Puneet Singh v. Commissioner Of Income Tax, Karnal

ITA-132-2018 -1- IN THE HIGH COURT OF PUNJAB & HARYANA AT CHANDIGARH ITA-132-2018 (O&M) Date of Decision: 19.11.2018 Puneet Singh Versus ....Appellant. Commissioner of Income Tax, Karnal ...Respondent. CORAM:- HON'BLE MR. JUSTICE AJAY KUMAR MITTAL.HON'BLE MRS. JUSTICE MANJARI NEHRU KAUL. PRESENT: Mr. Divya Suri, Advocate for the appellant. *** AJAY KUMAR MITTAL, J. 1.This order shall dispose of a bunch of three appeals bearingITA Nos.132, 163 and 165 of 2018 as according to learned counsel for theparties, identical questions of law and facts are involved therein. Forbrevity, the facts are being extracted from ITA-132-2018. 2.ITA-132-2018 has been preferred by the assessee under Section260A of the Income Tax Act, 1961 (in short “the Act”) against the orderdated 11.10.2017 (Annexure A-12) passed by the Income Tax AppellateTribunal, Delhi 'SMC' Bench, New Delhi (hereinafter referred to as “theTribunal”) in ITA No. 1388/DEL/2017, for the assessment year 2010-11,claiming the following substantial questions of law:- I.Whether under the facts and circumstances of thecase, is the amount of interest on land acquisitioncompensation allowed bifurcation and spread over II. III. IV. w.e.f. the date of acquisition to the date of paymentpursuant to the Provisions of Section 145A(b) bythe Finance Act, 2009 w.e.f 01.04.2010 read withSection 5 of Income Tax Act, 1961? Whether under the facts and circumstances of thecase, the interest received on compensation/enhanced compensation by the assessee as awardedby the Court on a reference u/s 18 of the LandAcquisition Act, 1894 has to be spread over on anannual basis right from the date of delivery ofpossession till the date of order of the Courtaccording to Rama Bai vs. CIT (1990) 181 ITR400 (SC) and K.S.Krishna Rao vs. CIT (1990) 181ITR 408 (SC)? Whether under the facts and circumstances of thecase, when the period involved is 8 years from landacquisition to the date of receipt of thecompensation (2010) for acquisition proceedings(2002), while amendment u/s 56(2)(viii) by theFinance Act, 2009 w.e.f. 01.04.2010, is the landowner barred from claiming the benefit of 'Nil RateSlab' of income prescribed by the Statute for therespective years? Whether under the facts, circumstances and natureof the case wherein a salaried person is allowed toset off the salary arrears in the relevant previous ITA-132-2018-3- assessment years for the services having beenrendered in past, can the landowner whose land hasbeen acquired 8 years back, be allowed to set off ofthe interest income in case had the payment beenmade before amendment (Finance Act, 2009 w.e.f.01.04.2010) hence outside the purview ofchargeability to tax? Whether under the facts, circumstances and natureof the case wherein a salaried person is allowed toset off the salary arrears in the relevant previous ITA-132-2018-3- assessment years for the services having beenrendered in past, can the landowner whose land hasbeen acquired 8 years back, be allowed to set off ofthe interest income in case had the payment beenmade before amendment (Finance Act, 2009 w.e.f.01.04.2010) hence outside the purview ofchargeability to tax? 3.A few facts necessary for adjudication of the instant appeal asnarrated therein may be noticed. Government of Haryana vide notificationsdated 2.1.2002 issued under Sections 4 and 6 of the Land Acquisition Act,1894 (in short “the 1894 Act”) acquired the land measuring 344.31 acressituated within the revenue estate of village Budha Khera, Hadbast No.1,Tehsil and District Karnal for the development and utilization of land asresidential and commercial area for Sector 9 Part 32 and 33, Urban Estate,Karnal. The Land Acquisition Collector passed the award. Beingaggrieved, the landowners filed references under Section 18 of the 1894 Actwhich were accepted with costs and compensation was enhanced vide awarddated 11.8.2009. Form D dated 27.5.2010 and 30.3.2011 (Annexure P-1)were drawn by the Land Acquisition Officer. Form 16A dated 22.3.2010(Annexure A-2) was issued by the Land Acquisition Officer for the interestof ` 14,71,162/- on which TDS of ` 1,66,682/- was deducted for thefinancial year ending 31.3.2010. The assessee filed his return