Atamjit Singh v. Commissioner Of Income Tax-Ii, Jalandhar

ITA No. 267 of 2005 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No. 267 of 2005 (O&M) Date of Decision: 9.2.2016 Atamjit Singh ....Appellant. Versus Commissioner of Income Tax-II, Jalandhar ...Respondent. 1.Whether the Reporters of the local papers may be allowed to see the judgment?the judgment? 2.To be referred to the Reporters or not? YES 3.Whether the judgment should be reported in the Digest? CORAM:-HON'BLE MR. JUSTICE AJAY KUMAR MITTAL.HON'BLE MRS. JUSTICE RAJ RAHUL GARG. PRESENT: Mr. Ravish Sood, Advocate for the appellant. Mr. Rajesh Sethi, Advocate for the respondent. AJAY KUMAR MITTAL, J. 1.This order shall dispose of two appeals bearing ITA Nos.267 and 268 of 2005 as according to learned counsel for the parties, theissue involved is identical. For brevity, the facts are being extracted fromITA No. 267 of 2005. 2.This appeal has been preferred by the assessee underSection 260A of the Income Tax Act, 1961 (in short “the Act”) against theorder dated 11.11.2004 (Annexure A-1) passed by the Income TaxAppellate Tribunal, Amritsar Bench, Amritsar (hereinafter referred to as“the Tribunal”) in ITA No. 540(ASR)/1998, for the assessment year 1991- 92. The appeals were admitted by this Court vide order dated 31.1.2006for determination of the following substantial question of law:- Whether on the facts and in the circumstances of thecase, interest under Sections 234-A and 234-B of theIncome Tax Act, 1961 was payable by the assessee inrespect of assessment year 1991-92? 3.Briefly stated, the facts necessary for adjudication of theinstant appeal as narrated therein may be noticed. The assessee is anindividual and had income from interest on bank deposits andagricultural income. He had filed his return of income on 23.8.1989 forthe assessment year 1989-90. The land of the assessee was acquiredby the Land Acquisition Organization Department (Punjab), Chandigarhon 18.8.1979. Against the said acquisition, the assessee filed an appealand the compensation awarded by the Land Acquisition Collector wasenhanced by the District Judge, Jalandhar and thereafter by this Courtvide order dated 18.1.1989. The enhanced amount of compensation of` 11,56,299/- and interest thereon amounting to ` 15,78,607/- for theperiod from 19.5.1982 to 27.10.1991 was received by the assessee inNovember, 1991 as the Government of Punjab had filed Special LeavePetition against the enhancement in the Supreme Court. The LandAcquisition Collector released the payment in November, 1991 alongwith interest as per the copy of computation (Annexure A-6). The LandAcquisition Collector also deducted the tax to the tune of ` 1,72,861/- atthe rate of 11.02% of the total amount of interest. The Assessing Officervide assessment order dated 15.10.1997 under Section 143(3) of the Actcomputed and assessed the interest for the relevant previous year at` 1,74,450/-. The Assessing Officer in the assessment order directed for charging of interest under Sections 234A and 234B of the Act. Thecredit of Tax Deducted at Source (TDS) relating to the interest incomefor the relevant year was not allowed for calculating interest underSection 234B of the Act. The credit of the TDS including the TDSrelevant to that year was allowed in the assessment year 1992-93 andrefund was worked out in that assessment year as per demand noticedated 15.10.1997 (Annexure A-7) under Section 156 of the Act. Feelingaggrieved, the assessee filed appeals before the Commissioner ofIncome Tax (Appeals) [for brevity “the CIT(A)”]. The CIT(A) vide ordersdated 4.8.1998 (Annexures A-2 and A-3, respectively) for theassessment years 1986-87 to 1991-92 and for the assessment year1992-93 dismissed the appeals. Against the orders, Annexures A-2 andA-3, the assessee filed appeals before the Tribunal. The Tribunal videorder dated 11.11.2004 (Annexure A-1) dismissed the appeals. Hence,the instant appeals. 4.After hearing learned counsel for the parties, we do not findany merit in the appeals. 