Hari Kishan and Smt. Chandrawati V. The Presiding Officer, Income Tax Appellate Tribunal, New Delhi

ITA/345/2007

AI Insights

The case involves appeals by Hari Kishan and Smt. Chandrawati against the common order of the Income Tax Appellate Tribunal, New Delhi, which had deemed the enhanced compensation received by the assessees during the pendency of a dispute as income for the purpose of capital gains in the year of receipt. The High Court examined whether this interpretation was consistent with the provisions of Section 45(5) of the Income Tax Act, 1961, and previous judicial decisions. The court found that the Tribunal's decision was contrary to established legal precedents, which hold that interim payments received subject to the final decision of the court do not constitute enhanced compensation for the purposes of capital gains tax.

• Counselvise Citation: [2008] 140 COUNSELVISE.COM (IT) 681598 (HC-MISC)
• Appeal Type: Others
• Pronouncement Date: 09-04-2008
• Assessment Year: misc
• Other Referred Cases: DCIT Versus Padam Parkash (HUF), Commissioner of Income-Tax, West Bengal-II Versus Hindustan Housing and Land Development Trust Limited, Shri Chandi Ram Versus The Commissioner of Income Tax, Faridabad, ITR No.26 of 1997 (the Commissioner of Income Tax, Patiala vs. Shri Karanbir Singh, Rajinder Kuti, Patiala), ITA No.695 of 2005 (The Commissioner of Income Tax, Faridabad vs. Shri Prem Singh), Chief Commissioner of Income Tax vs. Smt.Shantavva
• Laws Referred To: Income Tax Act
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: YOGESH PUTNEY
• Assessee Lawyers: SHIV KUMAR
• Keywords: Capital Gains; Enhanced compensation; Income Tax; Income tax appellate tribunal; Land Acquisition
• Section: 260A; 45(5)

Judgement Text

" IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH I .T.A. No. 345 of 2007 Hari Kishan .....APPELLANT Versus The Presiding Officer, Income Tax Appellate Tribunal, New Delhi and others ....RESPONDENTS I .T.A. No. 361 of 2007 Smt. Chandrawati .....APPELLANT Versus The Presiding Officer, Income Tax Appellate Tribunal, New Delhi and others ....RESPONDENTS DATE OF DECISION: APRIL 09, 2008 CORAM: HON'BLE MR.JUSTICE SATISH KUMAR MITTAL HON'BLE MR.JUSTICE RAKESH KUMAR GARG --- Present: Mr.Shiv Kumar, Advocate, for the appellant. Mr. Yogesh Putney, Advocate, for the respondents. .. SATISH KUMAR MITTAL, J. This order shall dispose of I.T.A. Nos.345 and 361 of 2007 which are arising from the common order dated 31.1.2007 passed by the Income Tax Appellate Tribunal, New Delhi (hereinafter referred to as `the Appellate Tribunal'). These appeals have been filed by the assessees under Section 260A of the Income Tax Act against the aforesaid order dated 31.1.2007 I .T.A. No. 345 of 2007 and another -2- passed by the Appellate Tribunal, by raising the following substantial question of law:- Whether, in the facts and circumstances of the case, the learned Income Tax Appellate Tribunal is right in law in holding that the enhanced compensation received by the assessees during the pendency of dispute of compensation before the Hon'ble Courts is deemed to be income for the purpose of computation of Capital gain in the year of receipt in terms of the provisions of Section 45(5) of the Income Tax Act? While deciding ITA No.2568/Del/2003 of assessee Hari Kishan (HUF) and ITA No.2569/Del/2003 of assessee Smt.Chandrawati, both for the Assessment Year 1998-99, it has been held by the Appellate Tribunal vide aforesaid order that the amount of enhanced compensation as received by the assessee during the pendency of the dispute before the court will be liable to be considered for the purpose of capital gains under Section 45 of the Income Tax Act, 1961 (hereinafter referred to as `the Act') in the year of its receipt, irrespective of the fact that the dispute has not attained finality. In this case, the aforesaid assessees received the interim compensation during the pendency of the appeal on account of acquisition of their land during the Assessment Year 1998-99 amounting to Rs.19,23,468/- and 12,89,026/-, respectively. The Assessing Officer taxed the capital gain on the enhanced compensation holding that the same was taxable in the year of receipt under Section 45(5) of the Act. In appeal, Commissioner of Income Tax (Appeals) confirmed the decision of the Assessing Officer. Against that order, the assessees filed appeals before the Appellate Tribunal. The Appellate Tribunal by following the decision I .T.A. No. 345 of 2007 and another -3- of the Special Bench in case DCIT Versus Padam Parkash (HUF) 104 ITD 1 (Del)(SB) has held that the enhanced compensation is taxable in the year of receipt, irrespective of the fact whether any dispute was pending or not. The Appellate Tribunal has distinguished the judgment of the Hon'ble Supreme Court in case of Commissioner of Income-Tax, West Bengal-II Versus Hindustan Housing and Land Development Trust Limited, 161 ITR 524 while observing that in that case there was no occasion to take note of the provisions contained in sub-section (5) of Section 45 inserted from 1.4.1988. The Appellate Tribunal has also held that clause (c) to sub-section (5) of Section 45 of the Act was inserted w.e.f. 1.4.2004 and the said amendment is of declaratory in character, therefore, it will deem to be applicable retrospectively w.e.f. 1.4.1988, the date on which sub-section (5) of Section 45 was inserted in the Act. The controversy in these appeals is exactly the same as involved in ITA No.4 of 2005 (Shri Chandi Ram Versus The Commissioner of Income Tax, Faridabad), decided by this Court on February 25, 2008, wherein it has been held as under:- “In the present cases, the dispute relates to the assessment years 1994-95 to 1998-99 and during that period, only Section 45(5)(b) of the Act was applicable, which has already been interpreted by this Court and various other Courts, wherein it has been clearly held that Section 45(5)(b) will be attracted only when the assessee receives the enhanced compensation in pursuance of a final award/order of a court, Tribunal or other authority increasing the compensation. If any amount is received after stay of the award, in pursuance of any interim order, as a payment subject to the final result, it will not be an amount received as enhanced compensation as contemplated under section 45(5)(b), but only an interim I .T.A. No. 345 of 2007 and another -4- payment received subject to final decision. Since this Court has already taken the view, therefore, in our opinion, the Tribunal was not justified in taking contrary view to the view taken by this Court in ITR No.26 of 1997 (the Commissioner of Income Tax, Patiala vs. Shri Karanbir Singh, Rajinder Kuti, Patiala, decided on 17.01.2007) and ITA No.695 of 2005 (The Commissioner of Income Tax, Faridabad vs. Shri Prem Singh; decided on 16.5.2007), by following the decision of the Karnataka High Court in the case of Chief Commissioner of Income Tax vs. Smt.Shantavva (2004) 267 ITR 67 (supra).” Counsel for the revenue is unable to controvert the aforesaid legal position and stated that the controversy involved in this case is squarely covered by the aforesaid judgment in favour of the assessee. Consequently, both the appeals are allowed and the substantial question of law is, thus, answered in favour of the assessees and against the revenue. (SATISH KUMAR MITTAL) JUDGE April 09, 2008 (RAKESH KUMAR GARG) vkg JUDGE "