ITO, Faridabad V. Sh. Mehar Chand, Faridabad

ITA 3830/DEL/2008

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 2096 (ITAT-DELHI)
• Duration Of Justice: 11 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-12-2009
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 09-11-2009
• Assessment Year: 2000-2001
• Appeal Filed On: 31-12-2008
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: MONA MOHANTY
• Keywords: Capital asset; Opportunity of being heard; Deemed to accrue or arise in india; Condonation of delay; Set aside
• Section: 45(5); 201; 148; 28; 144

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH E NEW DELHI BEFORE SHRI A.D. JAIN AND SHRIK.G. BANSAL ITA NO. 3830/DEL/08 ASSTT. YR: 2000-01 INCOME TAX OFFICER, VS. SH. MEHAR CHAND WARD-II(4), FARIDABAD. S/O SH. RAMPHAL VILL. ANKH IR, FARIDABAD. C.O. NO. 344/DEL/09 ( IN ITA NO. 3830/DEL/08 ) ASSTT. YR: 2000-01 SH. MEHAR CHAND VS. INCOME TAX OFFICER, S/O SH. RAMPHAL VILL. ANKHIR, WARD-II(4), FARIDABA D. FARIDABAD. ( APPELLANT ) ( RESPONDENT ) REVENUE BY : MS. MONA MOHANTY SR. DR ASSESSEE BY : SHRI GURJEET SINGH. O R D E R PER A.D. JAIN, JUDICIAL MEMBER : THE APPEAL BY THE REVENUE AND THE CROSS-OBJECTIONS BY THE ASSESSEE , ARISE OUT OF THE ORDER DATED 27-10-2008 OF THE CIT( APPEALS), FARIDABAD FOR A.Y. 2000-01. 2. FOLLOWING EFFECTIVE GROUNDS HAVE BEEN RAISED BY THE REVENUE: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN DELETING TH E ADDITION OF RS. 35,93,246/- MADE BY THE ASSESSING OFFICER BY HOLDING THE CONSIDERATION PHYSICALLY REC EIVED ITA 3830/D/08 & CO 344/D/08 MEHAR CHAND 2 BY THE ASSESSEE IN THE FORM OF ENHANCED COMPENSATIO N CHARGEABLE TO TAX AS LONG TERM CAPITAL GAIN IN THE YEAR OF RECEIPT DISREGARDING THE PROVISIONS OF SECTION 45(5)/45(5)(C) WHICH MAKE IT ABUNDANTLY CLEAR THAT THE CAPITAL GAIN ARISING OUT OF ENHANCED COMPENSATION I S TAXABLE IN THE YEAR OF ITS FACTUAL RECEIPT. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN HOLDING THA T THE AWARD GOT FINALITY ON 10-08-2005, THEREFORE, THERE IS NO TAXABILITY OF THE AMOUNTS OF ENHANCED COMPENSATION AND INTEREST THEREON IN THE YEAR IN QUESTION WHEN THE A WARD WAS STILL UNSETTLED, BY SIMPLY AGREEING WITH THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEES SUBMISS ION WITHOUT GIVING ANY REASONS OF HIS OWN. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN DELETING TH E ADDITION OF RS. 22,18,254/- MADE BY THE ASSESSING OFFICER BY TREATING INTEREST ON ENHANCED COMPENSATI ON AS INCOME FROM OTHER SOURCES IN THE YEAR OF ACTUAL REC EIPT DESPITE THE FACT THAT THE ASSESSEE IS NOT FOLLOWIN G THE MERCANTILE SYSTEM OF ACCOUNTING. 