of income on31.7.2011 under Section 139(1) of the Act for an amount of ` 4,11,477/-qua income from salary and interest. The said return was processed underSection 143(1) of the Act on 26.5.2011. The assessee claimed refund of` 1,79,587/- out of TDS deducted on compensation/ enhanced compensation ITA-132-2018 -4- of agricultural land acquired by the Government of Haryana. The LandAcquisition Officer, Panchkula vide letter dated 19.11.2014 verified theaforesaid amount of ` 14,71,162/- and deduction of TDS thereon. TheAssessing Officer after having recorded the reasons on 7.4.2015 (AnnexureA-3) for initiation of the reassessment proceedings, had issued notice underSection 148 of the Act. The appellants in all the three appeals filed CWP-2605-2015 claiming refund and this Court vide order dated 1.7.2015(Annexure A-4) disposed of the said writ petition with a direction to therespondent to complete the reassessment proceedings by 31.8.2015 and inthe event of their remaining any refund, the same be paid within four weeksof the conclusion of the reassessment proceedings. The assessee filedobjections to the notice issued under Section 148 of the Act which wererejected by the respondent vide letter dated 7.8.2015 (Annexure A-5). Theassessee submitted written pleadings dated 6.8.2015 (Annexure A-6) beforethe Assessing Officer during the reassessment proceedings. The AssessingOfficer vide assessment order dated 29.10.2015 (Annexure A-7) madeaddition of ` 5,65,280/- (50% of ` 11,30,561/-) as 50% of the interestamount received on compensation was taxable in the year of receipt as perprovisions of Section 56(2)(viii) read with Section 57(iv) of the Act andassessed the income of the assessee at ` 9,76,760/-. Feeling aggrieved bythe order, Annexure A-7, the assessee filed an appeal on 16.11.2015(Annexure A-8) before the Commissioner of Income Tax (Appeals) [forbrevity “the CIT(A)”]. The assessee furnished written submissions dated15.12.2016 (Annexure A-9) before the CIT(A). The CIT(A) vide orderdated 6.1.2017 (Annexure A-10) upheld the addition made by the AssessingGURBACHAN SINGHOfficer and dismissed the appeal. Still dissatisfied, the assessee filed an2018.12.05 14:22I attest to the accuracy andintegrity of this document ITA-132-2018 -5- ITA-132-2018 -5- appeal on 10.2.2017 (Annexure A-11) before the Tribunal. The Tribunalvide order dated 11.10.2017 (Annexure A-12) dismissed the appealupholding the order of the CIT(A). Hence, the present appeals by theassessee. 4.After hearing learned counsel for the parties, we do not findany merit in the appeals. 5.The primary question for consideration that arises in theseappeals relates to the nature of interest received by the landowner-assesseeunder Section 28 of the 1894 Act. In other words, whether the interestwhich is received by the assessee-landowner partakes the character ofincome or not and, in such a situation is it taxable under the provisions ofthe Act. 6. It would be apposite to quote herein below Sections 28 and 34of 1894 Act which read thus:- “28. Collector may be directed to pay interest onexcess compensation. - If the sum which, in the opinion of the court, theCollector ought to have awarded as compensation is inexcess of the sum which the Collector did award ascompensation, the award of the Court may direct that theCollector shall pay interest on such excess at the rate of[nine per centum] per annum from the date on which hetook possession of the land to the date of payment ofsuch excess into Court." "34. Payment of interest.- When the amount of suchcompensation is not paid or deposited on or before taking possession of the land, the Collector shall pay the amountawarded with interest thereon at the rate of nine percentum per annum from the time of so taking possessionuntil it shall have been so paid or deposited. Provided that if such compensation or any part thereof isnot paid or deposited within a period of one year fromthe date on which possession is taken, interest at the rateof fifteen per centum per annum shall be payable fromthe date of expiry of the said period of one year on theamount of compensation or part thereof which has notbeen paid or deposited before the date of such expiry." 