Income Tax Officer, Ward-1 & TPS, Bagalkot V. Shri Sangappa S Kudarikannur, Bagalkot

ITA 1748/BANG/2017

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 7612 (ITAT-BANGALORE)
• Duration Of Justice: 10 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-07-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2013-2014
• Appeal Filed On: 31-08-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PADMA MEENAKSHI JT BENGALURU
• Keywords: Non-deduction of tax
• Section: 45(5); 56(2); 145; 56; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI A.K. GARODIA, ACCOUNTANT MEMBER ITA NO S . 174 8 /BANG/2017 ASSESSMENT YEAR : 2013 - 14 THE INCOME TAX OFFICER, WARD 1 & TPS, BAGALKOT. VS. SHRI SANGAPPA S. KUDARIKANNUR, 9 TH CROSS, KALADAGI ROAD, VIDHYAGIRI, BAGALKOT. PAN: BDWPK 3511J APP ELL ANT RESPONDENT A PP EL LANT BY : SMT. PADMAMEENAKSHI , JT .CIT(DR)(ITAT), BENGALURU. RE SPONDENT BY : NONE DATE OF HEARING : 06.06 .201 8 DATE OF PRONOUNCEMENT : 20.07. 201 8 O R D E R PER N.V. VASUDEVAN, JUDICIAL MEMBER THIS IS AN APPEAL FILED BY THE REVENUE AGAINST T HE ORDER DATED 16.06.2017 OF THE CIT(APPEALS), BELAGAVI RELATING T O ASSESSMENT YEAR 2013-14. 2. DESPITE SERVICE OF NOTICE, NONE APPEARED ON BE HALF OF THE RESPONDENT AT THE TIME OF HEARING. WE THEREFORE PRO CEED TO DECIDE THE APPEALS AFTER HEARING THE SUBMISSION OF THE LD. DR. 3. THE FACTS UNDER WHICH THIS APPEAL ARISES FOR CON SIDERATION ARE AS FOLLOWS. AN EXTENT OF 5 ACRES 26 GUNTAS IN SY.NO.1 1/1 AT HAVELI, BAGALKOT WAS COMPULSORILY ACQUIRED BY THE SPECIAL LAND ACQUI SITION OFFICER ITA NO.1748/BANG/2017 PAGE 2 OF 12 [HEREINAFTER REFERRED TO AS THE SLAO], BAGALKOT U NDER THE PROVISIONS OF THE LAND ACQUISITION ACT, 1894 VIDE NOTIFICATION DATED 29.07.2000. THERE WERE FIVE CO-OWNERS OF THE LAND SO ACQUIRED. THE ASSESSE E IS A CO-OWNER WHO HELD 1/5 TH SHARE IN THE LAND ACQUIRED BY THE GOVT. AGGRIEVED BY THE AWARD AS ORIGINALLY PASSED AWARDING COMPENSATION FOR THE LAND ACQUIRED BY THE GOVT., THE CO-OWNERS HAD FILED A REFERENCE FOR ENHA NCED COMPENSATION. THE SLAO, BAGALKOT VIDE ORDER DATED 23.06.2012 AWAR DED ENHANCED COMPENSATION AND INTEREST WHICH WAS PAID ON 18.05.2 012. THE DETAILS OF ENHANCED COMPENSATION AND INTEREST ON ENHANCED COMP ENSATION AWARDED IS AS FOLLOWS:- [I N RS.] [IN RS.] ASSESSEES SHARE (1/5 TH ) [IN RS.] TOTAL ENHANCED COMPENSATION RECEIVED 3,14,97,643 62,99,529 9% INTEREST FOR ONE YEAR 28,34,788 15% INTEREST FOR THE REST OF THE PERIOD 4,36,01,501 TOTAL INTEREST RECEIVED 4,64,36,289 92,87,258 TOTAL AMOUNT RECEIVED 7,79,33,932 1,55,86,786 4. THE QUESTION