3. THE ASSESSEE HAS RAISED FOLLOWING CROSS OBJECTIO NS: 1.A. BECAUSE THE ACTION OF CIT(A) IS UNDER CHALLEN GE ON FACTS AND LAWS REGARDING THE CHARGEABILITY OF THE TRANSAC TION U/S 2(14)(III) B) BECAUSE THE LIMITATION ASPECT AND THE RETROSPECT IVITY HAS BEEN WRONGLY INTERPRETED TO BE FROM THE MUNICIPALIT Y NORMS AND NOT FROM THE ACT OF ACQUISITION OF HUDA. 2.A) BECAUSE THE ACTION OF CIT(A) IS UNDER CHALLENG E ON FACTS AND LAW SINCE ON THE SIMILAR CITUS OF PROPERTY QUA THE SAME VILLAGE AND TRANSACTION THERE IS A DISCRIMINAT ION UNDER ARTICLE 14 OF THE CONSTITUTION ON WHICH ASPEC T THERE IS A PRAYER TO RENDER A FINDING BY THIS HONB LE COURT. ITA 3830/D/08 & CO 344/D/08 MEHAR CHAND 3 3. BECAUSE THE ASPECT OF LACK OF JURISDICTION AND T HEREAFTE4R ERRONEOUS ASSUMPTION AND MISAPPLICATION THEREOF ADDRESSED IS A MATTER OF RECORD BEING PRAYED FOR RENDERING OF FINDING THEREON. 4. THE CROSS OBJECTION IS DELAYED BY 61 DAYS OF LIM ITATION. THE ASSESSEE IN THE APPLICATION FOR CONDONATION OF DELAY HAS CO NTENDED, INTER ALIA, THAT THE APPEAL HAD BEEN LISTED FOR 16-7-2009, FOR WHICH NO NOTICE HAD BEEN EVER SERVED ON THE ASSESSEE; THAT THE INFORMATION REGARD ING THE APPEAL CAME TO THE KNOWLEDGE OF THE ASSESSEE THROUGH THE TRIBUNALS CA USE LIST. 5. THE CONTENTION OF THE ASSESSEE IS FOUND TO BE CO RRECT. THERE IS NOTHING ON RECORD TO SHOW SERVICE OF NOTICE OF THE DEPARTME NTS APPEAL, FIXED FOR 16- 7-2009 ON THE ASSESSEE. THEREFORE, THE DELAY IN FIL ING OF THE CROSS-OBJECTION IS CONDONED. 6. THE LEARNED COUNSEL FOR THE ASSESSEE HAS, AT TH E OUT SET, CONTENDED THAT THE ISSUE WITH REGARD TO THE PROCEEDINGS U/S 1 48 OF THE INCOME-TAX ACT AND THE MERITS OF THE CASE HAVE NOT BEEN DECIDED BY THE LEARNED CIT(A) AND, THEREFORE, THE MATTER NEEDS TO BE REMITTED TO THE F ILE OF THE LEARNED CIT(A). 7. THE ABOVE CONTENTION OF THE ASSESSEE IS FOUND TO BE CORRECT. THE LEARNED CIT(A) HAS DISPOSED OF THE MATTER BY OBSERV ING AS UNDER: 10. I HAVE VERY CAREFULLY CONSIDERED THE SUBMISSIO NS OF THE LD. AR AND PERUSED THE ASSESSMENT ORDER AND THE RELEVANT RECOR DS. EVEN THOUGH THE AO HAS FRAMED THE ASSESSMENTS IN THESE CASES U/S 14 4 OF THE INCOME TAX ITA 3830/D/08 & CO 344/D/08 MEHAR CHAND 4 ACT, UNDER THE CIRCUMSTANCES NARRATED THEREIN, THE CORE ISSUE REMAINS THE CHARGEABILITY OF ENHANCED COMPENSATION AND INTEREST THEREIN. I HAVE STUDIED THE FACTS AND CIRCUMSTANCES OF ALL THESE IN STANT CASES AND CONSIDERED THE LAW AS APPLICABLE TO THEM. THE JURI SDICTIONAL HIGH COURT IN ALL THE ABOVE CITED JUDGMENTS HAVE DECIDED THAT THE ENHANCED COMPENSATION AND INTEREST THEREON ARE TO BE TAXED I N THE PERIOD/ YEAR IN WHICH THEY ATTAINED THEIR FINALITY, IN SO FAR AS TH E STATE/ GOVT. IS NO LONGER IN LITIGATION. IN THE PRESENT CASES, IT IS THE ADMITTED FACT BY TH E AO THAT THE COMPENSATION WAS GRANTED AT THE INSTANCE OF THE HO NBLE PUNJAB AND HARYANA HIGH COURT AND THE MATTER WAS SUBJUDICE BEF ORE THE AWARDS WERE GIVEN IN THE RESPECTIVE LACS. THE AWARD GOT FINALI TY, AS PER THE LD. ARS ARGUMENTS SUPPORTED BY DOCUMENTARY EVIDENCES ON 10- 08-2005. THEREFORE, THERE IS NO TAXABILITY OF THE AMOUNTS OF ENHANCED COMPENSATION AND INTEREST THEREON IN THE YEAR IN QUESTION WHEN T HE AWARD WAS STILL UNSETTLED. HENCE I CONCUR WITH THE LD. AR THAT THE AOS ACTION IN TAXING THEM IN THE ASSESSMENT YEAR 2000-01 WAS UNWARRANTED . 