5.The issue arising for consideration in these appeals relatesto chargeability of interest under Sections 234A and 234B of the Act. 6.Interpreting the provisions relating to chargeability ofInterest under Sections 234A, 234B and 234C of the Act, theConstitution Bench in Commissioner of Income-Tax v. Anjum M.H.Ghaswala and others (2001) 252 ITR 1 while considering the issuerelating to power of Settlement Commission to waive levy of interestunder these provisions noted that on analysis of the Scheme of Levy ofInterest, it is discernible that the interest contemplated for default infurnishing of return under Section 234A of the Act, default in payment of ITA No. 267 of 2005-4- advance tax under Section 234B of the Act and interest for deferment ofadvance tax under Section 234C of the Act is mandatory in nature and inthe absence of any power expressly conferred on the SettlementCommission, waiver would be outside the purview of the SettlementCommission under Chapter XIX-A of the Act. The relevant observationsrecorded by the Apex Court read thus:- “Sections 234A, 234B and 234C in clear termsimpose a mandate to collect interest at the ratesstipulated therein. The expression shall used in thesaid Section cannot by any stretch of imagination beconstrued as may. There are sufficient indications inthe scheme of the Act to show that the expressionshall used in Sections 234A, 234B and 234C is usedby the Legislature deliberately and it has not left anyscope for interpreting the said expression as may.This is clear from the fact that prior to the Amendmentbrought about by the Finance Act, 1987, theLegislature in the corresponding Section pertaining toimposition of interest used the expression maythereby giving a discretion to the authoritiesconcerned to either reduce or waive the interest. Thechange brought about by the Amending Act (FinanceAct, 1987) is a clear indication of the fact that theintention of the Legislature was to make the collectionof statutory interest mandatory. In this connection, wemay usefully refer to the judgment of this Court inJaywant S. Kulkarni & Ors. v. Minochar Dosabhai Shroff & Ors. AIR 1988 SC 1817 wherein this Courtheld that when the Legislature changes theexpression may to shall by amendment of the statute,it is clear that it intended to make the provisionmandatory from the existing directory provision.” 7.Learned counsel for the assessee has referred to thejudgment in Commissioner of Income Tax v. Nahar Spinning MillsLtd. (2011) 339 ITR 557 (P&H) wherein the issue before the DivisionBench of this Court was relating to chargeability of interest under Section234B of the Act in the case of minimum alternative tax assessment of thecompany under Section 115J of the Act. The question was answeredagainst the assessee and, therefore, it in no manner helps the case ofthe assessee. 8.Thus, it would be concluded that wherever interest underSections 234A, 234B and 234C of the Act is leviable/chargeable, it isclearly spelt out from the plain reading of the provisions, that there is amandate to collect interest at the rates stipulated therein. 9.Further, delving into the issue relating to taxability of interest received on enhanced compensation, this Court in Manjeet Singh v.Union of India and others (2016) 237 Taxman 116 to which one of us(Ajay Kumar Mittal, J.) was a member, had elaborately dealt with thesame as under:- “7. The primary question for consideration thatarises in these petitions relates to the nature ofinterest received by the landowner-assessee underSection 28 of the 1894 Act. In other words, whetherthe interest which is received by the assessee- landowner partakes the character of income or notand, in such a situation is it taxable under theprovisions of the Act. 8. It would be apposite to quote herein belowSections 28 and 34 of 1894 Act which read thus:- 9.Further, delving into the issue relating to taxability of interest received on enhanced compensation, this Court in Manjeet Singh v.Union of India and others (2016) 237 Taxman 116 to which one of us(Ajay Kumar Mittal, J.) was a member, had elaborately dealt with thesame as under:- “7. The primary question for consideration thatarises in these petitions relates to the nature ofinterest received by the landowner-assessee underSection 28 of the 1894 Act. In other words, whetherthe interest which is received by the assessee- landowner partakes the character of income or notand, in such a situation is it taxable under theprovisions of the Act. 8. It would be apposite to quote herein belowSections 28 and 34 of 1894 Act which read thus:- “28. Collector may be directed to pay interest onexcess compensation. - If the sum which, in theopinion of the court, the Collector ought to haveawarded as compensation is in excess of thesum which the Collector did award ascompensation, the award of the Court maydirect that the Collector shall pay interest onsuch excess at the rate of [nine per centum] perannum from the date on which he tookpossession of the land to the date of payment ofsuch excess into Court." "34. Payment of interest.