IS WITH REGARD TO TAXABILITY OF A S UM OF RS.92,87,258 WHICH EACH OF THE ASSESSES RECEIVED AS INTEREST ON ENHANCED COMPENSATION. UNDER THE PROVISIONS OF SECTION 10(3 7) OF THE INCOME-TAX ACT, 1961 [THE ACT] ENHANCED COMPENSATION RECEIVE D ON ACQUISITION OF AGRICULTURAL LANDS IS EXEMPT. THE PROVISIONS OF SEC TION 10(37) OF THE ACT READS AS FOLLOWS:- SECTION 10(37) : CAPITAL GAIN ON COMPULSORY ACQUISITION OF URBAN AGRICULTURAL LAND: IN THE CASE OF AN ASSESSEE, BEING AN INDIVIDUAL OR A HINDU INDIVID UAL FAMILY, ANY INCOME CHARGEABLE UNDER THE HEAD CAPITAL GAIN ARI SING FROM THE TRANSFER OF AGRICULTURAL LAND, SHALL BE EXEMPTED, W HERE : ITA NO.1748/BANG/2017 PAGE 3 OF 12 I. SUCH LAND IS SITUATE IN ANY AREA REFERRED TO IN, IT EM (A) OR ITEM (B) OF SUB-CLAUSE (III) OF CLAUSE (14) OF SECTION 2; II. SUCH LAND, DURING THE PERIOD OF TWO YEARS IMMEDIATE LY PRECEDING THE DATE OF TRANSFER, WAS BEING USED FOR AGRICULTURAL PURPOSES BY SUCH HINDU UNDIVIDED FAMIL Y OR INDIVIDUAL, OR A PARENT OF HIS; III. SUCH TRANSFER IS BY WAY OF COMPULSORY ACQUISITION U NDER ANY LAW, OR A TRANSFER THE CONSIDERATION FOR WHICH IS DETERMINED OR APPROVED BY THE CENTRAL GOVERNMENT OR THE RESERVE BANK OF INDIA; IV. SUCH INCOME HAS ARISEN FROM THE COMPENSATION OR CONSIDERATION FOR SUCH TRANSFER RECEIVED BY SUCH AS SESSES ON OR AFTER THE 1ST DAY OF APRIL, 2004. IT MAY BE NOTED IN THIS CONNECTION THAT EXEMPTION I S AVAILABLE ONLY IF COMPULSORY ACQUISITION HAS TAKEN PLACE ON OR AFTER 1-4-2004. EXEMPTION IS ALSO AVAILABLE IF ACQUISITION HAS TAKEN PLACE BE FORE 1-4-2004 BUT COMPENSATION HAS BEEN RECEIVED ON OR AFTER 1-4-2004 . FOR THE PURPOSES OF THIS CLAUSE, THE EXPRESSION, COMPENSATION OR CON SIDERATION INCLUDES THE COMPENSATION OR CONSIDERATION ENHANCED OR FURTH ER ENHANCED BY ANY COURT, TRIBUNAL OR OTHER AUTHORITY. 5. THE ASSESSEES CLAIMED THAT INTEREST RECEIVED BY THEM IS NOTHING BUT COMPENSATION AND THEREFORE EVEN FOR THE INTEREST PO RTION RECEIVED, EXEMPTION U/S. 10(37) OF THE ACT IS APPLICABLE. TH E AO, HOWEVER, WAS OF THE VIEW THAT INTEREST ON ENHANCED COMPENSATION WAS CHARGEABLE TO TAX UNDER THE PROVISIONS OF SECTION 57(IV) R.W.S. 56(2) (VIII) R.W.S. 145A(B) OF THE ACT. THESE PROVISIONS READ AS FOLLOWS:- ITA NO.1748/BANG/2017 PAGE 4 OF 12 DEDUCTIONS. 57. THE INCOME CHARGEABLE UNDER THE HEAD 'INCOME FROM O THER SOURCES' SHALL BE COMPUTED AFTER MAKING THE FOLLOWI NG DEDUCTIONS, NAMELY : ( I ) .. (II) ( III ) . ( IV ) IN THE CASE OF INCOME OF THE NATURE REFERRED TO I N 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 A LLOWED UNDER ANY OTHER CLAUSE OF THIS SECTION . INCOME FROM OTHER SOURCES. 