7. The award of interest under Section 28 of the 1894 Act applies when the amount originally awarded has been paid or deposited and whenthe Court awards excess amount. In such cases interest on that excess aloneis payable. Section 28 empowers the Court to award interest on the excessamount of compensation awarded by it over the amount awarded by theCollector. The compensation awarded by the Court includes the additionalcompensation awarded under Section 23(1A) and the solatium underSection 23(2) of the said Act. Section 28 is applicable only in respect of theexcess amount, which is determined by the Court after a reference underSection 18 of the 1894 Act. 8. Under Section 34 of the 1894 Act, the Collector awards intereston the compensation offered at the rate of 9% per annum for a period of oneyear from the date of taking possession and thereafter at the rate of 15% perannum from the date of expiry of one year on the amount of compensationor part thereof which remains unpaid or deposited before the date of such ITA-132-2018 -7- expiry. 9. A plain reading of Sections 23(1A), 23(2) as also Section 28 ofthe 1894 Act clearly spells out that additional benefits are available on themarket value of the acquired lands under Section 23(1A) and 23(2) whereasSection 28 is available in respect of the entire compensation. TheConstitution Bench of the Supreme Court in Sunder v. Union of Indiareported as JT 2001(8) SC 130had approved the following observations ofthe Division Bench of this Court in State of Haryana vs. Smt.Kailashwatiand others, AIR 1980 P&H 117:- ITA-132-2018 -7- expiry. 9. A plain reading of Sections 23(1A), 23(2) as also Section 28 ofthe 1894 Act clearly spells out that additional benefits are available on themarket value of the acquired lands under Section 23(1A) and 23(2) whereasSection 28 is available in respect of the entire compensation. TheConstitution Bench of the Supreme Court in Sunder v. Union of Indiareported as JT 2001(8) SC 130had approved the following observations ofthe Division Bench of this Court in State of Haryana vs. Smt.Kailashwatiand others, AIR 1980 P&H 117:- “10. Once it is held as it inevitably must be that thesolatium provided for under Section 23(2) of the Actforms an integral and statutory part of the compensationawarded to a landowner, then from the plain terms ofSection 28 of the Act, it would be evident that theinterest is payable on the compensation awarded and notmerely on the market value of the land. Indeed thelanguage of Section 28 does not even remotely refer tomarket value alone and in terms talks of compensation orthe sum equivalent thereto. The interest awardable underSection 28 therefore would include within its ambit boththe market value and the statutory solatium. It would bethus evident that the provisions of Section 28 in termswarrant and authorize the grant of interest on solatium aswell.” 10.Examining the case law on the subject, inevitably, reference ismade to the judgment by the three Judges Bench of the Supreme Court in ITA-132-2018 the case of Dr. Shamlal Narula v. CIT, [1964] 53 ITR 151, which hadconsidered the issue regarding award of interest under the 1894 Act. Interestunder Section 28 of the 1894 Act was considered akin to interest underSection 34 thereof as both were held to be on account of keeping back theamount payable to the owner and did not form part of compensation ordamages for the loss of the right to retain possession. It was noticed asunder:- “As we have pointed out earlier, as soon as the Collectorhas taken possession of the land either before or after theaward the title absolutely vests in the Government andthereafter owner of the land so acquired ceases to haveany title or right of possession to the land acquired.Under the award he gets compensation for both therights. Therefore, the interest awarded under s. 28 of theAct, just like under s. 34 thereof, cannot be acompensation or damages for the loss of the right toretain possession but only compensation payable by theState for keeping back the amount payable to the owner.”The principle of Dr.Shamlal Narula's case (supra) had subsequently beenapplied by three Judges Bench of the Apex Court in a later decision inT.N.K.Govindaraju Chetty v. CIT, (1967) 66 ITR 465. 