THE COMMISSIONER OF INCOME TAX V. LAKSHMI CHAND (HUF)

ITA/547/2006

AI Insights

The case involves an appeal by the Commissioner of Income Tax, Faridabad against an order of the Income Tax Appellate Tribunal, which had directed the Assessing Officer not to treat a percentage of capital gain and interest as income for the year, despite changes in the law by the amendment and the insertion of new section 45(5) effective from April 1, 1988. The appeal raised substantial questions regarding the taxability of enhanced compensation and the interest thereon in the year of receipt, and the adjudication of issues related to deductions under Sections 54B and 54F of the Income Tax Act, 1961.

• Counselvise Citation: [2010] 140 COUNSELVISE.COM (IT) 743266 (HC-MISC)
• Appeal Type: Others
• Pronouncement Date: 06-12-2010
• Assessment Year: misc
• Other Referred Cases: The Commissioner of Income Tax, Faridabad v. Bir Singh (HUF) Ballabgarh, Commissioner of Income-tax v. Ghanshyam (HUF)
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: HIGH COURT
• Assessee Lawyers: URVASHI DHUGGA
• Keywords: Assessment Year; Capital Gain; Income Tax; Interest; Legal amendment; Security
• Section: 54B; 54F; 260A; 45(5)

Judgement Text

"ITA No. 547 of 2006 -1- IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No. 547 of 2006 Date of Decision: 6.12.2010 Commissioner of Income Tax, Faridabad ....Appellant. Versus Shri Naval Singh ...Respondent. CORAM:- HON'BLE MR. JUSTICE ADARSH KUMAR GOEL. HON'BLE MR. JUSTICE AJAY KUMAR MITTAL. PRESENT: Ms. Urvashi Dhugga, Advocate for the appellant. None for the respondent. AJAY KUMAR MITTAL, J. 1. This appeal has been preferred by the revenue under Section 260A of the Income Tax Act, 1961 (in short “the Act”) against the order dated 24.3.2006 passed by the Income Tax Appellate Tribunal, Delhi Bench “F”, New Delhi (hereinafter referred to as “the Tribunal”) in ITA No. 942/Del/2002 for the assessment year 1998-99, raising following substantial questions of law:- “1. Whether on the facts and circumstances of the case, the Hon'ble ITAT was right in law in holding the order of the CIT(A) directing the Assessing Officer not to treat that percentage of capital gain and interest arising out of payment which is covered by security as income for the year when the law had already ITA No. 547 of 2006 -2- been changed by amendment and new section 45(5) was inserted w.e.f. 01.04.1988? 2. Whether on the facts and in the circumstances of the case the Hon'ble ITAT has erred in not adjudicating the issue of deduction u/s 54B & 54F?” 2. We have heard learned counsel for the revenue. 3. The point that arises in this appeal is whether the amount of enhanced compensation which was released against security and interest received thereon would be taxable in the year of receipt. 4. 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 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 ITA No. 547 of 2006 -3- 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. Further, the Apex Court in Commissioner of Income-tax v. Ghanshyam (HUF), [2009] 315 ITR 1 (SC) had held that the amount of enhanced compensation received by the assessee would be taxable in the year of receipt in view of insertion of Section 45(5)(b) of the Act irrespective of whether any litigation is pending at the behest of the State in any court of law. 6. Accordingly, question No.1 is decided in favour of the revenue and against the assessee. The appeal is allowed to that extent. 7. Since the Tribunal has not decided the issue relating to deduction under Sections 54B and 54F of the Act, the matter is remanded to the Tribunal for decision in this regard in accordance with law. (AJAY KUMAR MITTAL) JUDGE December 6, 2010 (ADARSH KUMAR GOEL) gbs JUDGE "