56. (1) INCOME OF EVERY KIND WHICH IS NOT TO BE EXCLUDE D FROM THE TOTAL INCOME UNDER THIS ACT SHALL BE CHARGEABLE TO INCOME -TAX UNDER THE HEAD 'INCOME FROM OTHER SOURCES', IF IT IS NOT CHARGEABL E TO INCOME-TAX UNDER ANY OF THE HEADS SPECIFIED IN SECTION 14, ITEMS A TO E. (2) IN PARTICULAR, AND WITHOUT PREJUDICE TO THE GEN ERALITY OF THE PROVISIONS OF SUB-SECTION (1), THE FOLLOWING INCOMES, SHALL BE CH ARGEABLE TO INCOME-TAX UNDER THE HEAD 'INCOME FROM OTHER SOURCES', NAMELY : (I) .. TO (VII) .. ( VIII ) INCOME BY WAY OF INTEREST RECEIVED ON COMPENSATIO N OR ON ENHANCED COMPENSATION REFERRED TO IN CLAUSE ( B ) OF SECTION 145A ; METHOD OF ACCOUNTING IN CERTAIN CASES. 145A. NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN SECTION 145, (A) ( B ) INTEREST RECEIVED BY AN ASSESSEE ON COMPENSATION OR ON ENHANCED COMPENSATION, AS THE CASE MAY BE, SHALL BE DEEMED T O BE THE INCOME OF THE YEAR IN WHICH IT IS RECEIVED . ITA NO.1748/BANG/2017 PAGE 5 OF 12 6. THE AO REJECTED THE CLAIM OF EXEMPTION U/S. 10(3 7) OF THE ACT AND HELD THAT INTEREST IS CHARGEABLE TO TAX IN THE YEAR OF RECEIPT, IRRESPECTIVE OF THE PERIOD FOR WHICH THE INTEREST IS CALCULATED. T HE FOLLOWING WERE THE RELEVANT OBSERVATIONS OF THE AO:- 4.4. AS PER THE PROVISIONS OF SECTION 56(2)(VIII) OF THE I.T.ACT, 1961 INSERTED W.E.F. 01-04-2010, INCOME BY WAY OF I NTEREST RECEIVED ON COMPENSATION OR ON ENHANCED COMPENSATIO N SHALL BE CHARGEABLE TO TAX UNDER THE HEAD ' INCOME FROM OTHE R SOURCES' AND CLAUSE (B) OF SECTION 145 SPECIFIES THE YEAR OF ACCOUNTING OF THIS INCOME AS THE YEAR IN WHICH IT IS RECEIVED. TH E SECTION 56(2)(VIII) IS UNAMBIGUOUS ON THIS ISSUE AND INCLUD ES INTEREST OF ANY NATURE AND KIND WITHOUT MAKING ANY DISTINCTION OF INTEREST RECEIVED UNDER DIFFERENT PROVISIONS OF THE LAND ACQ UISITION ACT, 1894. HENCE, THE INTEREST {ONE FIFTH SHARE} OF RS.9 2,87,258/- RECEIVED ON COMPENSATION OR ON ENHANCED COMPENSATIO N DOES NOT QUALIFY FOR TREATMENT AS COMPENSATION OR ON ENHANCE D COMPENSATION DOES NOT QUALIFY FOR TREATMENT AS ENHA NCED VALUE OF THE ASSET AND HAS TO BE BROUGHT TO TAX UNDER THE HE AD ' INCOME FROM OTHER SOURCES'. 5. IN THE CIRCUMSTANCES, RS.92,87,258/- BEING INTER EST RECEIVED AS PER THE ORDER DATED 18-05-2012 IS TREAT ED AS THE INCOME OF THE ASSESSEE AND ADDED BACK TO THE TOTAL INCOME SUBJECT TO ALLOWING THE DEDUCTION OF 50% AS PER THE PROVISI ONS OF SECTION 57(IV) OF THE I.T.ACT, 1961. ON ACCOUNT OF THIS ADD ITION, PENALTY PROCEEDINGS U/S 271(1)(C) OF THE INCOME TAX ACT, 19 61 ARE ALSO INITIATED SEPARATELY AS THE ASSESSEE HAS CONCEALED HIS TRUE INCOME AND FURNISHED INACCURATE PARTICULARS OF THE INCOME. 7. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE P REFERRED APPEAL BEFORE THE CIT(APPEALS). THE CONTENTION OF THE ASS ESSEE BEFORE THE CIT(APPEALS) WAS THAT INTEREST ON ENHANCED COMPENSA TION AWARDED TO THE ASSESSEE WAS IN TERMS OF SECTION 28 OF THE LAND ACQ UISITION ACT, 1894 AND SUCH INTEREST WAS IN THE NATURE OF COMPENSATION FAL LING WITHIN THE AMBIT OF SECTION 10(37) OF THE ACT. THE ASSESSEE IN SUPPORT OF ITS CONTENTION PLACED RELIANCE ON THE DECISION OF THE HONBLE GUJARAT HIG H COURT IN THE CASE OF ITA NO.1748/BANG/2017 PAGE 6 OF 12 MOVALIYA BHIKHUBHAI BALABHAI V. INCOME-TAX OFFICER- TDS-1-SURAT [2016] 70 TAXMANN.COM 45 (GUJ) . 8. THE CIT(APPEALS) ACCEPTED THE PLEA OF THE ASSESS EE AND HELD THAT INTEREST TO THE EXTENT OF RS.90,37,666 WHICH WAS IN TEREST AWARDED U/S. 28 OF THE LAND ACQUISITION ACT, 1894 PARTOOK THE CHARACTE R OF COMPENSATION FOR LAND ACQUIRED AND FELL WITHIN THE AMBIT OF SECTION 10(37) OF THE ACT AND TO THAT EXEMPT WAS EXEMPT. THE REMAINING SUM OF RS.2, 49,592 WAS BROUGHT TO TAX AS INCOME FROM OTHER SOURCES AFTER ALLOWING DEDUCTION OF 50% U/S. 57(IV) OF THE ACT. THE FOLLOWING WERE THE RELEVAN T OBSERVATIONS OF THE CIT(APPEALS):- 8.1 FROM THE FACTS IT IS OBSERVED THAT INTEREST RE CEIVED OF RS. 90,37,666/- IS UNDER SECTION 28 OF LAND ACQUISITION ACT, 1894 OUT OF TOTAL INTEREST RECEIVED OF RS.92,87,258/-. INTER EST RECEIVED UNDER SECTION 28 IS ELIGIBLE FOR EXEMPTION UNDER SE CTION 10(37) OF INCOME-TAX ACT, AS DISCUSSED IN ABOVE PARAS. ASSESS ING OFFICER IS DIRECTED TO ALLOW THE INTEREST RECEIVED UNDER SECTI ON 28 OF LAND ACQUISITION ACT AT PAR WITH ENHANCED COMPENSATION A ND ALLOW EXEMPTION U/S 10(37) OF INCOME-TAX ACT, 1961. THE B ALANCE INTEREST OF RS.2,49,592/- (RS.92,87,258 / MINUS RS. 90,37,666/-) IS TO BE TREATED AS INCOME FROM OTHER SOURCES AND BE T AXED AFTER ALLOWING 50% OF DEDUCTION U/S 57 OF INCOME-TAX ACT, 1961. THE ASSESSING OFFICER IS DIRECTED TO WORK OUT TAXABLE I NCOME ACCORDINGLY. 9. AGGRIEVED BY THE AFORESAID ORDERS OF THE CIT(APP EALS), THE REVENUE HAS PREFERRED THE PRESENT APPEALS BEFORE THE TRIBUN AL. 10. WE HAVE HEARD THE SUBMISSIONS OF THE LD. DR, WH O RELIED UPON THE ORDER OF THE AO. WE HAVE CONSIDERED THE SUBMISSION S OF THE LD. DR. IT IS NOT DISPUTED BY THE AO THAT THE LAND ACQUIRED WAS A GRICULTURAL LAND AND THE CONDITIONS LAID DOWN U/S. 10(37)(I) TO (IV) ARE APP LICABLE TO THE LAND WHICH IS IN QUESTION WHICH WAS COMPULSORILY ACQUIRED. IT IS ALSO NOT IN DISPUTE