The New Friends Cooperative House Building Society Ltd., Faridabad V. The Commissioner of Income Tax, Faridabad and another

ITA/360/2007

AI Insights

The case revolves around the taxation of enhanced compensation and interest received by the New Friends Cooperative House Building Society Ltd. from the government for compulsorily acquired land. The society received a total of Rs.9,45,32,917 as enhanced compensation, which included additional compensation and interest. The Assessing Officer initially taxed the entire amount in the assessment year 2001-02. However, the Commissioner of Income Tax (Appeals) reversed this decision, leading to an appeal by the Revenue to the Income Tax Appellate Tribunal. The Tribunal upheld the Commissioner’s decision, leading to the present appeal by the Revenue. The High Court, referencing decisions from the Supreme Court and other High Courts, ruled in favor of the society, stating that the enhanced compensation and interest should not be taxed until the final amount is determined by the highest court.

• Counselvise Citation: [2008] 140 COUNSELVISE.COM (IT) 797399 (HC-MISC)
• Appeal Type: Others
• Pronouncement Date: 10-04-2008
• Assessment Year: misc
• Other Referred Cases: CIT Vs. Hindustan Land & House Dev. Corp. Ltd., Deputy Commissioner of Income Tax Versus Padam Parkash (HUF), Commissioner of Income Tax Versus Abdul Manan Shah, Chief Commissioner of Income Tax Versus Smt. Shanta Vva
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: YOGESH PUTNEY
• Assessee Lawyers: AKSHAY BHAN
• Keywords: Capital loss; Enhanced compensation; Interest on compensation; Taxable income
• Section: 143(3); 260-A; 45(5)(b)