- When the amount ofsuch compensation is not paid or deposited onor before taking possession of the land, theCollector shall pay the amount awarded withinterest thereon at the rate of nine per centumper annum from the time of so takingpossession until it shall have been so paid ordeposited. Provided that if such compensation or any partthereof is not paid or deposited within a periodof one year from the date on which possession is taken, interest at the rate of fifteen percentum per annum shall be payable from thedate of expiry of the said period of one year onthe amount of compensation or part thereofwhich has not been paid or deposited beforethe date of such expiry." 9. The award of interest under Section 28 of the1894 Act applies when the amount originally awardedhas been paid or deposited and when the Courtawards excess amount. In such cases interest on thatexcess alone is payable. Section 28 empowers theCourt to award interest on the excess amount ofcompensation awarded by it over the amountawarded by the Collector. The compensation awardedby the Court includes the additional compensationawarded under Section 23(1A) and the solatium underSection 23(2) of the said Act. Section 28 is applicableonly in respect of the excess amount, which isdetermined by the Court after a reference underSection 18 of the 1894 Act. 10. Under Section 34 of the 1894 Act, the Collectorawards interest on the compensation offered at therate of 9% per annum for a period of one year fromthe date of taking possession and thereafter at therate of 15% per annum from the date of expiry of oneyear on the amount of compensation or part thereofwhich remains unpaid or deposited before the date of such expiry. 11. A plain reading of Sections 23(1A), 23(2) asalso Section 28 of the 1894 Act clearly spells out thatadditional benefits are available on the market valueof the acquired lands under Section 23(1A) and 23(2)whereas Section 28 is available in respect of theentire compensation. The Constitution Bench of theSupreme Court in Sunder's case (supra) hadapproved the following observations of the DivisionBench of this Court in State of Haryana vs.Smt.Kailashwati and others, AIR 1980 P&H 117:- such expiry. 11. A plain reading of Sections 23(1A), 23(2) asalso Section 28 of the 1894 Act clearly spells out thatadditional benefits are available on the market valueof the acquired lands under Section 23(1A) and 23(2)whereas Section 28 is available in respect of theentire compensation. The Constitution Bench of theSupreme Court in Sunder's case (supra) hadapproved the following observations of the DivisionBench of this Court in State of Haryana vs.Smt.Kailashwati and others, AIR 1980 P&H 117:- “10. Once it is held as it inevitably must be thatthe solatium provided for under Section 23(2) ofthe Act forms an integral and statutory part ofthe compensation awarded to a landowner, thenfrom the plain terms of Section 28 of the Act, itwould be evident that the interest is payable onthe compensation awarded and not merely onthe market value of the land. Indeed thelanguage of Section 28 does not even remotelyrefer to market value alone and in terms talks ofcompensation or the sum equivalent thereto.The interest awardable under Section 28therefore would include within its ambit both themarket value and the statutory solatium. Itwould be thus evident that the provisions ofSection 28 in terms warrant and authorize the ITA No. 267 of 2005 grant of interest on solatium as well.” 12. Adverting to the case law on the subject,inevitably, reference is made to the judgment by thethree Judges bench of the Supreme Court in the caseof Dr. Shamlal Narula v. CIT , [1964] 53 ITR 151,which had considered the issue regarding award ofinterest under the 1894 Act. Interest under Section 28of the 1894 Act was considered akin to interest underSection 34 thereof as both were held to be on accountof keeping back the amount payable to the owner anddid not form part of compensation or damages for theloss of the right to retain possession. It was noticed asunder:- “As we have pointed out earlier, as soon as theCollector has taken