11. IN VIEW OF THE ABOVE DISCUSSIONS, SINCE THERE I S NO CASE OF TAXABILITY OF THE ENHANCED COMPENSATION AND INTERES T THEREON IN THE YEAR UNDER CONSIDERATION, ALL THE ADDITIONS MAD ON ACCOU NT OF THEM STAND DELETED. 12. SIMILARLY, IN ALL THESE CASES, THE AO HAS ON PR ESUMPTION ESTIMATED BANK INTEREST @ 10% ON THE TOTAL AMOUNT RECEIVED OU T OF ENHANCED COMPENSATION AND INTEREST THEREON BY THESE APPELLAN TS DURING THE YEAR UNDER CONSIDERATION FROM THE LAO, FARIDABAD WHICH I S ALSO NOTIONAL AND CANNOT BE ASCERTAINED. IN VIEW OF THE DISPUTED NATU RE OF THE ENHANCED COMPENSATION AND INTEREST THEREON DURING THE YEAR U NDER CONSIDERATION, THEREFORE, THE ADDITION ON ACCOUNT OF ESTIMATED BAN K INTEREST HAS NO SUBSTANCE AND ALSO STANDS DELETED. 8. ACCORDINGLY, THE MATTER IS REMITTED TO THE FILE OF LEARNED CIT(A) TO BE DECIDED AFRESH IN ACCORDANCE WITH LAW, IN THE LIGHT OF OUR ORDER DATED 31-7- 2009 (AUTHORED BY THE LEARNED AM IN ITA NOS. 1223 TO 1232/DEL/09 AND CO NOS. 201 TO 210/DEL/09 IN THE CASES OF ROOP SING H & OTHERS) 5. IN REGARD TO GROUND NO. 1, REGARDING TA XATION OF ADDITIONAL COMPENSATION OF RS. 82,67,302/-, IT WAS SUB MITTED BY THE LD. DR THAT THE ISSUE NOW STANDS COVERED BY THE DE CISION OF HON'BLE ITA 3830/D/08 & CO 344/D/08 MEHAR CHAND 5 SUPREME COURT IN THE CASE OF CIT VS. GHANSHYA M (HUF) 209-TIOL- 84 IN CIVIL APPEAL NO. 4401 OF 2009 ETC. IT WAS HELD THAT THE ENHANCED COMPENSATION WAS TAXABLE IN THE YEAR OF PAYMENT. THEREFORE, IT WAS URGED THAT THE ORDER OF THE LEARNED C IT(APPEALS) MAY BE SET ASIDE IN THIS MATTER AND THAT OF THE AO MAY BE RESTORED. THE ATTENTION OF THE LD. COUNSEL WAS ALSO DRAWN TOWARDS THIS LATEST DECISION OF HON'BLE SUPREME COURT, IN WHICH THE DECISION I N THE CASE OF HINDUSTAN HOUSING & LAND DEVELOPMENT TRUST LTD. ( SUPRA) WAS ALSO CONSIDERED. HE FAIRLY CONCEDED THAT THE ISSUE NOW STANDS COVERED AGAINST THE ASSESSEE. THE HONBLE COURT POIN TED OUT THAT AFTER THE AMENDMENT IN SECTION 45, THE RATIO OF THE DECISION IN THE AFORESAID CASE WAS NOT APPLICABLE AS THAT JUDGMENT WAS DELIVERED ON 29.7.1986, BEING PRIOR TO 1.4.1988 WHEN SECTION 45(5) W AS INSERTED IN THE ACT BY FINANCE ACT, 1987. THE OPERATIVE PORTION OF THE JUDGMENT IS CONTAINED IN PARAGRAPH 35, WHICH IS REPRODUCED BELOW:- 35. IT WAS URGED ON BEHALF OF THE ASSESSEE THAT SECTION 45(5)(B) OF THE 1961 ACT DEALS ONLY WITH RE-WORKING , ITS OBJECT IS NOT TO CONVERT THE AMOUNT OF ENHANCED COMPENSATION INTO DEEMED INCOME ON RECEIPT. WE FIND NO MERIT IN THIS ARGUMENT. THE SCHEME OF SECTION 45(5) OF THE 1961 ACT WAS INSERTED W.E.F. 1.4.88 AS AN OVERRIDIN G PROVISION. AS STATED ABOVE, COMPENSATION UNDER TH E L.A. ACT,1894, ARISES AND IS PAYABLE IN MULTIPLE STAGES WHICH DOES NOT HAPPEN IN CASES OF TRANSFERS BY SALE