Judgement Text

"ITA No.360 of 2007 1 In the High Court for the States of Punjab and Haryana at Chandigarh … ITA No.360 of 2007 Date of decision: 10.4.2008 The New Friends Cooperative House Building Society Ltd., Faridabad Appellant Versus The Commissioner of Income Tax, Faridabad and another. .. Respondent Coram: Hon’ble Mr.Justice Satish Kumar Mittal Hon'ble Mr.Justice Rakesh Kumar Garg Present: Mr.Akshay Bhan,Advocate for the Appellant. Mr.Yogesh Putney, Advocate for the Revenue/respondents. Rakesh Kumar Garg,J The assessee has filed the present Appeal under Section 260-A of the Income Tax Act, 1961(for short ‘the Act’) against the order dated 31.1.2007(Annexure A-3) passed by the Income Tax Appellate Tribunal, Delhi Bench ‘F’ New Delhi (for short ‘the Tribunal’), in ITA No.5370/Del/04 for the Assessment Year 2001-02. The assessee firm is a co-operative society and its main object is to acquire land and built houses on that land. The land acquired by the society was compulsorily acquired by the Government. During the year under consideration, the society has ITA No.360 of 2007 2 received enhanced compensation of Rs.9,45,32,917/- from the reference court comprising of additional compensation of Rs.6,40,00,000/- and interest of Rs.3,08 crores thereon. The assessee declared a capital loss of Rs.2,52,55,221/- carried forward to next year on long term capital gain of Rs.12.32 lacs. The assessee also declared net income of Rs.30,89,258/- on account of interest received. Accordingly, the assessee declared a returned income of Rs.18,56,620/-.. The Assessing Officer vide his order dated 27.2.2004 passed under section 143(3) of the Act held that entire amount of Rs.9.56 crores on account of enhanced compensation is taxable in assessment year 2001-02 only. The amount of Rs.5.29 crores was held to be as a receipt under section 45(5)(b) of the Act and interest of Rs.4.27 crores was ordered to be taxed under the head “Income from other sources”. The conclusion drawn by the Assessing Officer are reproduced as under:- i) The fact that enhanced compensation of Rs.9.46 crores including interest is very much taxable, is not disputed by the assessee and therefore, this amount is held to be taxable. ii) The only point raised by the assessee is the year in which the said amount shall be taxed i.e., the year when the issue of enhanced compensation is finally decided and there is no appeal filed by the State Government against such final order of the Hon'ble High Court or the year in which enhanced ITA No.360 of 2007 3 compensation has been received. iii) The assessee has relied upon the decision of Hon'ble Supreme Court in CIT Vs. Hindustan Land & House Dev. Corp. Ltd. For assessment year 1956-57 which has been further followed by Patna & Delhi ITAT Benches mentioned by the assessee. iv) However it is very important to note that Government of India duly considered all these judicial pronouncements and made consequent amendments in the I.T.Act. As per the latest position of law in clauses (a), (b), © of Section 45(5) of I.T.Act, there remains no ambiguity and receipt of compensation, it's enhanced or reduction by any court there after has been separately considered. Therefore, the enhanced compensation is to be taxed in the year of such receipt. The assessee interest of reduction by any Court later on as pointed out by Hon'ble Supreme Court have been duly safeguarded as per clause(c) of section 45(5) that the assessee can re-computed that the same in the year of any such reduction later on. v) Therefore, it is held that the entire amount of Rs.9.56 crores on account of enhanced compensation is taxable in assessment year of 2001-2002 only. The amount of Rs. 5.29 crores shall be taxed under the head “Income from other ITA No.360 of 2007 4 sources”. The assessee filed an appeal before the Commissioner of Income Tax(Appeals), Faridabad challenging the order dated 27.2.2004 passed by the Assessing Authority. The Commissioner of Income Tax(Appeals) vide his order dated 4.10.2004 accepted the appeal and the addition made on account of enhanced compensation and interest thereon was deleted holding that enhanced compensation and interest thereon cannot be charged to tax until the same had attained finality from the highest court. The Commissioner of Income Tax(Appeals) while allowing the appeal found that in the present case, the assessee had not acquired any absolute right on the enhanced compensation received as the same was received with conditions and since the assessee did not acquire any right over the enhanced compensation and the interest thereon, the same cannot be charged to tax in the hands of the assessee. Not satisfied with the order of the Commissioner of Income Tax(Appeals), the Revenue filed the appeal before the Income Tax Appellate Tribunal,Delhi Bench”F”, New Delhi challenging the above said order. However, it was conceded by the revenue before the Tribunal that the issues involve in the present case is covered by the Special Bench decision of the Tribunal in the case of Deputy Commissioner of Income Tax Versus Padam Parkash (HUF) 104 TTJ (Del) (SB) 989, wherein it has been held that enhanced compensation for acquisition of land is chargeable to tax in the year in which such compensation is received. However, interest ITA No.360 of 2007 5 on enhanced compensation is to be assessed on accrual basis from year to year and it can be subjected to tax only after it is finally determined. In view of the stand taken by the Revenue, the Tribunal directed the Assessing Officer to tax the compensation in the year of receipt and interest on enhanced compensation in the assessment year relevant to the previous year in which it is finally determined. In spite of the fact that the revenue has conceded before the Tribunal over the issues involved in the case, yet the present appeal has been filed raising the following questions of law:- i) Whether in the facts and circumstances of the present case the impugned orders A-1 and A-3 are legally sustainable in the eyes of law ? ii) Whether in the facts and circumstances of the present case the ITAT was right in law in holding that the amount of interest on enhanced compensation in consequence upon judgment of District Judge and the amount having been utilized/invested in discretion of the assessee, was not includible in the total of the assessee ? We have heard learned counsel for the parties. Shri Akshay Bhan, Advocate, learned counsel for the assessee has argued that the point in issue is covered in favour of the assessee by a decision of this Court in ITA No.427 of 2005 decided on 25.2.2008 in the case of Chandi Ram Versus Commissioner of Income Tax, Faridabad and others and ITA No.490 ITA No.360 of 2007 6 of 2007 Commissioner of Income Tax, Faridabad and others Versus Hardwari Lal(HUF) decided on 26.3.2008. In support of the appeal, Shri Akshay Bhan, Advocate has also argued that the issue involved has been authoritatively settled by the Hon'ble Supreme Court of India, while dismissing the SLP filed by the Revenue against the decision of the Bombay High Court in the case of Commissioner of Income Tax Versus Abdul Manan Shah 248 ITR 614. Besides the above, the learned counsel has also placed a reliance upon a judgment of Karnataka High Court in the case of Chief Commissioner of Income Tax Versus Smt. Shanta Vva 267 ITR 67(Karnataka). On the other hand, Shri Yogesh Putney, Advocate, learned counsel for the Revenue/respondent has argued to support the order of the Assessing Officer on the ground that no remedy will be available to the Revenue if the enhanced compensation as well as interest are finally upheld after the prescribed time of issue of notice under Section 148 of the Act. He further argued that in view of the clear provisions of Section 45(5) of the Income Tax Act, the amount of enhanced compensation and interest thereon received by the appellant-assessee is liable to be taxed in the year of its receipt. We find force in the argument raised by Shri Akshay Bhan, Advocate, learned counsel for the assessee/appellant. The point in issue is squarely covered by our judgment in ITA No.427 of 2005 Chandi Ram Versus Commissioner of Income Tax, Faridabad and others and ITA No.490 of 2007 Commissioner of Income Tax, Faridabad and others Versus Hardwari Lal(HUF). Not only this, the ITA No.360 of 2007 7 same view has also been taken by this Court in ITA No.177 of 2005 decided on 14.11.2005. The issue regarding the taxability on enhanced compensation thereon has also been clearly dealt with by the Bombay High Court in the case of Commissioner of Income Tax Versus Abdul Manan Shah 248 ITR 614 against which the SLP filed by the Revenue has been dismissed by the Hon'ble Supreme Court of India. The relevant part of the judgment is reproduced here below:- “The agricultural lands owned by the assessee was acquired by the Government in 1989 under the Land Acquisition Act. The assessee filed a civil suit. An award of Rs.33,80,172/- was made in favour of the assesses. Being aggrieved, the State Government moved the High Court against the decision of the reference Court. At this stage, it may be mentioned that the said amount of Rs.33,80,172/- included an amount of Rs.13,50 lakhs as interest on the additional compensation, pending the appeal. The assessee was permitted to withdraw the amount on giving security. The question which arise for determination compensation is either the additional compensation which was deposited in the Court and permitted to be withdrawn was taxable at that stage. Secondly, whether the said amount could be taxed when it was specifically deposited by the Government in appeal to the High Court. In the case of CIT Vs. Hindustan Housing and Land Development Trust Ltd. (1986) 161 ITR 524 (SC), the Supreme Court has held ITA No.360 of 2007 8 that when the Government has appealed against the award the additional amount of compensation was deposited in the court, it was not taxable at that stage as the additional compensation would not accrue as income when it was specifically disputed by the Government in appeal. In view of the said judgment of the Supreme Court,there is no merit in this appeal. No substantial question of law arises. The judgment of the Supreme Court on facts, squarely appeal to the facts of the present case. Hence, the appeal is dismissed.” In view of the above settled proposition of law, the questions raised by the assessee are answered in the negative, i.e., against the Revenue and in favour of the Assessee. Thus the appeal filed by the Assessee is allowed. (RAKESH KUMAR GARG) JUDGE April 10,2008 (SATISH KUMAR MITTAL) nk JUDGE "