THAT THE INTEREST IN QUESTION WAS INTEREST AWARDED U/S. 28 OF THE LAND ITA NO.1748/BANG/2017 PAGE 7 OF 12 ACQUISITION ACT, 1894. IN THE GIVEN CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE DECISION OF THE HONBLE GUJARAT HIGH COURT IN T HE CASE OF MOVALIYA BHIKHUBHAI BALABHAI (SUPRA) WILL BE APPLICABLE TO THE FACTS OF THE PRESENT CASE. 11. IN MOVALIYA BHIKHUBHAI BALABHAI V. INCOME-TAX OFFICER- TDS-1-SURAT [2016] 70 TAXMANN.COM 45 (GUJARAT) , THE HONBLE GUJARAT HIGH COURT HAD TO DEAL WITH THE NATURE OF THE INTEREST AWARDED U/S.28 OF THE LAND ACQUISITION ACT, 1894. THE FACTS OF THE CASE BEFORE THE HONBL E GUJARAT HIGH COURT WAS THAT THE PETITIONER'S AGRICULTURAL LANDS CAME T O BE ACQUIRED UNDER THE PROVISIONS OF THE ACT OF 1894 FOR THE PUBLIC PURPOS E OF THE OZAT-2 IRRIGATION SCHEME. THE AWARD PASSED BY THE COLLECTOR CAME TO B E CHALLENGED BY THE PETITIONER BEFORE THE LEARNED PRINCIPAL SENIOR CIVI L JUDGE, JUNAGADH (HEREINAFTER REFERRED TO AS THE 'REFERENCE COURT'), WHO BY AN ORDER DATED 20TH MARCH, 2011 AWARDED ADDITIONAL COMPENSATION OF RS. 5,01,846/- IN FAVOUR OF THE PETITIONER TOGETHER WITH OTHER STATUT ORY BENEFITS. PURSUANT TO SUCH AWARD, THE AMOUNT PAYABLE TO THE PETITIONER WA S CALCULATED AND IN TERMS OF THE STATEMENT SHOWING THE AMOUNT OF COMPEN SATION TO BE DEPOSITED IN THE COURT, COMPUTED AN AMOUNT OF RS. 2 0,74,157/- AS PAYABLE TO THE PETITIONER BY WAY OF INTEREST UNDER SECTION 28 OF THE ACT OF 1894. THE PETITIONER MADE AN APPLICATION UNDER SECTION 197(1) OF THE INCOME TAX ACT, 1961 (ACT) FOR DECIDING THE TAX LIABILITY OF INTERE ST AND TO ISSUE A CERTIFICATE AS TO NIL TAX LIABILITY. THE APPLICATION WAS REJECT ED ON THE GROUND THAT THE INTEREST AMOUNT ON THE DELAYED PAYMENT OF COMPENSAT ION AND ENHANCED VALUE OF COMPENSATION IS TAXABLE AS PER THE PROVISI ONS OF SECTION 57(IV) READ WITH SECTIONS 56(2)(VIII) AND 145A(B) OF THE A CT UNDER THE HEAD INCOME FROM OTHER SOURCES. BEING AGGRIEVED BY SUCH ORDER, THE ASSESSEE FILED WRIT PETITION BEFORE HONBLE GUJARAT HIGH COURT. THE QU ESTION BEFORE THE COURT WAS WHETHER INTEREST AWARDED U/S.28 OF THE ACT OF 1 894 IS AKIN TO COMPENSATION AND CHARGEABLE TO TAX U/S.45(5) OF THE ACT OR UNDER THE HEAD ITA NO.1748/BANG/2017 PAGE 8 OF 12 INCOME FROM OTHER SOURCES U/S.57(IV) READ WITH SE C.56(2)(VIII) AND 145A(B) OF THE ACT. THE HONBLE GUJARAT HIGH COURT HELD THAT INTEREST UNDER SECTION 28 OF THE ACT OF 1894 IS AN ACCRETION TO CO MPENSATION AND FORMS PART OF THE COMPENSATION AND, THEREFORE, EXIGIBLE T O TAX UNDER SECTION 45(5) OF THE ACT. IN COMING TO THE AFORESAID