Income Tax Officer Ward-2 , Vijayapur V. Shri Mallanna Annappa Yadavannavar Kaman Kham Bazar , Vijayapur

ITA 2076/BANG/2017

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 7795 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 5 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-04-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2014-2015
• Appeal Filed On: 26-10-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: C SANDEEP
• Keywords: Earning of tax free income
• Section: 56(2); 145; 56; 28; 10

Judgement Text

ITA.20176/BANG/2017 PAGE - 1 IN THE INCOME TAX APPELLATE TRIBUNAL BENGALURU BENCH 'B', BENGALURU BEFORE SHRI. A. K. GARODIA, ACCOUNTANT MEMBER AND SHRI. LALIET KUMAR, JUDICIAL MEMBER I.T.A NO.2076/BANG/2017 (ASSESSMENT YEAR : 2014-15) INCOME-TAX OFFICER, WARD- 2, VIJAYAPURA .. APPELLANT V. SHRI. MALLANNA ANNAPPA YADAVANNAVAR, KAMAN KHAN BAZAR, VIJAYAPURA .. RESPONDENT PAN : AFVPY6822Q ASSESSEE BY : SHRI. C. SANDEEP, CA REVENUE BY : SHRI. R. N. SIDDAPPAJI, ADD. CIT HEARD ON : 23.04.2019 PRONOUNCED ON : 24.04.2019 O R D E R PER LALIET KUMAR, JUDICIAL MEMBER : THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF THE CIT (A), BELAGAVI, DT.23.08.2017, FOR THE ASSESSMEN T YEAR 2014-15. 02. THE BASIC GROUND BY THE REVENUE IN THE PRESENT APPEAL PERTAINS TO, WHETHER THE INTEREST INCOME RECEIVED BY THE ASS ESSING ON THE LAND ACQUISITION COMPENSATION IS REQUIRED TO BEAT TAXED AS INCOME FROM ITA.20176/BANG/2017 PAGE - 2 OTHER SOURCES OR AN EXEMPT INCOME UNDER SECTION 10 (37) OF THE INCOME TAX ACT. 03. THE LD. DR FOR THE REVENUE HAD SUBMITTED THAT B Y VIRTUE OF THE FINANCE ACT 2010, AN AMENDMENT WAS BROUGHT IN B Y THE PARLIAMENT AND THEREBY IT WAS LAID THAT THE INCOME BY WAY OF INTEREST RECEIVED ON COMPENSATION OR ON ENHANCED CO MPENSATION REFERRED TO IN CLAUSE (B)OF SECTION 145 A IS REQUIR ED TO BE TREATED AS INCOME FROM OTHER SOURCES. LD. DR HAD DRAWN OUR AT TENTION TO SECTION 56 WHICH IS TO THE FOLLOWING EFFECT: 56. (1) INCOME OF EVERY KIND WHICH IS NOT TO BE EXC LUDED FROM THE TOTAL INCOME UNDER THIS ACT SHALL BE CHARG EABLE TO INCOME-TAX UNDER THE HEAD INCOME FROM OTHER SOURCES, IF IT IS NOT CHARGEABLE TO INCOME-TAX UND ER ANY OF THE HEADS SPECIFIED IN SECTION 14, ITEMS A TO E. (2) IN PARTICULAR, AND WITHOUT PREJUDICE TO THE GE NERALITY OF THE PROVISIONS OF SUBSECTION (1), THE FOLLOWING INCOMES, SHALL BE CHARGEABLE TO INCOME-TAX UNDER THE HEAD INCOME FROM OTHER SOURCES, NAMELY : 1............................... 3 [(VIII) INCOME BY WAY OF INTEREST RECEIVED ON COMPENSATION OR ON ENHANCED COMPENSATION REFERRED T O IN CLAUSE (B) OF SECTION 145A.] IT WAS CONTENDED BY THE DR THAT THE TRIBUNAL IS BOU ND TO APPLY THE LAW LAID DOWN BY THE PARLIAMENT AND THEREFORE INTER EST INCOME IS REQUIRED TO BE TREATED AS INCOME FROM OTHER SOURCES , AS THE ASSESSEE HAD RECEIVED THIS INCOME ON THE LAND ACQUI SITION COMPENSATION. ITA.20176/BANG/2017 PAGE - 3 05. ON THE OTHER HAND THE LD AR HAD SUBMITTED THAT THE ISSUE HAD ALREADY BEEN DECIDED BY THE COORDINATE BENCH IN THE MATTER OF ITO VS SANGAPPA [96 TAXMANN.COM 541]. THEREFORE THE PRESENT APPEAL IS REQUIRED TO BE DECIDED AGAINST THE REVENU E AND IN FAVOUR OF THIS IS OUR ATTENTION WAS DRAWN PARAGRAPHS 12, 1 3 AND 14 OF THE SAID DECISION. 06. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE RE LEVANT MATERIAL ON RECORD, GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AND THE CASE LAW CITED BY THE PARTIES. THE CO ORDINATE BENCH IN THE MATTER OF SANGAPPA (SUPRA) HAD HELD AS UNDER : 12. IT WAS ARGUED ON BEHALF OF THE REVENUE BEFORE THE HON'BLE GUJARAT HIGH COURT THAT THE DECISION OF HON'BLE SUP REME COURT IN THE CASE OF GHANSHYAM (HUF) WAS RENDERED PRIOR TO THE S UBSTITUTION OF SECTION 145A OF THE I.T. ACT BY FINANCE (NO. 2) ACT , 2009 WITH EFFECT FROM 1ST APRIL, 2010, AND HENCE, WOULD HAVE NO APPL ICABILITY CASES PERTAINING TO AY 2010-11 AND AFTERWARDS. SUCH AN AR GUMENT WAS REPELLED BY THE HON'BLE GUJARAT HIGH COURT AS FOLLO WS: '11. IT HAS BEEN VEHEMENTLY CONTENDED ON BEHALF OF THE FIRST RESPONDENT THAT THE ABOVE DECISION HAS BEEN RENDERED PRIOR TO THE SUBSTITUTION OF SECTION 145A OF THE I.T. ACT BY FINANCE (NO. 2) ACT , 2009 WITH EFFECT FROM 1ST APRIL, 2010, AND HENCE, WOULD HAVE NO APPL ICABILITY TO THE FACTS OF THE PRESENT CASE. THE SCOPE AND EFFECT OF THE SUBSTITUTION (WITH EFFECT FROM 1ST APRIL, 2010) OF SECTION 145A, AS AL SO AMENDMENT MADE IN SECTION 56(2) BY ACT 33 OF 2009 HAVE BEEN ELABOR ATED IN THE FOLLOWING PORTION OF THE DEPARTMENTAL CIRCULAR NO. 5/2010, DATED 3.6.2010, AS FOLLOWS: 'RATIONALIZING THE PROVISIONS FOR TAXATION OF INTE REST RECEIVED ON DELAYED COMPENSATION OR ON ENHANCED COMPENSATION. 46.1 THE EXISTING PROVISIONS OF INCOME TAX ACT, 196 1, PROVIDE THAT INCOME CHARGEABLE UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION' OR 'INCOME FROM OTHER SOURCES', SHALL B E 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 O N ACCRUAL BASIS. THIS HAS CAUSED UNDUE HARDSHIP TO THE TAXPAYERS. ITA.20176/BANG/2017 PAGE - 4 46.2 WITH A VIEW TO MITIGATE THE HARDSHIP, SECTION 145A IS AMENDED TO PROVIDE THAT THE INTEREST RECEIVED BY AN ASSESSEE O N COMPENSATION OR ENHANCED COMPENSATION SHALL BE DEEMED TO BE HIS INC OME FOR THE YEAR IN WHICH IT WAS RECEIVED, IRRESPECTIVE OF THE METHO D OF ACCOUNTING FOLLOWED BY THE ASSESSEE. 46.3 FURTHER, CLAUSE (VIII) IS INSERTED IN SUB-SECT ION (2) OF THE SECTION 56 SO AS TO PROVIDE THAT INCOME BY WAY OF INTEREST RECEIVED ON COMPENSATION OR ENHANCED COMPENSATION REFERRED TO I N CLAUSE (B) OF SECTION 145A SHALL BE ASSESSED AS 'INCOME FROM OTHE R 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 ACCORDINGL Y APPLY IN RELATION TO ASSESSMENT YEAR 2010-11 AND SUBSEQUENT ASSESSMENT Y EARS.' THUS, THE SUBSTITUTION OF SECTION 145A BY FINANCE ( NO. 2) ACT, 2009 WAS NOT IN CONNECTION WITH THE DECISION OF THE SUPR EME COURT IN GHANSHYAM (HUF)'S CASE (SUPRA) BUT WAS BROUGHT I N TO MITIGATE THE HARDSHIP CAUSED TO THE ASSESSEE ON ACCOUNT OF T HE 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 COMPU TED ON DELAYED OR ENHANCED COMPENSATION SHALL BE TAXABLE O N ACCRUAL BASIS. THEREFORE, WHEN ONE READS THE WORDS 'INTERES T RECEIVED ON COMPENSATION OR ENHANCED COMPENSATION' IN SECTION 1 45A OF THE I.T. ACT, THE SAME HAVE TO BE CONSTRUED IN THE MANNER IN TERPRETED BY THE SUPREME COURT IN GHANSHYAM (HUF)'S CASE (SUPRA).' 13. THE HON'BLE GUJARAT HIGH COURT FINALLY CONCLUDED, AS FOLLOWS: '13. THE UPSHOT OF THE ABOVE DISCUSSION IS THAT SIN CE INTEREST UNDER SECTION 28 OF THE ACT OF 1894, PARTAKES THE CHARACT ER OF COMPENSATION, IT DOES NOT FALL WITHIN THE AMBIT OF THE EXPRESSION 'INTEREST' AS CONTEMPLATED IN SECTION 145A OF THE I.T. ACT. THE F IRST RESPONDENT - INCOME TAX OFFICER WAS, THEREFORE, NOT JUSTIFIED IN REFUSING TO GRANT A CERTIFICATE UNDER SECTION 197 OF THE I.T. ACT TO TH E PETITIONER FOR NON- DEDUCTION OF TAX AT SOURCE, INASMUCH AS, THE PETITI ONER IS NOT LIABLE TO PAY ANY TAX UNDER THE HEAD 'INCOME FROM OTHER SOURC ES' ON THE INTEREST PAID TO IT UNDER SECTION 28 OF THE ACT OF 1894. 14. THE PETITIONER HAD EARLIER CHALLENGED THE COMMU NICATION DATED 9TH FEBRUARY, 2015 WHEREBY ITS APPLICATION FOR A CE RTIFICATE UNDER SECTION 197 OF THE I.T. ACT HAD BEEN REJECTED, AND SUBSEQUENTLY, TAX ON THE INTEREST PAYABLE UNDER SECTION 28 OF THE ACT OF 1894 HAS ALREADY BEEN DEDUCTED AT SOURCE. CONSEQUENTLY, THE CHALLENG E TO THE ABOVE COMMUNICATION HAS BECOME INFRUCTUOUS AND HENCE, THE PRAYER CLAUSE ITA.20176/BANG/2017 PAGE - 5 CAME TO BE MODIFIED. HOWEVER, SINCE THE AMOUNT PAID UNDER SECTION 28 OF THE ACT OF 1894 FORMS PART OF THE COMPENSATIO N AND NOT INTEREST, THE SECOND RESPONDENT WAS NOT JUSTIFIED IN DEDUCTIN G TAX AT SOURCE UNDER SECTION 194A OF THE I.T. ACT IN RESPECT OF SU CH AMOUNT. 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 HON' BLE 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 IN TEREST RECEIVED BY THE ASSESSEE U/S. 28 OF THE LAND ACQUISITION ACT, 1 894. WE FIND NO GROUNDS TO INTERFERE WITH THE IMPUGNED ORDER OF THE CIT(APPEALS).{ THEREFORE FOLLOWING THE DECISION OF THE COORDINATE BENCH IN THE IDENTICAL FACTS OF THE CASE, THE APPEAL OF THE REVE NUE IS DISMISSED, AS THE UNDISPUTED FACTS ARE THAT THE ASSESSEE HAD RECE IVED THE INTEREST ON THE COMPENSATION WHICH IS AT PAR WITH THE COMPEN SATION AND IS EXEMPT UNDER SECTION 10 (37) OF THE ACT. 07. IN THE RESULT THE APPEAL OF THE REVENUES DISMIS SED. ORDER PRONOUNCED IN THE OPEN COURT ON 24 TH DAY OF APRIL, 2019. SD/- SD/- (A. K. GARODIA) (LALIET KUMA R) ACCOUNTANT MEMBER JUDICIAL MEMBER BENGALURU DATED : 24. 04.2019 MCN* ITA.20176/BANG/2017 PAGE - 6 COPY TO: 1. THE ASSESSEE 2. THE ASSESSING OFFICER 3. THE COMMISSIONER OF INCOME-TAX 4. COMMISSIONER OF INCOME-TAX(A) 5. DR 6. GF, ITAT, BANGALORE BY ORDER ASSISTANT REGISTRAR, INCOME TAX APPELLATE TRIBUNAL, BANGALORE.