possession of the landeither before or after the award the titleabsolutely vests in the Government andthereafter owner of the land so acquired ceasesto have any title or right of possession to theland acquired. Under the award he getscompensation for both the rights. Therefore, theinterest awarded under s. 28 of the Act, just likeunder s. 34 thereof, cannot be a compensationor damages for the loss of the right to retainpossession but only compensation payable bythe State for keeping back the amount payableto the owner.” The principle of Dr.Shamlal Narula's case (supra) hadsubsequently been applied by three Judges Bench ofthe Apex Court in a later decision inT.N.K.Govindaraju Chetty v. CIT, (1967) 66 ITR 465.13. Further Section 2(28A) of the Act defines “interest”and was inserted by Finance Act, 1976 to be effectivefrom 1.6.1976. It reads thus:- “'interest' means interest payable in any mannerin respect of any moneys borrowed or debtincurred (including a deposit, claim or othersimilar right or obligation) and includes anyservice fee or other charge in respect of themoneys borrowed or debt incurred or in respectof any credit facility which has not beenutilised.” The expression 'interest' occurring in sub-section(28A) of Section 2 of the Act widens the scope of theterm 'interest' for the purposes of the Act. 14. Another three Judges bench of the Apex Courtin Bikram Singh vs. Land Acquisition Collector, (1997)224 ITR 551 following Dr. Shamlal Narula's case(supra) and taking into consideration definition of“interest” in Section 2(28A) of the Act had recordedthat interest under Section 28 of the 1894 Act was arevenue receipt and is taxable. It was held as under:- “The controversy is no longer res integra. Thisquestion was considered elaborately by this The expression 'interest' occurring in sub-section(28A) of Section 2 of the Act widens the scope of theterm 'interest' for the purposes of the Act. 14. Another three Judges bench of the Apex Courtin Bikram Singh vs. Land Acquisition Collector, (1997)224 ITR 551 following Dr. Shamlal Narula's case(supra) and taking into consideration definition of“interest” in Section 2(28A) of the Act had recordedthat interest under Section 28 of the 1894 Act was arevenue receipt and is taxable. It was held as under:- “The controversy is no longer res integra. Thisquestion was considered elaborately by this Court in Dr. Shamlal Narula vs. Commissionerof Income-tax, Jammu [51 ITR 151]. Therein, K.Subba Rao, J., as he then was, considered theearlier case law on the concept of "interest" laiddown by the Privy Council and all other casesand had held at page 158 as under: "In a casewhere title passes to the State, the statutoryinterest provided thereafter can only beregarded either as representing the profit whichthe owner of the land might have made if hehad the use of the money or the loss hesuffered because he had not that use. In nosense of the term can it be described asdamages or compensation for the owner's rightto retain possession, for he has no right toretain possession after possession was takenunder Section 16 or Section 17 of the Act. We,therefore, hold that the statutory interest paidunder Section 34 of the Act is interest paid forthe delayed payment of the compensationamount and, therefore, is a revenue receiptliable to tax under the Income tax Act." This position of law has been consistentlyreiterated by this Court in the case of TMKGovindaraju Chetty vs. Commissioner ofIncome-tax, Madras [66 ITR 465], Rama Rai &Ors. vs. CIT, Andhra Pradesh [181 ITR 400] and K.S. Krishna Rao vs. CIT, A.P. [181 ITR 408].Thus by a catena of judicial pronouncements, itis settled law that the interest received ondelayed payment of the compensation is arevenue receipt eligible to income tax. It is truethat in amending the definition of "interest" inSection 2(28A) interest was defined to meaninterest payable in any manner in respect of anymoney borrowed or debt incurred including adeposit, claim or other similar right or obligationand includes any service, fee or other chargesin respect of the moneys borrowed or debtincurred or in respect of any credit facility whichhas not been utilised. It is seen that the word"interest" for the purpose of the Act wasinterpreted by the inclusive definition. A literalconstruction may lead to the conclusion that theinterest received or payable in any manner inrespect of any moneys borrowed or