CONCLUSION, THE HONBLE GUJARAT HIGH COURT FOLLOWED THE DECISION OF HONBLE SUPREME COUR T IN THE CASE OF CIT V. GHANSHYAM (HUF) [2009] 182 TAXMAN 368, WHEREIN IT WAS HELD THAT INTEREST UNDER SECTION 28 OF THE ACT OF 1894 IS PAR T OF THE AMOUNT OF COMPENSATION WHEREAS INTEREST UNDER SECTION 34 THER EOF IS ONLY FOR DELAY IN MAKING PAYMENT AFTER THE COMPENSATION AMOUNT IS DET ERMINED. INTEREST UNDER SECTION 28 IS A PART OF THE ENHANCED VALUE OF THE LAND WHICH IS NOT THE CASE IN THE MATTER OF PAYMENT OF INTEREST UNDER SECTION 34. ON THE APPLICABILITY OF THE PROVISIONS OF SEC.57(IV) READ WITH 56(2)(VIII) AND SEC.145A(B) OF THE ACT, THE HONBLE GUJARAT HIGH CO URT HELD :- SECTION 145A OF THE I.T. BEARS THE HEADING 'METHOD OF ACCOUNTING IN CERTAIN CASES'. SECTION 145A(B) PROVI DES THAT NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN SECTION 145, INTEREST RECEIVED BY AN ASSESSEE ON COMPENSATI ON OR ON ENHANCED COMPENSATION, AS THE CASE MAY BE, SHALL BE DEEMED TO BE THE INCOME OF THE YEAR IN WHICH IT IS RECEIVED. CLAUSE (VIII) OF SUB-SECTION (2) OF SECTION 56 OF THE I.T. ACT PROVI DES FOR INCOME BY WAY OF INTEREST RECEIVED ON COMPENSATION OR ON E NHANCED COMPENSATION REFERRED TO IN CLAUSE (B) OF SECTION 1 45A WHICH IS CHARGEABLE AS INCOME FROM OTHER SOURCES. THE FIRST RESPONDENT INCOME TAX OFFICER SEEKS TO TAX THE INTEREST RECEIV ED BY THE PETITIONER UNDER SECTION 28 OF THE ACT OF 1894 AS I NCOME FROM OTHER SOURCES UNDER SECTION 56(2)(VIII) READ WITH S ECTION 145A(B) OF THE I.T. ACT. IN THE OPINION OF THIS COURT, IN T HE LIGHT OF THE LAW LAID DOWN BY THE SUPREME COURT IN THE CASE OF GHANSHYAM (HUF) ( SUPRA ), THE INTEREST RECEIVED UNDER SECTION 28 OF THE AC T OF 1894 WOULD NOT FALL WITHIN THE AMBIT OF THE EXPR ESSION 'INTEREST' AS ENVISAGED UNDER SECTION 145A(B) OF TH E I.T. ACT, INASMUCH AS, THE SUPREME COURT IN THE ABOVE DECISIO N HAS HELD THAT INTEREST UNDER SECTION 28 OF THE ACT OF 1894 I S NOT IN THE ITA NO.1748/BANG/2017 PAGE 9 OF 12 NATURE OF INTEREST BUT IS AN ACCRETION TO THE COMPE NSATION AND, THEREFORE, FORMS PART OF THE COMPENSATION. 12. IT WAS ARGUED ON BEHALF OF THE REVENUE BEFORE T HE HONBLE GUJARAT HIGH COURT THAT THE DECISION OF HONBLE SUPREME COU RT IN THE CASE OF GHANSHYAM (HUF) WAS RENDERED PRIOR TO THE SUBSTITUT ION OF SECTION 145A OF THE I.T. ACT BY FINANCE (NO. 2) ACT, 2009 WITH EFFE CT FROM 1ST APRIL, 2010, AND HENCE, WOULD HAVE NO APPLICABILITY CASES PERTAI NING TO AY 2010-11 AND AFTERWARDS. SUCH AN ARGUMENT WAS REPELLED BY THE HO NBLE GUJARAT HIGH COURT AS FOLLOWS: 11. IT HAS BEEN VEHEMENTLY CONTENDED ON