11. Further Section 2(28A) of the Act defines “interest” and wasinserted by Finance Act, 1976 to be effective from 1.6.1976. It reads thus:- “'interest' means interest payable in any manner inrespect of any moneys borrowed or debt incurred(including a deposit, claim or other similar right or obligation) and includes any service fee or other chargein respect of the moneys borrowed or debt incurred or inrespect of any credit facility which has not been utilised.”The expression 'interest' occurring in sub-section (28A) of Section 2 of theAct widens the scope of the term 'interest' for the purposes of the Act. 12. Another three Judges bench of the Apex Court in BikramSingh 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 recorded that interest underSection 28 of the 1894 Act was a revenue receipt and is taxable. It was heldas under:- obligation) and includes any service fee or other chargein respect of the moneys borrowed or debt incurred or inrespect of any credit facility which has not been utilised.”The expression 'interest' occurring in sub-section (28A) of Section 2 of theAct widens the scope of the term 'interest' for the purposes of the Act. 12. Another three Judges bench of the Apex Court in BikramSingh 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 recorded that interest underSection 28 of the 1894 Act was a revenue receipt and is taxable. It was heldas under:- “The controversy is no longer res integra. This questionwas considered elaborately by this Court in Dr. ShamlalNarula vs. Commissioner of Income-tax, Jammu [51ITR 151]. Therein, K. Subba Rao, J., as he then was,considered the earlier case law on the concept of"interest" laid down by the Privy Council and all othercases and had held at page 158 as under: "In a case wheretitle passes to the State, the statutory interest providedthereafter can only be regarded either as representing theprofit which the owner of the land might have made if hehad the use of the money or the loss he suffered becausehe had not that use. In no sense of the term can it bedescribed as damages or compensation for the owner'sright to retain possession, for he has no right to retainpossession after possession was taken under Section 16 or Section 17 of the Act. We, therefore, hold that thestatutory interest paid under Section 34 of the Act isinterest paid for the delayed payment of thecompensation amount and, therefore, is a revenue receiptliable to tax under the Income-tax Act." This position oflaw has been consistently reiterated by this Court in thecase of TMK Govindaraju Chetty vs. Commissionerof Income-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 acatena of judicial pronouncements, it is settled law thatthe interest received on delayed payment of thecompensation is a revenue receipt eligible to income tax.It is true that in amending the definition of "interest" inSection 2(28A) interest was defined to mean interestpayable in any manner in respect of any money borrowedor debt incurred including a deposit, claim or othersimilar right or obligation and includes any service, feeor other charges in respect of the moneys borrowed ordebt incurred or in respect of any credit facility whichhas not been utilised. It is seen that the word "interest"for the purpose of the Act was interpreted by theinclusive definition. A literal construction may lead tothe conclusion that the interest received or payable in anymanner in respect of any moneys borrowed or a debtincurred or enumerated analogous transaction would be deemed interest. That was explained by the Board in thecircular referred to hereinbefore. But the question is:whether the interest on delayed payment on theacquisition of the immovable property under theAcquisition Act would not be eligible to income-tax? It isseen that this Court has consistently taken the view that itis a revenue receipt. The amended definition of "interest"was not intended to exclude the revenue receipt ofinterest on delayed payment of compensation fromtaxability. Once it is construed to be a revenue receipt,necessarily, unless there is an exemption under theappropriate provisions of the Act, the revenue receipt isexigible to tax. The amendment is only to bring within itstax net, income received from the transaction coveredunder the definition of interest. It would mean that theinterest received as income on the delayed payment ofthe compensation determined under Section 28 or 31 ofthe Acquisition Act is a taxable event.” 