a debtincurred or enumerated analogous transactionwould be deemed interest. That was explainedby the Board in the circular referred tohereinbefore. But the question is: whether theinterest on delayed payment on the acquisitionof the immovable property under the AcquisitionAct would not be eligible to income-tax? It isseen that this Court has consistently taken the view that it is a revenue receipt. The amendeddefinition of "interest" was not intended toexclude the revenue receipt of interest ondelayed payment of compensation fromtaxability. Once it is construed to be a revenuereceipt, necessarily, unless there is anexemption under the appropriate provisions ofthe Act, the revenue receipt is exigible to tax.The amendment is only to bring within its taxnet, income received from the transactioncovered under the definition of interest. It wouldmean that the interest received as income onthe delayed payment of the compensationdetermined under Section 28 or 31 of theAcquisition Act is a taxable event.” view that it is a revenue receipt. The amendeddefinition of "interest" was not intended toexclude the revenue receipt of interest ondelayed payment of compensation fromtaxability. Once it is construed to be a revenuereceipt, necessarily, unless there is anexemption under the appropriate provisions ofthe Act, the revenue receipt is exigible to tax.The amendment is only to bring within its taxnet, income received from the transactioncovered under the definition of interest. It wouldmean that the interest received as income onthe delayed payment of the compensationdetermined under Section 28 or 31 of theAcquisition Act is a taxable event.” 15. Now, we advert to the judgment of the ApexCourt in Ghanshyam (HUF)'s case (supra) on thebasis of which learned counsel for the assessee hadsought reconsideration of judgment of this Court inCIT v. Bir Singh, ITA No.209 of 2004 decided on27.10.2010 where Division Bench of this Court hasheld that element of interest awarded by the court onenhanced amount of compensation under Section 28of the 1894 Act falls for taxation under Section 56 as'income from other sources' in the year of receipt. 16. The reliance was placed upon followingobservations in Ghanshyam (HUF)'s case (supra):- “To sum up, interest is different fromcompensation. However, interest paid on theexcess amount under Section 28 of the 1894Act depends upon a claim by the person whoseland is acquired whereas interest under Section34 is for delay in making payment. This vitaldifference needs to be kept in mind in decidingthis matter. Interest under Section 28 is part ofthe amount of compensation whereas interestunder Section 34 is only for delay in makingpayment after the compensation amount isdetermined. Interest under Section 28 is a partof the enhanced value of the land which is notthe case in the matter of payment of interestunder Section 34.” 17. In view of the authoritative pronouncements ofthe Apex Court in Dr. Sham Lal Narula,T.N.K.Govindaraja Chetty, Amarjit Singh, Sunder,Bikram Singh's cases (supra), Rama Bai vs. CIT(1990) 181 ITR 400 and K.S.Krishna Rao v. CIT,(1990) 181 ITR 408, the assessee cannot derive anybenefit from the aforesaid observations quotedabove.” 10.Appeal carried to the Apex Court by the assessee therein byway of Special Leave to Appeal (C) No. 34642 of 2014 was dismissed bythe Supreme Court on 18.12.2014 with the following order:- “Heard learned counsel for the petitioners and perused the relevant material. We do not find any legal and valid ground forinterference. The Special Leave Petitions aredismissed.” 11.The judgments relied upon by the learned counsel for theassessee-appellant in State of Punjab v. Amarjit Singh and another(2011) 2 SCR 617 (SC) and Commissioner of Income Tax v.Govindbhai Mamaiya (2014) 367 ITR 498 (SC) were based on thejudgment of the Supreme Court in Commissioner of Income Tax v.Ghanshyam (HUF) (2009) 315 ITR 1 (SC), which was dealt with by thisCourt in Manjeet Singh's case (supra) as noticed hereinabove. “Heard learned counsel for the petitioners and perused the relevant material. We do not find any legal and valid ground forinterference. The Special Leave Petitions aredismissed.” 11.The judgments relied upon by the learned counsel for theassessee-appellant in State of Punjab v. Amarjit Singh and another(2011) 2 SCR 617 (SC) and Commissioner of Income Tax v.Govindbhai Mamaiya (2014) 367 ITR 498 (SC) were based on thejudgment of the Supreme Court in Commissioner of Income Tax v.Ghanshyam (HUF) (2009) 315 ITR 1 (SC), which was dealt with by thisCourt in Manjeet Singh's case (supra) as noticed hereinabove. 