ETC. HENCE, THE LEGISLATURE HAD TO STEP IN AND SAY THAT AS AND WHEN THE ASSESSEE-CLAIMANT IS IN RECEIPT OF ENHANCED COMPENS ATION IT SHALL BE TREATED AS 'DEEMED INCOME' AND TAXED ON RE CEIPT BASIS. OUR ABOVE UNDERSTANDING IS SUPPORTED BY INSE RTION OF CLAUSE (C) IN SECTION 45(5) W.E.F. 1.4.04 AND SE CTION 155(16) WHICH REFERS TO A SITUATION OF A SUBSEQUENT REDUCTION BY THE COURT, TRIBUNAL OR OTH ER AUTHORITY AND RECOMPUTATION/AMENDMENT OF THE ASSESSMENT ORDE R. SECTION 45(5) READ AS A WHOLE (INCLUDING CLAUSE 'C' ) NOT ONLY DEALS WITH RE-WORKING AS URGED ON BEHALF OF TH E ASSESSEE BUT ALSO WITH THE CHANGE IN THE FULL VALUE OF THE CONSIDERATION (COMPUTATION) AND SINCE THE ENHANCED COMPENSATION/CONSIDERATION (INCLUDING INTEREST UNDE R SECTION 28 OF THE 1894 ACT) BECOMES PAYABLE/PAID UN DER 1894 ACT AT DIFFERENT STAGES, THE RECEIPT OF SUCH E NHANCED COMPENSATION/CONSIDERATION IS TO BE TAXED IN THE YE AR OF RECEIPT SUBJECT TO ADJUSTMENT, IF ANY, UNDER SECTIO N 155(16) OF THE 1961 ACT, LATER ON. HENCE, THE YEAR IN WHICH ENHANCED COMPENSATION IS RECEIVED IS THE YEAR OF TAXABILITY. ITA 3830/D/08 & CO 344/D/08 MEHAR CHAND 6 CONSEQUENTLY, EVEN IN CASES WHERE PENDING APPEAL, T HE COURT/TRIBUNAL/AUTHORITY BEFORE WHICH APPEAL IS PEN DING, PERMITS THE CLAIMANT TO WITHDRAW AGAINST SECURITY O R OTHERWISE THE ENHANCED COMPENSATION (WHICH IS IN DI SPUTE), THE SAME IS LIABLE TO BE TAXED UNDER SECTION 45(5) OF THE 1961 ACT. THIS IS THE SCHEME OF SECTION 45(5) AND S ECTION 155(16) OF THE 1961 ACT. WE MAY CLARIFY THAT EVEN B EFORE THE INSERTION OF SECTION 45(5)(C) AND SECTION 155(1 6) W.E.F. 1.4.04, THE RECEIPT OF ENHANCED COMPENSATION UNDER SECTION 45(5)(B) WAS TAXABLE IN THE YEAR OF RECEIPT WHICH IS ONLY REINFORCED BY INSERTION OF CLAUSE (C) BECAUSE THE RIGHT TO RECEIVE PAYMENT UNDER THE 1894 ACT IS NOT IN DOUBT. IT IS IMPORTANT TO NOTE THAT COMPE NSATION, INCLUDING ENHANCED COMPENSATION/CONSIDERATION UNDER THE 1 894 ACT, IS BASED ON THE FULL VALUE OF PROPERTY AS ON DATE OF NOTIFICATION UNDER SECTION 4 OF THAT ACT. WHEN THE COURT/TRIBUNAL DIRECTS PAYMENT OF ENHANCED COMPENSA TION UNDER SECTION 23(1A), OR SECTION 23(2) OR UNDER SEC TION 28 OF THE 1894 ACT IT IS ON THE BASIS THAT AWARD OF CO LLECTOR OR THE COURT, UNDER REFERENCE, HAS NOT COMPENSATED THE OWNER FOR THE FULL VALUE OF THE PROPERTY AS ON DATE OF NO TIFICATION. 5.1 RELYING ON THIS DECISION, IT IS HELD THAT THE ENHANCED COMPENSATION OF RS. 82,67,302/-, RECEIVED BY THE ASSESSEE IN THIS YEAR, IS TAXABLE IN THIS YEAR. THUS, GROUND NO. 1 IS ALLOWED. 