Judicial Analysis Court Copy Headnote Facts Arguments Court observation

2009 Supreme(SC) 1255

Supreme Court of India
THE HONOURABLE MR. JUSTICE S.H. KAPADIA & THE HONOURABLE MR. JUSTICE AFTAB ALAM
Commissioner of Income-tax, Faridabad
Versus
Ghanshyam (HUF)
CIVIL APPEAL NO. 4401 OF 2009 (Arising out of S.L.P.(C) No.17640 of 2008) WITH Civil Appeal No. 4402 of 2009 - Arising out of S.L.P. (C) No.17644 of 2008 Civil Appeal No. 4403 of 2009 -Arising out of S.L.P. (C) No.17643 of 2008 Civil Appeal No. 4404 of 2009 -Arising out of S.L.P. (C) No.17645 of 2008 Civil Appeal No. 4405 of 2009 - Arising out of S.L.P. (C) No.17642 of 2008 Civil Appeal No. 4406 of 2009 - Arising out of S.L.P. (C) No.17641 of 2008 Civil Appeal No. 4407 of 2009 - Arising out of
Decided On : 16-07-2009

Advocates Appeared: For the Appellants:K. Radhakrishnan, Sr. Advocate, H. Raghavendra Rao, Arijit Prasad, T.A. Khan, Rahul Kaushik, Amey Nargolkar, Kunal Bahri, Gaurav Agrawal, M. Khairati, B.V. Balaram Das, Advocates. For the Respondents:S. Ganesh, Sr. Advocate, Amar Dave, Ms. Ruby Singh Ahuja, Ms. Simran Brar, Abeer Kumar, Ms. Pragya Ohri, Mrs. Karanjawala, Himanshu Upadhyaya, R.C. Kaushik, Kavin Gulati, Ms. Rashmi Singh, Avnish Pandey, Advocates.

IMPORTANT POINT
The enhanced compensation including solatium and interest u/s 28 on receipt, shall be treated as "deemed income" and taxed on receipt basis.
If in pending appeal the claimant is permitted to withdraw the enhanced compensation n evagainst security or otherwise, the same would be liable to be taxed under Section 45(5).

Headnote:(a) Income Tax Act, 1961 – Section 45(5) – Compulsory acquisition of land – Capital gains in the compensation, as originally awarded – Chargeable to tax in the year in which the transfer by way of compulsory acquisition takes place – However, additional compensation is taxed only in the year in which it is received. (Para 17)
       (b) Land Acquisition Act, 1894 – Section 23(1A) and 23(2), 28 and 34 – Additional compensation u/s 23(1A) and solatium u/s 23(2) are mandatory – On the other hand award of interest u/s 28 is discretionary – Neither interest nor solatium – it is compensation for price escalation – Award of interest u/s 28 applies only in respect of the excess amount determined after reference u/s18 – Undue delay in making award for compensation does not attract section 28 – Section 34, on the other hand provides for award of interest on delay in making award for compensation – Additional benefits u/s 23(1A) and 23(2) are computed on market value of acquired lands whereas interest u/s 28 is available on the entire compensation including solatium. (Para 22, 23, 24, 25)
       AIR 1995 SC 2492; AIR 1996 SC 497; (1991) 1 SCC 262; (2001) 7 SCC 211 – Relied upon
       (c) Income Tax Act, 1961 – Section 45(5)(b) – Enhanced compensation – Includes Additional compensation u/s 23(1A), solatium u/s 23(2) and interest u/s 24 – Therefore assessed value of capital gain shall be recomputed as per section 155(16) by taking the compensation or consideration to be the full value of the consideration – The enhanced compensation on receipt, shall be treated as "deemed income" and taxed on receipt basis. (Para 33, 34, 35)
       (d) Income Tax Act, 1961 – Section 45(5) and Section 155(16) – Receipt of enhanced compensation/consideration – Taxable in the year of receipt – Consequently, if in pending appeal the claimant is permitted to withdraw the enhanced compensation against security or otherwise – The same would be liable to be taxed under Section 45(5). (Para 35)
       Facts of the case:
       The controversy in the present batch of civil appeals pertains to the interpretation of Section 45(5) of the Income-tax Act, 1961, as it stood prior to 1.4.2004.
       Assessee received enhanced compensation on its lands being acquired by Haryana Urban Development Authority (HUDA) as also interest thereon during the previous year relevant to assessment year 1999-2000.
       The A.O. brought to tax the amount of enhanced compensation of Rs.87,13,517/- and interest on enhanced compensation of Rs.1,47,575/- received by the assessee during the previous year relevant to the assessment year 1999-2000.
       The assessee filed appeal against the order of the A.O.
       CIT (A) came to the conclusion that since the enhanced compensation received was in dispute in the pending First Appeal, both, the enhanced compensation as well as the interest thereon had not accrued to the assessee during the year of receipt as the entire amount was in dispute in First Appeal and that the assessee had received the said amount only against security furnished to the satisfaction of the executing court.
       The Department moved Income-tax Appellate Tribunal (ITAT) which upheld the order of the CIT(A) and dismissed the appeal of the Department.
       The matter was carried in appeal to the High Court which held that when the State is in appeal against the order of enhanced compensation and interest thereon the receipt of additional compensation and interest thereon was not taxable as income as the said two items were disputed by the Government in appeal. Consequently, the Departments appeal was dismissed by the High Court.
       Finding of the Court:
       The High Court erred in law.
       Result:
       Appeals allowed.