13. Further, this Court in CIT v. Bir Singh (HUF), ITA No.209 of 13. Further, this Court in CIT v. Bir Singh (HUF), ITA No.209 of 2004 decided on 27.10.2010 had held that element of interest awarded bythe court on enhanced amount of compensation under Section 28 of the1894 Act falls for taxation under Section 56 as 'income from other sources'in the year of receipt. 14. Learned counsel for the assessee has placed reliance upon thejudgment of the Apex Court in CIT v. Ghanshyam (HUF) (2009) 8 SCC 412 to contend that the interest on enhanced compensation was exempt under Section 10(37) of the Act. In Ghanshyam (HUF)'s case (supra), itwas held as under:- “To sum up, interest is different from compensation.However, interest paid on the excess amount underSection 28 of the 1894 Act depends upon a claim by theperson whose land is acquired whereas interest underSection 34 is for delay in making payment. This vitaldifference needs to be kept in mind in deciding thismatter. Interest under Section 28 is part of the amount ofcompensation whereas interest under Section 34 is onlyfor delay in making payment after the compensationamount is determined. Interest under Section 28 is a partof the enhanced value of the land which is not the case inthe matter of payment of interest under Section 34.” 15. In view of the authoritative pronouncements of the Apex Courtin Dr. Sham Lal Narula, T.N.K.Govindaraja Chetty, Amarjit Singh,Sunder, Bikram Singh's cases (supra), Rama Bai vs. CIT (1990) 181ITR 400 and K.S.Krishna Rao v. CIT, (1990) 181 ITR 408, the assesseecannot derive any benefit from the aforesaid observations quoted above. 16.The Tribunal relying upon the decision of this Court inManjeet Singh (HUF) Karta Manjeet Singh v. Union of India andothers, CWP-15506-2013 decided on 14.1.2014 against which the SLPhaving been dismissed by the Supreme Court, had held that the interestreceived under Section 28 of the 1894 Act is not exempt under the Act as itcould not partake the character of compensation for acquisition ofagricultural land. It was further held that the interest received on enhanced compensation in the case of the assessee was liable to tax under the head'income from other sources' in the year of receipt. 17.Furthermore, the Finance (No.2) Act, 2009 (in short “the 2009Act”) effective from 01.04.2010 has amended Section 145A and insertedClause (viii) in sub-Section (2) of Section 56 in the Act. Section 145A(b)substituted by the 2009 Act reads thus:- “-145A. Method of accounting in certain cases. Notwithstanding anything to the contrary contained insection 145,- (a)XXXXXX (b)interest received by an assessee on compensationor on enhanced compensation, as the case may be,shall be deemed to be the income of the year inwhich it is received.” Clause (viii) in sub-section (2) of Section 56 as inserted by 2009 Act is inthe following terms:- “56.Income from other sources.- (2)In particular, and without prejudice to the generality of the provisions of sub-section (1), thefollowing income shall be chargeable to income-taxunder the head “Income from other sources”, namely:- (i) to (vii)XXXXXX (viii) income by way of interest received oncompensation or on enhanced compensation referred toin clause (b) of Section 145A. 18.The scope and effect of the substitution of Section 145A by2009 Act effective from 01.04.2010 as also insertion of Clause (viii) madein Section 56(2) have been elaborately discussed in the departmentalCircular No.5/2010 dated 3.6.2010 in the following terms:- Clause (viii) in sub-section (2) of Section 56 as inserted by 2009 Act is inthe following terms:- “56.Income from other sources.- (2)In particular, and without prejudice to the generality of the provisions of sub-section (1), thefollowing income shall be chargeable to income-taxunder the head “Income from other sources”, namely:- (i) to (vii)XXXXXX (viii) income by way of interest received oncompensation or on enhanced compensation referred toin clause (b) of Section 145A. 18.The scope and effect of the substitution of Section 145A by2009 Act effective from 01.04.2010 as also insertion of Clause (viii) madein Section 56(2) have been elaborately discussed in the departmentalCircular No.5/2010 dated 3.6.2010 in the following terms:- “Rationalizing the provisions for taxation of interestreceived on delayed compensation or on enhancedcompensation.