6. GROUND NO. 3 IS TO THE EFFECT THAT THE LD. C IT(APPEALS) ERRED IN DELETING THE ADDITION OF RS. 31,16,609/- MADE BY THE AO BY TREATING INTEREST ON ENHANCED COMPENSATION AS INCOME FROM OTHER SOURCES IN THE YEAR OF ACTUAL RECEIPT DESPITE THE FACT THA T THE ASSESSEE IS NOT FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING. 6.1 IT HAS BEEN OBSERVED EARLIER THAT THE AO QU ANTIFIED INTEREST AT RS. 36,85,346/- AND MENTIONED IT TO BE INTERES T ON ENHANCED COMPENSATION. SINCE THE ASSESSEE HAD NOT S HOWN ANY PART OF THIS INTEREST IN ANY EARLIER ASSESSMENT YEAR AND H E WAS NOT FOLLOWING ANY PARTICULAR SYSTEM OF ACCOUNTING FOR COMPUTATI ON OF INCOME FROM OTHER SOURCES, THE AMOUNT WAS BROUGHT TO TAX IN THIS YEAR ON RECEIPT BASIS. IN OTHER WORDS, HE WAS OF THE VIEW THAT IN SUCH A CASE, CASH SYSTEM OF ACCOUNTING HAS TO BE FOLLOWED FOR THE PURPOSE O F TAXATION OF INTEREST. THE LEARNED CIT(APPEALS), AS MENTIONED EARLIER , DELETED THIS INTEREST ON THE GROUND THAT EVEN THE ENHANCED COMPENSATI ON HAS NOT BECOME FINAL. THE FINDING OF THE LEARNED CIT(APPEALS) IN RESPECT OF ITA 3830/D/08 & CO 344/D/08 MEHAR CHAND 7 ENHANCED COMPENSATION HAS BEEN REVERSED BY US WH ILE DECIDING GROUND NO. 1 (SUPRA). THEREFORE, THE QUESTION IS WHETHER THE WHOLE OF THE AMOUNT OF INTEREST IS TAXABLE IN THIS YEAR OR ONLY THE AMOUNT RELATABLE TO THIS YEAR CAN BE BROUGHT TO TAX? WE FIND THAT THIS ISSUE ALSO HAS TO BE DECIDED IN THE LIGHT OF THE FINDING OF HON'BLE SUPREME COURT IN THE CASE OF GHANSHYAM (HUF) (SUPRA). IN THAT CASE, ON ANALYZING ALL THE PROVISIONS CONTAINED IN THE LAND ACQUISITION ACT, 1894, IT WAS HELD THAT THE PAYMENTS MADE UN DER SECTIONS 23, 23(1A), 23(2) AND 28 OF THAT ACT ARE IN THE NATURE OF PAYMENT OF COMPENSATION. ON THE OTHER HAND, THE PAYMENT U/S 34 PARTAKES THE CHARACTER OF INTEREST INCOME, PAID ON ACCOUNT OF LATE PAYMENT OF COMPENSATION, PAYABLE FROM THE DATE OF POSSES SION TO THE DATE OF PAYMENT OR DEPOSIT. THEREFORE, IT HAS TO BE S EEN WHETHER THE AFORESAID AMOUNT OF RS. 31,16,609/- CONTAINS A NY AMOUNT PAID U/S 28 ALSO, WHICH WILL BE IN THE NATURE OF COMPE NSATION. THE SAME HAS TO BE TAXED IN THE YEAR OF RECEIPT. HOWEVER, INTEREST U/S 34 IS TO BE BROUGHT TO TAX UNDER THE RESIDUARY HEAD OF IN COME. FOR THE SAKE OF READY REFERENCE, THE RELEVANT PORTIONS OF T HE DECISION OF THE HON'BLE SUPREME COURT, CONTAINED IN PARAGRAPHS 32 TO 3 5, ON THIS ISSUE, ARE REPRODUCED BELOW:- 32. THE ISSUE TO BE DECIDED BEFORE US - WHAT IS THE MEANING OF THE WORDS 'ENHANCED COMPENSATION/CONSIDERATION' IN SECTION 45(5)(B) OF THE 1961 ACT? WILL IT COVER 'INTEREST'? THESE QU ESTIONS ALSO BRING IN THE CONCEPT OF THE YEAR OF TAXABILITY . 33. IT IS TO ANSWER THE ABOVE QUESTIONS THAT WE H AVE ANALYSED THE PROVISIONS OF SECTIONS 23, 23(1A), 23( 2), 28 AND 34 OF THE 1894 ACT. AS DISCUSSED HEREINABOVE, SECTION 23(1A) PROVIDES FOR ADDITIONAL AMOUNT. IT TAKES CAR E OF INCREASE IN THE VALUE AT THE RATE OF 12 % PER ANNUM . SIMILARLY, UNDER SECTION 23(2) OF THE 1894 ACT THER E IS A PROVISION FOR SOLATIUM WHICH ALSO REPRESENTS PART O F ENHANCED COMPENSATION. SIMILARLY, SECTION 28 EM POWERS THE COURT IN ITS DISCRETION TO AWARD INTEREST ON TH E EXCESS AMOUNT OF COMPENSATION OVER AND ABOVE WHAT IS AWARD ED BY THE COLLECTOR. IT INCLUDES ADDITIONAL