Commissioner Of Income Tax, Faridabad v. Shri Laxman Swaroop Goel

Income-tax Appeal No. 95 *** IN THE HIGH COURT OF PUNJAB AND HARYANA ATCHANDIGARH Income-tax Appeal No. 95of 2010 Date of decision: 6.10.2010 Commissioner of Income Tax, Faridabad ...Petitioner Versus Shri Laxman Swaroop Goel ...Respondent CORAM: HON'BLE MR.JUSTICE ADARSH KUMAR GOEL HON'BLE MR.JUSTICE AJAY KUMAR MITTAL Present: Ms. Urvashi Dhugga, Advocate for the appellant. Mr. R.C.Garg, Advocate for the respondent. **** ADARSH KUMAR GOEL, J ( Oral). 1.This appeal has been preferred under Section 260A ofIncome Tax Act, 1961 (hereinafter referred to as 'the Act”) proposingfollowing substantial questions of law arising out of order dated18.6.2009 of the Income Tax Appellate Tribunal, Delhi Bench 'G',New Delhi (hereinafter referred to as “the Tribunal”) passed in ITANo.1442/Del./2009 in respect of assessment year 2005-06:- “I).Whether, on the facts and in the circumstances ofthe case, the ld. ITAT was right in law in conforming theorder of the ld. CIT(A) in holding that the interest onenhanced compensation was not taxable in the hands ofthe assessee, Shri Laxman Swaroop Goel as the intereston enhanced compensation had not attained finality asthe matter was under dispute before the Hon'ble High *** Court which finally decided the issue on 17.11.2007,therefore, the interest was not chargeable to tax in theyear of receipt i.e. 2004-05 relevant to the assessmentyear 2005-06 disregarding the fact interest on enhancedcompensation would be taxed in the year of receipt asthe entire controversy on the year of taxability ofenhanced compensation and interest therein has nowcome to rest with the judgment of Hon'ble Supreme Courtin the case of Commissioner of Income Tax, FaridabadVs. Ghanshyam (HUF) reported in (2009) 315 ITR 1 (SC)wherein the Hon'ble Apex Court has held that the year inwhich enhanced compensation is received is the year oftaxability and the interest u/s 28 of the Land AcquisitionAct, 1894 on enhanced compensation is a part ofenhanced compensation, therefore, the interest u/s 28 ofthe Land Acquisition Act on enhanced compensation willalso be taxable in the year of receipt? II)Whether, on the facts and in the circumstances ofthe case, the ld. ITAT was right in law in confirming theorder of the ld. CIT(A) in deleting the addition ofRs.22,72,663/- made by the Assessing Officer on accountof interest received on enhanced compensation byassessee's minor children u/s 64(1A) of the Income TaxAct, 1961 disregarding the fact that the interest receivedby the minor children of the assessee is taxable in thehands of the assessee and has to be necessarily included *** in computing the total income of the father of thebeneficiary/assessee, as the very purpose and object ofsection 64(1A) is only to see that evasion of payment oftax is avoided and it is immaterial whether the amount isreleased with or without security/on attaining majority? 2.The assessee is the father of the children who are ownersof the land, inherited by them from their maternal grand father.Enhanced compensation and interest thereon were received onacquisition of the said land. The income received by way of interestwas assessed as capital gain in the hands of the father of the minorchildren under Section 64(1A) of the Act. The CIT(A) upheld the pleaof the assessee that amount received had not attained finality andincome of the minor children from inherited property could not beclubbed in the hands of the father. The above view has been affirmedby the Tribunal. It was observed :- 2.The assessee is the father of the children who are ownersof the land, inherited by them from their maternal grand father.Enhanced compensation and interest thereon were received onacquisition of the said land. The income received by way of interestwas assessed as capital gain in the hands of the father of the minorchildren under Section 64(1A) of the Act. The CIT(A) upheld the pleaof the assessee that amount received had not attained finality andincome of the minor children from inherited property could not beclubbed in the hands of the father. The above view has been affirmedby the Tribunal. It was observed :- “I have carefully considered the contentions of the ld. A/Rand perused the order of assessment. I completelyconcur with him that the A.O. has erred both on facts andlaw in assessing the interest on enhanced compensationand the other receipt of Rs.47,354/- and Rs.14,000/- byhis minor children in the hands of the appellant. I haveexamined all the documents regarding the award grantedto the minor children, and it is also found that the issuewas finally settled by the jurisdictional High Court on17.11.2007, and the A.O. has passed order u/s 143(3) on *** 16.11.2007. Thus in view of jurisdictional High Court'sdecisions in the case of Prem Singh (HUF), Chandi Ram& Bhoop Singh Dagar & others, the AO's action in taxingthe entire interest on enhanced compensation during theyear is erroneous. Further, even so, the AO's action u/s64(1A) of the I.T.Act is illegal on facts hence the awardwas clearly given as per Form 30 on the conditiontherein which reads as under:- “Applicants being minors & their amount