BEHALF OF THE FIRST RESPONDENT THAT THE ABOVE DECISION HAS BEEN RENDERE D PRIOR TO THE SUBSTITUTION OF SECTION 145A OF THE I.T. ACT BY FIN ANCE (NO. 2) ACT, 2009 WITH EFFECT FROM 1ST APRIL, 2010, AND HEN CE, WOULD HAVE NO APPLICABILITY TO THE FACTS OF THE PRESENT C ASE. THE SCOPE AND EFFECT OF THE SUBSTITUTION (WITH EFFECT FROM 1S T APRIL, 2010) OF SECTION 145A, AS ALSO AMENDMENT MADE IN SECTION 56( 2) BY ACT 33 OF 2009 HAVE BEEN ELABORATED IN THE FOLLOWING PO RTION OF THE DEPARTMENTAL CIRCULAR NO. 5/2010, DATED 3.6.2010, A S FOLLOWS: 'RATIONALIZING THE PROVISIONS FOR TAXATION OF INTER EST RECEIVED ON DELAYED COMPENSATION OR ON ENHANCED COMPENSATION.- 46.1 THE EXISTING PROVISIONS OF INCOME TAX ACT, 1961, PROVIDE THAT INCOME CHARGEABLE UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION' OR 'INCOME FROM OTHER SO URCES', SHALL BE COMPUTED IN ACCORDANCE WITH EITHER CASH OR MERCANTILE SYSTEM OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSESSEE. FURTHER THE HON'BLE SUPREME COURT IN THE CASE OF SMT. RAMA BAI V. CIT (1990) 84 CTR (SC) 164 : (1990) 181 ITR 400 (SC) HAS HELD THAT ARREARS OF INTEREST COMPUTED ON DELAYED OR ENHANCED COMPENSATION SHALL BE TAXABLE ON ACCRUAL BASIS. THIS HAS CAUSED UNDUE HARDSHIP TO THE TAXPAYERS. 46.2 WITH A VIEW TO MITIGATE THE HARDSHIP, SECTION 145A ITA NO.1748/BANG/2017 PAGE 10 OF 12 IS AMENDED TO PROVIDE THAT THE INTEREST RECEIVED BY AN ASSESSEE ON COMPENSATION OR ENHANCED COMPENSATION SHALL BE DEEMED TO BE HIS INCOME FOR THE YEAR IN WHICH IT WAS RECEIVED, IRRESPECTIVE OF THE METHOD OF ACCO UNTING FOLLOWED BY THE ASSESSEE. 46.3 FURTHER, CLAUSE (VIII) IS INSERTED IN SUB - SECTION (2) OF THE SECTION 56 SO AS TO PROVIDE THAT INCOME BY WAY OF INTEREST RECEIVED ON COMPENSATION OR ENHANCED COMPENSATION REFERRED TO IN CLAUSE ( B ) OF SECTION 145A SHA LL BE ASSESSED AS 'INCOME FROM OTHER SOURCES' IN THE YEAR IN WHICH IT IS RECEIVED. 46.4 APPLICABILITY. - THIS AMENDMENT HAS BEEN MADE APPLICABLE WITH EFFECT FROM 1ST APRIL, 2010, AND IT WILL ACCORDINGLY APPLY IN RELATION TO ASSESSMENT YEAR 2010-11 AND SUBSEQUENT ASSESSMENT YEARS.' THUS, THE SUBSTITUTION OF SECTION 145A BY FINANCE (N O. 2) ACT, 2009 WAS NOT IN CONNECTION WITH THE DECISION OF THE SUPREME COURT IN GHANSHYAM (HUF)'S CASE ( SUPRA ) BUT WAS BROUGHT IN TO MITIGATE THE HARDSHIP CAUSED TO T HE ASSESSEE ON ACCOUNT OF THE DECISION OF THE SUPREME COURT IN RAMA BAI V. CIT [1990] 181 ITR 400/[1991] 54 TAXMAN 496 WHEREBY IT WAS HELD THAT ARREARS OF INTEREST CO MPUTED ON DELAYED OR ENHANCED COMPENSATION SHALL BE TAXABL E ON ACCRUAL BASIS . THEREFORE, WHEN ONE READS THE WORDS 'INTEREST RECEIVED ON COMPENSATION OR ENHANCED COMPENSATION' IN SECTION 145A OF THE I.T. ACT, THE SA ME HAVE TO BE CONSTRUED IN THE MANNER INTERPRETED BY T HE SUPREME COURT IN GHANSHYAM (HUF)'S CASE ( SUPRA ). 