AMOUNT UNDER SECTION 23(1A) AND SOLATIUM UNDER SECTION 23(2) OF THE SAID ACT. SECTION 28 OF THE 1894 ACT APPLIES ONLY I N RESPECT OF THE EXCESS AMOUNT DETERMINED BY THE COURT AFTER REFERENCE UNDER SECTION 18 OF THE 1894 ACT. IT DEPE NDS UPON THE CLAIM, UNLIKE INTEREST UNDER SECTION 34 WH ICH DEPENDS ON UNDUE DELAY IN MAKING THE AWARD. IT IS T RUE THAT 'INTEREST' IS NOT COMPENSATION. IT IS EQUALLY TRUE THAT ITA 3830/D/08 & CO 344/D/08 MEHAR CHAND 8 SECTION 45(5) OF THE 1961 ACT REFERS TO COMPENSATION. BUT AS DISCUSSED HEREINABOV E, WE HAVE TO GO BY THE PROVISIONS OF THE 1894 ACT WHICH AWARDS 'INTEREST' BOTH AS AN ACCRETION IN THE VALUE OF THE LANDS ACQUIRED AND INTEREST FOR UNDUE DELAY. INTEREST UNDER SECTION 28 UNLIKE INTEREST UNDER SECTION 34 IS AN A CCRETION TO THE VALUE, HENCE IT IS A PART OF ENHANCED COMPEN SATION OR CONSIDERATION WHICH IS NOT THE CASE WITH INTEREST U NDER SECTION 34 OF THE 1894 ACT. SO ALSO ADDITION AL AMOUNT UNDER SECTION 23(1A) AND SOLATIUM UNDER SECTION 23( 2) OF THE 1961 ACT FORMS PART OF ENHANCED COMPENSATION UN DER SECTION 45(5)(B) OF THE 1961 ACT. IN FACT, WHAT WE HAVE STATED HEREINABOVE IS REINFORCED BY THE NEWLY INSE RTED CLAUSE (C) IN SECTION 45(5) BY THE FINANCE ACT, 200 3 W.E.F.1.4.2004. THIS NEWLY ADDED CLAUSE ENVISAGE S A SITUATION WHERE IN THE ASSESSMENT FOR ANY YEAR,- -THE CAPITAL GAIN ARISING FROM THE TRANS FER OF A CAPITAL ASSET IS COMPUTED BY TAKING THE- -COMPENSATION OR CONSIDERATION REFERRED TO IN CLAUSE (A) OF SECTION 45(5) OR, AS THE CASE MAY BE, -ENHANCED COMPENSATION OR CONSIDERATION REFERRED TO IN CLAUSE (B) OF SECTION 45(5), AND SUBSEQUENTLY SUCH COMPENSATION OR CONSIDERATION IS REDUCED BY ANY COURT, TRIBUNAL OR OTH ER AUTHORITY. 34. IN SUCH A SITUATION, SUCH ASSESSED CAPITAL GA IN OF THAT YEAR SHALL BE RECOMPUTED BY TAKING THE COMPENSATION OR CONSIDERATION AS SO REDUCED BY SUCH COURT, TRIBUNAL OR OTHER AUTHORITY TO BE THE FULL VALUE OF THE CONSIDE RATION. FOR GIVING EFFECT TO SUCH RECOMPUTATION, THE PR OVISIONS OF THE NEWLY INSERTED (W.E.F. 1.4.2004) SEC TION 155(16) BY THE FINANCE ACT, 2003 (32 OF 2003), HAVE BEEN EN ACTED. 35. IT WAS URGED ON BEHALF OF THE ASSESSEE THAT S ECTION 45(5)(B) OF THE 1961 ACT DEALS ONLY WITH RE-WORKING , ITS OBJECT IS NOT TO CONVERT THE AMOUNT OF ENHANCED COMPENSATION INTO DEEMED INCOME ON RECEIPT. WE FIND NO ITA 3830/D/08 & CO 344/D/08 MEHAR CHAND 9 MERIT IN THIS ARGUMENT. THE SCHEME OF SECTION 45(5) OF THE 1961 ACT WAS INSERTED W.E.F. 1.4.88 AS AN OVERRIDIN G PROVISION. AS STATED ABOVE, COMPENSATION UNDER TH E L.A. ACT,1894, ARISES AND IS PAYABLE IN MULTIPLE STAGES WHICH DOES NOT HAPPEN IN CASES OF TRANSFERS BY SALE ETC. HENCE, THE LEGISLATURE HAD TO STEP IN AND SAY THAT AS AND WHEN THE ASSESSEE-CLAIMANT IS IN RECEIPT OF ENHANCED COMPENS ATION IT SHALL BE TREATED AS 'DEEMED INCOME' AND TAXED ON RE CEIPT BASIS. OUR ABOVE UNDERSTANDING IS SUPPORTED BY INSE RTION