ofenhanced compensation be deposited in the shapeof FDR till they attain majority.” Therefore, in the context of the facts in the order ofthe Additional District Judge, the position of theappellant is like a custodian/trustee in this casesince the income was not immediately available tothe minors, who are entitled to receive the sameonly upon attaining majority. As such incomewhatsoever cannot be clubbed in the hands of theparents. Therefore, the provisions of Section 64(1A) are inapplicable on the facts of the case, aspleaded by the ld. A/R in points (i) & (ii) in para 5, inview of the judgment of Madras High Court in KJRamaswamy 286 ITR 77. Further, connection mustbe proximate before an income can come within theambit of section 64, it must be proved to havearisen directly or indirectly from a transfer of assets *** by the assessee, in view of the Apex Court'sdecision in CIT Vs. Prem Bhai Pareekh (1970)77ITR 27 (SC). None of such facts exists here andhence section 64(1A) is incorrectly adhered to bythe A.O. Rather on the available facts of the case,the provisions of Section 64(2) are invokable at themost, as the three minor children own theagricultural property as the separate property asindividuals. However, since other conditions, liketransferring it directly or indirectly, etc. are notsatisfied, even the provisions of section 64(2) areinapplicable. Hence from all points of view, theaddition of Rs.22,72,663/- stands cancelled.” 3.We have heard learned counsel for the parties. 4.Learned counsel for the appellant submits that taxability of capital gain on acquisition of property is now governed byjudgment in CIT Vs. Ghanshyam (2009) 315 ITR 1 (SC). Theamount is to be taxed in the year of receipt. It was further submittedthat the Tribunal failed to apply the provisions of Section 64(1A) ofthe Act properly and wrongly relied upon the judgment ofCommissioner of Income-Tax Vs. K.J.Ramaswamy(2006) 286 ITR 77 (Mad.) which was not on interpretation of Section 64(1A) buton unamended provisions of Section 64. After the amendment,income of the minor, unless it falls in exception provided therein, istaxable in the hands of the parents. The validity of the said provision *** 3.We have heard learned counsel for the parties. 4.Learned counsel for the appellant submits that taxability of capital gain on acquisition of property is now governed byjudgment in CIT Vs. Ghanshyam (2009) 315 ITR 1 (SC). Theamount is to be taxed in the year of receipt. It was further submittedthat the Tribunal failed to apply the provisions of Section 64(1A) ofthe Act properly and wrongly relied upon the judgment ofCommissioner of Income-Tax Vs. K.J.Ramaswamy(2006) 286 ITR 77 (Mad.) which was not on interpretation of Section 64(1A) buton unamended provisions of Section 64. After the amendment,income of the minor, unless it falls in exception provided therein, istaxable in the hands of the parents. The validity of the said provision *** was upheld by the Patna High Court in Syed Askari Hadi AliAugustine Iman and others Vs. Union of India and others(1994)209 ITR 746 which was followed by Karnataka High Court inK.V.Kupparaju's case (supra). The Karnataka High Court in thesaid judgment referred to the background of legislation and held thatthe amendment was made as a measure against tax avoidance inthe light of recommendations of an Expert Committee, Section 64(1A) of the Act has been inserted in the Finance Act, 1992 with effectfrom 1.4.1993 which reads as under:- “1-A) In computing the total income of any individual,there shall be included all such income as arises oraccrues to his minor child not being a minor childsuffering from any disability of the nature specified inSection 80-U: Provided that nothing contained in this sub-section shallapply in respect of such income as arises or accrues tothe minor child on account of any— (a) manual work done by him; or (b) activity involving application of his skill, talent orspecialised knowledge and experience. Explanation.—For the purposes of this sub-section, theincome of the minor child shall be included,— (a) where the marriage of his parents subsists, in theincome of that parent whose total income (excluding theincome includible under this sub-section) is greater; or *** (b) where the marriage of his parents does not subsist,in the income of that parent who maintains the minor childin the previous year, and where any such income is once included in the totalincome of either parent, any such income arising in anysucceeding year shall not be included in the total incomeof the other parent, unless the Assessing Officer issatisfied, after giving that parent an opportunity of beingheard, that it is necessary so to do.” 6.Learned counsel for the assessee has neither been ableto show how judgment of the Hon'ble Supreme Court inGhanshyam'scase can be distinguished nor he has been able togive any reason for excluding the applicability of Section 64(1A). Inthese circumstances, view taken by the Tribunal cannot besustained. Accordingly, the questions raised by the revenue areanswered in its favour. 7.Accordingly, the appeal is allowed. October 06,2010Pka (Adarsh Kumar Goel) Judge (Ajay Kumar Mittal) Judge