Judgment :

S. H. Kapadia, J.

1. Delay condoned.

2. Leave granted.

3. The controversy in the present batch of civil appeals pertains to the interpretation of Section 45(5) of the Income-tax Act, 1961, as it stood prior to 1.4.2004.

FACTS IN THE LEAD MATTER

Civil Appeal No. of 2009 - Arising out of S.L.P. (C) No.17640 of 2008 - Commissioner of Income Tax, Faridabad v. Ghanshyam (HUF).

4. Assessee received enhanced compensation on its lands being acquired by Haryana Urban Development Authority (HUDA) as also interest thereon during the previous year relevant to assessment year 1999-2000.

5. Assessee filed its return on income for the assessment year 1999-2000 in which he did not offer the amount of enhanced compensation and the interest received thereon during the previous year relevant to the assessment year for taxation, on the plea that the amount of enhanced compensation received had not accrued to the assessee

during the year of receipt as the entire amount was in dispute in appeal before the High Court which appeal stood filed by the State against the order of the Reference Court granting enhanced compensation. The amount was received by the assessee in terms of the interim order of the High Court against the assessees furnishing security to the satisfaction of the executing court. The interest received on enhanced compensation during the previous year was also, according to the assessee, not chargeable to tax on the same plea.

6. The A.O. did not accept the contentions of the assessee on the ground that in terms of Section 45(5) of the Income-tax Act, 1961 ("1961 Act", for short) enacted w.e.f. 1.4.88, the amount by which compensation or consideration stood enhanced or further enhanced by the Court, is deemed income chargeable under the head "Capital Gains" of the previous year in which the said amount came to be received. The A.O. accordingly brought to tax the amount of enhanced compensation of Rs.87,13,517/-received by the assessee during the previous year relevant to the assessment year 1999-2000. Similarly, interest on enhanced compensation of Rs.1,47,575/- received by the assessee during the previous year was also brought to tax in the year of receipt. The assessee filed appeal against the order of the A.O. in which he reiterated the above contention. Assessee also placed reliance on the judgment of this Court in Commissioner of Income-tax, West Bengal-II v. Hindustan Housing and Land Development Trust Ltd. - (1986) 161 ITR 524 (SC). CIT (A) came to the conclusion that since the enhanced compensation received was in dispute in the pending First Appeal, both, the enhanced compensation as well as the interest thereon had not accrued to the assessee during the year of receipt as the entire amount was in dispute in First Appeal and that the assessee had received the said amount only against security furnished to the satisfaction of the executing court. At this stage, it may be mentioned that the amount of enhanced compensation sought to be taxed under Section 45(5) of the 1961 Act was Rs.87,13,517/- whereas the interest on enhanced compensation which was also sought to be taxed was Rs.1,47,575/-.

7. Aggrieved by the decision of the CIT(A), the Department moved Income-tax Appellate Tribunal (ITAT) which following its order upheld the order of the CIT(A) and dismissed the appeal of the Department. Aggrieved by the decision of the Tribunal the matter was carried in appeal to the High Court under Section 260A of the 1961 Act. By the impugned judgment it has been held that the case is squarely covered by the judgment of the Supreme Court in the case of Hindustan Housing (supra). According to the High Court, when the State is in appeal against the order of enhanced compensation and interest thereon the receipt of additional compensation and interest thereon was not taxable as income as the said two items were disputed by the Government in appeal. Consequently, the Departments appeal was dismissed by the High Court, hence this c

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2009 Supreme(SC) 1255

Cases Referred (6)