OF CLAUSE (C) IN SECTION 45(5) W.E.F. 1.4.04 AND SE CTION 155(16) WHICH REFERS TO A SITUATION OF A SUBSEQUENT REDUCTION BY THE COURT, TRIBUNAL OR OTH ER AUTHORITY AND RECOMPUTATION/AMENDMENT OF THE ASSESSMENT ORDE R. SECTION 45(5) READ AS A WHOLE (INCLUDING CLAUSE 'C' ) NOT ONLY DEALS WITH RE-WORKING AS URGED ON BEHALF OF TH E ASSESSEE BUT ALSO WITH THE CHANGE IN THE FULL VALUE OF THE CONSIDERATION (COMPUTATION) AND SINCE THE ENHANCED COMPENSATION/CONSIDERATION (INCLUDING INTEREST UNDE R SECTION 28 OF THE 1894 ACT) BECOMES PAYABLE/PAID UN DER 1894 ACT AT DIFFERENT STAGES, THE RECEIPT OF SUCH E NHANCED COMPENSATION/CONSIDERATION IS TO BE TAXED IN THE YE AR OF RECEIPT SUBJECT TO ADJUSTMENT, IF ANY, UNDER SECTIO N 155(16) OF THE 1961 ACT, LATER ON. HENCE, THE YEAR IN WHICH ENHANCED COMPENSATION IS RECEIVED IS THE YEAR OF TAXABILITY. CONSEQUENTLY, EVEN IN CASES WHERE PENDING APPEAL, T HE COURT/TRIBUNAL/AUTHORITY BEFORE WHICH APPEAL IS PEN DING, PERMITS THE CLAIMANT TO WITHDRAW AGAINST SECURITY O R OTHERWISE THE ENHANCED COMPENSATION (WHICH IS IN DI SPUTE), THE SAME IS LIABLE TO BE TAXED UNDER SECTION 45(5) OF THE 1961 ACT. THIS IS THE SCHEME OF SECTION 45(5) AND S ECTION 155(16) OF THE 1961 ACT. WE MAY CLARIFY THAT EVEN B EFORE THE INSERTION OF SECTION 45(5)(C) AND SECTION 155(1 6) W.E.F. 1.4.04, THE RECEIPT OF ENHANCED COMPENSATION UNDER SECTION 45(5)(B) WAS TAXABLE IN THE YEAR OF RECEIPT WHICH IS ONLY REINFORCED BY INSERTION OF CLAUSE (C) BECAUSE THE RIGHT TO RECEIVE PAYMENT UNDER THE 1894 ACT IS NOT IN DOUBT. IT IS IMPORTANT TO NOTE THAT COMPE NSATION, INCLUDING ENHANCED COMPENSATION/CONSIDERATION UNDER THE 1 894 ACT, IS BASED ON THE FULL VALUE OF PROPERTY AS ON DATE OF NOTIFICATION UNDER SECTION 4 OF THAT ACT. WHEN THE COURT/TRIBUNAL DIRECTS PAYMENT OF ENHANCED COMPENSA TION UNDER SECTION 23(1A), OR SECTION 23(2) OR UNDER SEC TION 28 ITA 3830/D/08 & CO 344/D/08 MEHAR CHAND 10 OF THE 1894 ACT IT IS ON THE BASIS THAT AWARD OF CO LLECTOR OR THE COURT, UNDER REFERENCE, HAS NOT COMPENSATED THE OWNER FOR THE FULL VALUE OF THE PROPERTY AS ON DATE OF NO TIFICATION. 6.2 THE CASE OF THE LD. DR IS THAT THE ASSE SSEE HAS NOT BEEN FOLLOWING ANY SYSTEM OF ACCOUNTING AND, THERE FORE, THE WHOLE OF THE AMOUNT PAID U/S 34 OF THAT ACT IS LIABLE TO BE TAXED IN THIS YEAR. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSESSEE RELIED ON THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF RAMA BAI VS. CIT (1990) 181 ITR 400. IT MAY BE MENTIONED HERE THAT CERTAIN OTHER CASES WERE ALSO CITED BY THE RIVAL PARTIES, BUT IT WAS THEIR COMMON CASE THAT THE DECISION IN THE CASE OF RAMA BAI (SUPRA), WHICH IS ON THE ISSUE OF TAXATION OF INTEREST AND WHICH HAS NOT BEEN CONSIDERED IN THE CASE OF GHANSHYAM (HUF) (SUPRA), IS IN THE NATU RE OF A BINDING PRECEDENT AND, THEREFORE, THIS ISSUE MAY BE DECI DED IN THE LIGHT OF THAT DECISION. THE QUESTION BEFORE THE COURT WAS