13. THE HONBLE GUJARAT HIGH COURT FINALLY CONCLUDE D, AS FOLLOWS: 13. THE UPSHOT OF THE ABOVE DISCUSSION IS THAT SINCE INTEREST UNDER SECTION 28 OF THE ACT OF 1894, PARTAKES THE C HARACTER OF COMPENSATION, IT DOES NOT FALL WITHIN THE AMBIT OF THE EXPRESSION 'INTEREST' AS CONTEMPLATED IN SECTION 145A OF THE I .T. ACT. THE FIRST RESPONDENT - INCOME TAX OFFICER WAS, THEREFOR E, NOT JUSTIFIED IN REFUSING TO GRANT A CERTIFICATE UNDER SECTION 19 7 OF THE I.T. ACT TO THE PETITIONER FOR NON-DEDUCTION OF TAX AT SOURC E, INASMUCH AS, ITA NO.1748/BANG/2017 PAGE 11 OF 12 THE PETITIONER IS NOT LIABLE TO PAY ANY TAX UNDER T HE HEAD 'INCOME FROM OTHER SOURCES' ON THE INTEREST PAID TO IT UNDE R SECTION 28 OF THE ACT OF 1894. 14. THE PETITIONER HAD EARLIER CHALLENGED THE COMMUNI CATION DATED 9TH FEBRUARY, 2015 WHEREBY ITS APPLICATION FO R A CERTIFICATE UNDER SECTION 197 OF THE I.T. ACT HAD BEEN REJECTED , AND SUBSEQUENTLY, TAX ON THE INTEREST PAYABLE UNDER SEC TION 28 OF THE ACT OF 1894 HAS ALREADY BEEN DEDUCTED AT SOURCE. CO NSEQUENTLY, THE CHALLENGE TO THE ABOVE COMMUNICATION HAS BECOME INFRUCTUOUS AND HENCE, THE PRAYER CLAUSE CAME TO BE MODIFIED. HOWEVER, SINCE THE AMOUNT PAID UNDER SECTION 28 OF THE ACT OF 1894 FORMS PART OF THE COMPENSATION AND NOT INTERES T, THE SECOND RESPONDENT WAS NOT JUSTIFIED IN DEDUCTING TAX AT SO URCE UNDER SECTION 194A OF THE I.T. ACT IN RESPECT OF SUCH AMO UNT. THE PETITIONER IS, THEREFORE, ENTITLED TO REFUND OF THE AMOUNT WRONGLY DEDUCTED UNDER SECTION 194A OF THE I.T. ACT. 14. IN THE LIGHT OF THE AFORESAID DECISION OF THE H ONBLE GUJARAT HIGH COURT AND IN THE LIGHT OF THE ADMITTED FACTUAL POSI TION IN THE PRESENT CASE, WE ARE OF THE VIEW THAT THE CIT(APPEALS) WAS FULLY JUSTIFIED IN ALLOWING EXEMPTION U/S. 10(37) OF THE ACT ON THE INTEREST RE CEIVED BY THE ASSESSEE U/S. 28 OF THE LAND ACQUISITION ACT, 1894. WE FIND NO GROUNDS TO INTERFERE WITH THE IMPUGNED ORDER OF THE CIT(APPEALS). 15. CONSEQUENTLY, THE APPEAL OF THE REVENUE IS DISM ISSED. PRONOUNCED IN THE OPEN COURT ON THIS 20 TH DAY OF JULY, 2018. SD/- SD/- ( A.K. GARODIA ) ( N.V. VASUDEVAN ) ACCOUNTANT MEMBER JUDICIAL MEMBER BANGALORE, DATED, THE 20 TH JULY, 2018. / D ESAI S MURTHY / ITA NO.1748/BANG/2017 PAGE 12 OF 12 COPY TO: 1. APP ELL ANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY ITAT, BANGALORE.