IMPORTANT POINTS
Compensation received on acquisition of land is individual income.
Compensation received u/s 28 of LA Act is taxable in the year of receipt.

JUDGMENT

A.K. SIKRI, J.

The question of law that arises for consideration in all these appeals which are filed by the Commissioner of Income Tax, Rajkot (hereinafter referred to as the 'Revenue') is common. The respondents in all these appeals are also common. The three respondents (hereinafter referred to as the 'assessee') are brothers. The issue raised is identical in all these appeals which pertains to different assessment years and that is the reason that there are eight appeals before us. For the sake of convenience, we will refer to the facts emerging from the records of Civil appeal No.8103 of 2009.

2. The respondents are three brothers. Their father died leaving the land admeasuring 17 acres and 11 gunthas to the three brothers and two other persons who relinquished their rights in favour of the three brothers. A part of this bequeathed land was acquired by the State Government and compensation was paid for it. On appeal, the compensation amount was enhanced and additional compensation alongwith interest was awarded.

3. The respondents filed their return of income for each assessment years claiming the status of 'individual'. Two questions arose for consideration before the Assessing Officer. One was as to whether these three brothers could file separate returns claiming the status of the 'individual' or they were to be treated as 'Association of Persons' (AoP). Second question was regarding the taxability of the interest on enhanced compensation and this interest which was received in a particular year was to be assessed in the year of receipt or it could be spread over the period of time.

4. Without going into the detail as to how this question traversed and decided by one forum to other, suffice it is to state that the Assessing Officer had passed the assessment order by treating their status as that of a AoP. The Assessing Officer had also refused to spread the interest income over the years and treated it as taxable in the year of receipt. Ultimately, the High Court has decided that these persons are to be given the status of 'individual' and assessed accordingly and not as AoP and that the interest income is to be spread over from the year of dispossession of land, that is the assessment year 1987-88 till the year of actual payment which was received in the assessment year 1999-2000 applying the principles of accrual of income. It is in this backdrop that the Revenue has approached this Court challenging the decision of the High Court.

5. Insofar as the treatment of the respondents giving the status of 'individual' and assessing on that basis is concerned, the issue is no more res integra. Learned counsel for the Revenue candidly and fairly conceded that this aspect stands conclusively determined by various judgments. It would be suffice to refer to the judgment of this Court in Meera and Company, Ludhiana vs. Commissioner of Income Tax, Punjab, J & K and Chandigarh, Patiala reported in (1997) 4 SCC 677. After taking note of some previous judgments on this issue, the Court summed up the legal position in paras 19 and 20 which are reproduced below:

“19. In the case of CIT v. Indira Balkrishna, AIR 1960 SC 1172, this Court held that "association of persons" meant an association in which two or more persons joined in a common purpose or common action. As the words occurred in a section which imposed a tax on income, the association must be one the object of which was to produce income, profits or gains. In that case, the co-widows of a Hindu governed by Mitakshara law inherited his estate which consisted of immovable properties, shares, money lying in deposit and a share in a registered firm. The Appellate Tribunal found that they had not exercised their right to separate enjoyment and that except for jointly receiving the dividends from the shares and the interest from the deposits, they had done no act which had helped to produce income. This Court held that the co-widows succeeded as co-heirs to the estate of the