WHE THER, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE INTEREST OF RS. 29,870/- WAS LIABLE TO ASSESSED FOR ASSESSMENT YEAR 196 8-69? THE DECISION OF THE COURT IS THAT INTEREST CANNOT BE TAKEN T O HAVE ACCRUED ON THE DATE OF ORDER OF THE COURT GRANTING ENHANCED COMPENSA TION BUT HAS TO BE TAKEN AS HAVING ACCRUED YEAR AFTER YEAR F ROM THE DATE OF DELIVERY OF POSSESSION OF THE LAND TILL THE DATE OF SU CH ORDER. WHILE ARRIVING AT THIS CONCLUSION, THE HONBLE COURT DID NOT ACCEPT THE FINDING OF THE AO THAT THE RIGHT TO RECEIVE INTEREST ON ENHANCED COMPENSATION AROSE ON THE DATE WHEN THE COURT PASSED THE OR DER. SIMILAR QUESTION ALSO CAME UP BEFORE THE SAME COURT IN THE CASE OF K.S. KRISHNA RAO VS. CIT (1990) 181 ITR 409, IN WHICH IT W AS REITERATED BY FOLLOWING THE DECISION IN THE CASE OF RAMA BAI (SUPRA) THAT INTEREST CANNOT BE TAXED IN A LUMP SUM ON THE DATE ON WHICH THE COURT PASSES AN ORDER FOR ENHANCEMENT OF COMPENSATION BUT THAT IT HAS TO BE SPREAD OVER ON AN ANNUAL BASIS RIGHT FROM THE DATE OF DELIVERY OF POSSESSION TILL THE DATE OF THE ORDER OF THE COUR T ON A TIME BASIS. IN SO FAR AS INTEREST PAYABLE U/S 28 OF THAT ACT IS CONCERNED, THE HONBLE COURT HAS NOW HELD THAT IT IS IN THE NATURE OF COMPENSATION, WHICH BECOMES TAXABLE IN THE YEAR OF RECEIPT AS PER THE AMENDED LAW. HOWEVER, IT DOES FOLLOW FROM THE AFORESAID DECISIONS THAT INTEREST PAYABLE U/S 34, WHICH IS CHARGEABLE UNDER TH E RESIDUARY HEAD, CANNOT BE SAID TO ACCRUE ON THE DATE WHEN TH E COURT PASSED THE ORDER. IT MAY BE MENTIONED THAT THE DECISIONS IN TH E CASE OF RAMA BAI AND K.S. KRISHNA RAO (SUPRA) WERE RENDERED WITHOUT HAVING REGARD TO THE SYSTEM OF ACCOUNTING FOLLOWED BY THE ASSES SEE. THEREFORE, WE ARE OF THE VIEW THAT THOSE JUDGMENTS, IN RESPECT OF TAXATION OF INTEREST, APPLY MUTATIS MUTANDIS TO INTEREST PAID U/S 34 OF THAT ACT. ACCORDINGLY, IT IS HELD THAT INTEREST RELATABL E TO THIS YEAR, IF ANY AND TO BE ASCERTAINED BY THE AO, COULD HAVE BEEN TAXED IN THE HANDS OF THE ASSESSEE. THE REVENUE WILL BE AT LIBERTY TO TAX THE BALANCE AMOUNT OF ITA 3830/D/08 & CO 344/D/08 MEHAR CHAND 11 INTEREST IN THE RESPECTIVE YEARS BY FOLLOWING THE DUE PROCESS OF LAW. NEEDLESS TO SAY THAT THE ASSESSEE SHALL BE GRA NTED AN OPPORTUNITY OF BEING HEARD. THUS, THIS GROUND IS TREATED AS PARTLY ALLOWED. 9. IN THE RESULT, FOR STATISTICAL PURPOSES THE APPE AL OF THE DEPARTMENT IS TREATED AS ALLOWED . 10. SINCE THE DEPARTMENTS APPEAL IS ALLOWED BY RE MITTING THE MATTER TO THE FILE OF CIT(A) THE CROSS OBJECTIONS RAISED BY THE ASSESSEE ARE ALSO REMITTED TO THE FILE OF CIT(A). 11. THUS, REVENUES APPEAL AS WELL AS CROSS OBJECTI ONS FILED BY THE ASSESSEE STAND ALLOWED FOR STATISTICAL PURPOSES ONL Y. ORDER PRONOUNCED IN OPEN COURT ON ____-12-2009. ( K.G. BANSAL ) (A.D. JAIN ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: _______12- 2009. MP COPY TO : 1. ASSESSEE 2. AO 3. CIT 4. CIT(A) 5. DR