF C.P.C. T HE EXPRESSION ITA NO.2963/AHD/11 & C.O. NO. 32/AHD/12 A.Y. 2008 -09 (ITO VS. SHRI BABU P. MATHEW) 12 'PRINCIPAL SUM' CANNOT BE GIVEN DIFFERENT MEANINGS 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 AN D 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 O F REVENUE NATURE WHERE IT IS RECEIVED BY WAY OF DAMAGES OR COMPENSATION. 28. IN VIEW OF THE ABOVE, THE INTEREST COMPONENT IN COMPENSATION AWARDED BY MACT IS PART OF COMPENSATION AND HAS TO BE TREATED AS CAPITAL RECEIPT AND NOT INCOME TILL THE CLAIMANT RECEIVED THE AMOUNT IN PUR SUANCE OF AWARD. HOWEVER, DIFFERENT CONSIDERATION WILL PREVAIL FOR INTEREST E ARNED BY THE CLAIMANT ON THE AMOUNT SO RECEIVED, AFTER THE RECEIPT THEREOF. 29. SECTION 194A(3)(IX) REFERS TO THE PROVISION OF RECEIPT OF INTEREST AFTER AMOUNT HAS BEEN RECEIVED BY THE CLAIMANT IN PURSUANCE OF T HE AWARD. WE ARE, THUS, OF THE OPINION THAT QUESTION OF LAW RAISED ON BEHALF OF TH E ASSESSEE HAS TO BE ANSWERED IN ITS FAVOUR. THE VIEW OF THE TRIBUNAL THAT INTERE ST ALLOWED BY THE MACT IN AN ACCIDENT CASE WAS INCOME FROM INTEREST AND, THUS, R EVENUE IN NATURE, IS NOT SUSTAINABLE. 10.3 WE THUS FIND THAT THE HONBLE PUNJAB & HARYAN A HIGH COURT HELD THAT THE INTEREST COMPONENT IN COMPENSATION AWARDED BY MACT TO BE A PART OF COMPENSATION AND, THEREFORE, A CAPITAL RECEIPT AND NOT INCOME TILL THE CLAIMANT RECEIVED THE AMOUNT IN PURSUANCE TO AWARD. IN VIEW OF THE AFORESAID FACTS AND RELYING UPON THE DECISION OF THE HONBLE PUNJAB & HARYANA HIGH COURT, WE HOLD THAT INTEREST COMPONENT IN COMPENSATION AWARDED BY MACT IS PART OF COMPENSATION AND HAS TO BE TREATED AS CAPITAL RECEI PT AND NOT INCOME TILL THE ASSESSEE RECEIVED THE AMOUNT IN PURSUANCE OF AWARD. THE INTEREST EARNED BY THE ASSESSEE ON THE AMOUNT OF COMPENSATION AFTER ITS RE CEIPT WILL BE TAXED IN ACCORDANCE WITH LAW. IN VIEW OF THE AFORESAID FA CTS, WE RESTORE THE ISSUE BACK TO ITA NO.2963/AHD/11 & C.O. NO. 32/AHD/12 A.Y. 2008 -09 (ITO VS. SHRI BABU P. MATHEW) 13 THE FILE OF AO TO REWORK THE INCOME IN ACCORDANCE WITH THE AFORESAID DECISION OF HONBLE P&H HIGH COURT AND DECIDE THE ISSUE. THUS, THIS GROUND OF ASSESSEES CROSS OBJECTION IS ALLOWED FOR STATISTICAL PURPOSES . 11. IN THE RESULT, THE APPEAL OF REVENUE IS DISMISS ED AND C.O. OF ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN OPEN COURT ON 11- 05 - 201 6. SD/- SD/- ( RAJPAL YADAV) (ANIL CHATURVEDI) JUDICIAL MEMBER ACCOUNTANT M EMBER AHMEDABAD: DATED 11/05/2016 SK SINHA/TC NAIR COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) II, BARODA 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER //TRUE COPY// DEPUTY/ASSTT.REGISTRAR ITAT, AHMEDABAD 1.DATE OF DICTATION 12.04.2016 & AS PER LOW TAX EF FECT FORMAT 2.DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE TH E OTHER MEMBER 13 -04-2016/10.5.16 3.DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P.S./P.S. 4.DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT 5.DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR .P.S./P.S 6.DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 7.DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8.THE DATE ON WHICH THE FILE GOES TO THE ASSTT. REG ISTRAR FOR SIGNATURE ON THE ORDER 9.DATE OF DESPATCH OF THE ORDER
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