- '46.1 The existing provisions of Income-tax Act, 1961, provide that income chargeable under thehead “Profits and gains of business or profession” or“income from other sources”, shall be computed inaccordance with either cash or mercantile system ofaccounting regularly employed by the assessee. Further,the Hon'ble Supreme Court in the case of Rama Bai v.CIT has held that arrears of interest computed on delayedor enhanced compensation shall be taxable on accrualbasis. This has caused undue hardship to the taxpayers.46.2 With a view to mitigate the hardship, section 145Ais amended to provide that the interest received by anassessee on compensation or enhanced compensationshall be deemed to be his income for the year in which itwas received, irrespective of the method of accountingfollowed by the assessee. 46.3 Further, clause (viii) is inserted in the sub-section(2) of the section 56 so as to provide that income by wayof interest received on compensation or on enhanced ITA-132-2018-15- compensation referred to in clause (b) of section 145Ashall be assessed as “income from other sources” in theyear in which it is received. 46.4 Applicability.- This amendment has been madeapplicable with effect from Ist April, 2010, and willaccordingly apply in relation to assessment year 2010-11and subsequent assessment years.” 19.The cumulative effect of Section 145A(b) and Section 56(2)(viii) would be that any interest received on compensation or on enhancedcompensation shall be taxable under the head 'income from other sources' inthe year of receipt. 20.However, by Section 27 of the 2009 Act, a new clause (iv) inSection 57 has been inserted w.e.f. 01.04.2010 which lays down that in thecase of income of the nature referred to in Section 56(2)(viii), a deductionof a sum equal to 50% of such income would be allowable thereunder andno deduction would be allowed under any other clause of Section 57. Thesaid provision reads thus:- “57. Deductions.- The income chargeable under the head“Income from other sources” shall be computed aftermaking the following deductions, namely:-“Income from other sources” shall be computed aftermaking the following deductions, namely:- (i) to (iii)XXXXXX (iv)in the case of income of the nature referred to in clause (viii) of sub-section (2) of section 56, adeduction of a sum equal to fifty per cent of suchincome and no deduction shall be allowed underany other clause of this section.” ITA-132-2018-16- “57. Deductions.- The income chargeable under the head“Income from other sources” shall be computed aftermaking the following deductions, namely:-“Income from other sources” shall be computed aftermaking the following deductions, namely:- (i) to (iii)XXXXXX (iv)in the case of income of the nature referred to in clause (viii) of sub-section (2) of section 56, adeduction of a sum equal to fifty per cent of suchincome and no deduction shall be allowed underany other clause of this section.” ITA-132-2018-16- 21.The Assessing Officer in ITA-132-2018 where the assessee hadreceived ` 11,30,561/- as interest income, held that the interest paymentreceived on compensation/enhanced compensation to the tune of` 5,65,280/- (50% of ` 11,30,561/-) is taxable as income from other sourcesas per provisions of Sections 56(2)(viii) read with 57(iv) and Section145A(b) of the Act for the assessment year 2010-11. The CIT(A) and theTribunal had upheld the order of the Assessing Officer in that regard.22.No illegality or perversity could be pointed out by learnedcounsel for the assessee in the concurrent findings of fact recorded by theauthorities below which may warrant interference by this Court. Noquestion of law, much less, substantial question of law arise in theseappeals. 23.Accordingly, finding no merit in the appeals, the same arehereby dismissed. (AJAY KUMAR MITTAL) JUDGE November 19, 2018gbs (MANJARI NEHRU KAUL)JUDGE Whether Speaking/ReasonedYesWhether ReportableYes