12.Still further, on the strength of judgment of the Apex Court inCommissioner of Income Tax, West Bengal-II, Calcutta v. HindustanHousing and Land Development Trust Ltd. (1986) 161 ITR 524 (SC),it was urged that till the lis relating to right to receive enhancedcompensation along with interest thereon had not attained finality, notaxable income could be said to accrue to the assessee. The factualmatrix and the issue involved in Hindustan Housing and LandDevelopment Trust Ltd's case (supra) needs to be examined. In thesaid case, certain land belonging to the assessee was requisitioned andcompulsorily acquired by the State. The arbitrator awarded thecompensation for the period of requisition. Thereupon, the StateGovernment preferred an appeal in the High Court. During thependency of the appeal, the State Government deposited the amount onaccount of additional compensation payable under the award which theassessee was allowed to withdraw on furnishing of surety bond for refunding the amount on appeal being allowed. The question that arosein those facts whether this amount which was received by the company,in pursuance to the arbitrator award which was in dispute in appeal filedby the State Government, could the same be treated to be assessee'sincome during the previous year when the same was received. TheApex Court held that since there was no absolute right to receive theamount and the extra amount of compensation was in dispute in appealfiled by the State Government, therefore, no income accrued to theassessee. It was, however, clarified that there is a clear distinctionbetween cases where the right to receive payment is in dispute and it isnot a question of merely quantifying the amount to be received, andcases where there is no challenge to the right to receive the payment butthe quantification of the amount payable alone is left to be ascertained inaccordance with settled or accepted principles. The relevantobservations of the Apex Court in that behalf read as under:- “There was no absolute right to receive the amount atthat stage. If the appeal was allowed in its entirety,the right to payment of the enhanced compensationwould have fallen altogether. This is a case whichmust be distinguished from that decided by this Courtin Kedarnath Jute Mfg. Co. Ltd. v. Commissionerof Income Tax (1971) 82 ITR 363 (SC), where theliability to sales tax arose immediately on a dealereffecting sales which were subject to sales tax andwhat remained to be done was a mere quantificationof that liability.” Herein, the assessee in pursuance to the order of the High ITA No. 267 of 2005 Court dated 18.1.1989 had received the payment of enhancedcompensation along with interest in terms thereof. It was not shown thatthe payment was released to the assessee conditionally and that theright to receive the compensation by the assessee itself was in jeopardy.The quantification of the compensation was assailed by the State andthere was no challenge to the legality and validity of the acquisitionproceedings. Thus, no advantage can be derived by the assessee-appellant from the law enunciated in the said pronouncement. Herein, the assessee in pursuance to the order of the High ITA No. 267 of 2005 Court dated 18.1.1989 had received the payment of enhancedcompensation along with interest in terms thereof. It was not shown thatthe payment was released to the assessee conditionally and that theright to receive the compensation by the assessee itself was in jeopardy.The quantification of the compensation was assailed by the State andthere was no challenge to the legality and validity of the acquisitionproceedings. Thus, no advantage can be derived by the assessee-appellant from the law enunciated in the said pronouncement. 14.Once it is held that the interest received by the assessee onthe compensation amount was taxable, equally the interest underSections 234A and 234B of the Act was exigible in the facts andcircumstances of the present case. 15.In view of the above, the substantial question of law asclaimed by the assessee is decided against the assessee.Consequently, the appeals are dismissed. (AJAY KUMAR MITTAL) JUDGE February 9, 2016gbs (RAJ RAHUL GARG)JUDGE