THE COMMR. OF INCOME TAX V. KRISHAN LAL

ITA/290/2006

AI Insights

The case involves the Commissioner of Income Tax, Faridabad as the appellant and Shri Krishan Lal as the respondent, concerning the taxability of interest received on enhanced compensation. The core legal issue was whether the interest received on enhanced compensation is taxable in the year of receipt, particularly when the assessee does not follow the mercantile system of accounting. The Income Tax Appellate Tribunal had previously ruled that such interest is not taxable in the year of receipt, relying on the decision of the Apex Court in CIT Vs. TNK Govindarajulu Chetty. However, the High Court of Punjab and Haryana, referencing a similar case (ITA No. 209 of 2004), overturned this decision, stating that under the cash system of accountancy, such interest is taxable in the year it is received as 'income from other sources' under Section 56 of the Income Tax Act.

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 719065 (HC-MISC)
• Appeal Type: Others
• Pronouncement Date: 24-02-2011
• Assessment Year: misc
• Other Referred Cases: CIT Vs. TNK Govindarajulu Chetty, 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: URVASHI DHUGGA
• Keywords: Enhanced compensation; Interest; Taxable; Mercantile system of account; Cash system of accountancy
• Section: 56; 28; 260A; 34; 45(5)(b)

Judgement Text

"ITA No. 290 of 2006 -1- IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No. 290 of 2006 Date of Decision: 24.2.2011 Commissioner of Income Tax, Faridabad ....Appellant. Versus Shri Krishan Lal ...Respondent. CORAM:- HON'BLE MR. JUSTICE ADARSH KUMAR GOEL. HON'BLE MR. JUSTICE AJAY KUMAR MITTAL. PRESENT: Ms. Urvashi Dhugga, Senior Standing Counsel, for the appellant. None for the respondent. AJAY KUMAR MITTAL, J. 1. Since the Registry has not been able to send the files on account of fire in the Court premises, learned counsel for the appellant has furnished paper books which are taken on record. We proceed to decide the matter after hearing learned counsel for the revenue. 2. This order shall dispose of ITA Nos. 290 of 2006 and 59 of 2007 as according to the learned counsel for the revenue the similar questions of law are involved therein. 3. ITA No. 290 of 2006 has been filed by the revenue under Section 260A of the Income Tax Act, 1961 against the order dated 5.7.2005 passed by the Income Tax Appellate Tribunal, Delhi Bench “D”, New Delhi in ITA Nos. 3938 & 3939/Del/01 for the assessment year ITA No. 290 of 2006 -2- 1998-99, claiming the following substantial questions of law:- “(i) Whether, on the facts and in the circumstances of the case, the Hon'ble ITAT was right in holding that interest received on enhanced compensation is not taxable in the year of receipt, in view of the decision of the Apex Court in the case of CIT Vs. TNK Govindarajulu Chetty, despite the fact that the assessee is not following the mercantile system of account? (ii) Whether, on the facts and in the circumstances of the case, the Hon'ble ITAT was right in holding that although interest would be charged on year to year basis but it shall be done only when the dispute is finally settled by the Court?” 4. We have heard learned counsel for the appellant. 5. The point that arises for consideration in this appeal is whether the interest received on enhanced compensation is taxable in the hands of the assessee in the year of receipt. 6. 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 ascertained on the basis of system of accountancy followed by the assessee; ITA No. 290 of 2006 -3- (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 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.” 5. In view of the above, the appeals are allowed and the questions of law are answered in favour of the revenue and against the assessee. (AJAY KUMAR MITTAL) JUDGE February 24, 2011 (ADARSH KUMAR GOEL) gbs JUDGE ITA No. 290 of 2006 -4- IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No. 59 of 2007 Date of Decision: 24.2.2011 Commissioner of Income Tax, Faridabad ....Appellant. Versus Shri Kishori Lal ...Respondent. CORAM:- HON'BLE MR. JUSTICE ADARSH KUMAR GOEL. HON'BLE MR. JUSTICE AJAY KUMAR MITTAL. PRESENT: Ms. Urvashi Dhugga, Senior Standing Counsel, for the appellant. None for the respondent. AJAY KUMAR MITTAL, J. The appeal is allowed. For reasons, see order of even date recorded in ITA No. 290 of 2006 (Commissioner of Income Tax, Faridabad v. Shri Krishan Lal). (AJAY KUMAR MITTAL) JUDGE February 24, 2011 (ADARSH KUMAR GOEL) gbs JUDGE "