COMMISSIONER OF INCOME TAX V. CHANDI RAM

ITA/338/2007

AI Insights

The case involves the Commissioner of Income Tax, Faridabad as the appellant and Shri Chandi Ram as the respondent, concerning the taxability of interest on enhanced compensation received by the assessee. The core legal issue was whether the interest on enhanced compensation should be taxed in the year it is received, based on the cash system of accountancy, despite the pendency of appeals in higher courts. The High Court of Punjab and Haryana referenced a similar case, ITA No. 209 of 2004, which had established that under the cash system of accountancy, such interest is taxable in the year of receipt as 'income from other sources'.

• Counselvise Citation: [2010] 140 COUNSELVISE.COM (IT) 681302 (HC-CHANDIGARH)
• Appeal Type: Others
• Pronouncement Date: 08-12-2010
• Assessment Year: misc
• Other Referred Cases: CIT vs. Rama Bai (181 ITR 400), The Commissioner of Income Tax, Faridabad v. Bir Singh (HUF) Ballabgarh
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: HIGH COURT
• Assessee Lawyers: VIVEK SETHI; URVASHI DHUGGA
• Keywords: Accrual basis; Cash system of accountancy; Enhanced compensation; Taxable interest
• Section: 56; 260A; 34; 45(5)(b)

Judgement Text

"ITA No. 338 of 2007 -1- IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No. 338 of 2007 Date of Decision: 8.12.2010 Commissioner of Income Tax, Faridabad ....Appellant. Versus Shri Chandi Ram ...Respondent. CORAM:- HON'BLE MR. JUSTICE ADARSH KUMAR GOEL. HON'BLE MR. JUSTICE AJAY KUMAR MITTAL. PRESENT: Mr. Vivek Sethi, Advocate for the appellant, in ITA No. 338 of 2007. Ms. Urvashi Dhugga, Advocate for the appellant, in ITA No. 294. AJAY KUMAR MITTAL, J. 1. This order shall dispose of ITA Nos. 294 and 338 of 2007 as learned counsel for the appellant submitted that similar question of law is involved therein. 2. ITA No. 338 of 2007 has been preferred by the revenue under Section 260A of the Income Tax Act, 1961 against the order dated 31.10.2006 passed by the Income Tax Appellate Tribunal, Delhi Bench “G”, New Delhi in ITA No. 3382/Del/2003 for the assessment year 1998-99, raising following substantial question of law:- “Whether, on the facts and circumstances of the case, the Hon'ble ITAT is right in holding that the AO shall be within his jurisdiction to bring to tax the ITA No. 338 of 2007 -2- element of interest on accrual basis upon its final determination by the higher courts, in contradiction with the judgment of Hon'ble jurisdictional High Court of Punjab and Haryana following the judgment of Apex Court in the case of CIT vs. Rama Bai (181 ITR 400) whereby interest on enhanced compensation is to be taxed on accrual basis irrespective of the pendency of appeal in higher courts in respect of enhanced compensation?” 3. We have heard learned counsel for the revenue. 4. The point that arises in this appeal is whether the interest received on enhanced compensation is taxable in the hands of the assessee in the year of receipt. 5. The similar issue came up for consideration before this Court in ITA No. 209 of 2004 (The Commissioner of Income Tax, Faridabad v. Bir Singh (HUF) Ballabgarh) decided on 27.10.2010, wherein it was concluded as under:- “(a) that 'income from Business or profession' and 'income from other sources' are ascertain on the basis of system of accountancy followed by the assessee; (b) where assessee is not maintaining books of accounts by adopting any specific method, it shall be treated to be cash system of accountancy; (c) the interest under Section 34 to be awarded by the Collector partakes the characters of compensation ITA No. 338 of 2007 -3- and is taxable in the year of receipt in view of Section 45(5)(b) of the Act; and (d) under cash system of accountancy, the element of interest awarded by the Court received on enhanced amount of compensation under Section 28 of the 1894 Act falls for taxation under Section 56 as 'income from other sources' in the year of receipt.” 6. In view of the above, the appeals are allowed and the question of law is answered in favour of the revenue and against the assessee. (AJAY KUMAR MITTAL) JUDGE December 8, 2010 (ADARSH KUMAR GOEL) gbs JUDGE ITA No. 338 of 2007 -4- IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No. 294 of 2007 Date of Decision: 8.12.2010 Commissioner of Income Tax, Faridabad ....Appellant. Versus Shri Jas Lal (HUF) ...Respondent. CORAM:- HON'BLE MR. JUSTICE ADARSH KUMAR GOEL. HON'BLE MR. JUSTICE AJAY KUMAR MITTAL. PRESENT: Ms. Urvashi Dhugga, Advocate for the appellant. AJAY KUMAR MITTAL, J. The appeal is allowed. For reasons, see the order of even date recorded in ITA No. 338 of 2007 [Commissioner of Income Tax, Faridabad v. Shri Chandi Ram]. (AJAY KUMAR MITTAL) JUDGE December 8, 2010 (ADARSH KUMAR GOEL) gbs JUDGE "