Shri Chandi Ram (Huf v. The Commissioner Of Income Tax, Faridabad

ITA No. 3 of 2005 -1- IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No. 3 of 2005 Date of Decision: 14.10.2010 Shri Chandi Ram (HUF) Versus The Commissioner of Income Tax, Faridabad ....Appellant. ...Respondent. CORAM:-HON'BLE MR. JUSTICE ADARSH KUMAR GOEL.HON'BLE MR. JUSTICE AJAY KUMAR MITTAL. PRESENT: Mr. Avneesh Jhingan, Advocate for the appellant. Ms. Urvashi Dhugga, Advocate for the respondent. AJAY KUMAR MITTAL, J. 1.The controversy to be resolved in the instant appeal iswhether in the light of the judgment of the Apex Court in CIT v.Hindustan & Land Development Trust Limited, [1986] 161 ITR 524,the amount of enhanced compensation was exigible to tax in the year ofreceipt after insertion of Section 45(5) in the Income Tax Act, 1961 (inshort “the Act”), though there was dispute pending regarding quantumof compensation in the High Court. 2.The facts necessary for adjudicating the presentcontroversy as pleaded in the appeal are that the land of the assesseewas acquired by the Haryana Urban Development Authority (HUDA) inMarch, 1991 and first compensation was awarded by the LandAcquisition Officer in that year itself. On appeal, the District Judge,Faridabad enhanced the amount of compensation. The assesseereceived additional compensation as well as interest for the relevant assessment years. The dispute herein relates to taxability of enhancedcompensation received by the assessee. The Assessing Officer initiatedproceedings under Section 147 of the Act for the assessment yearsfrom 1994-95 to 1998-99 and issued notices under Section 148. Theassessee had offered the receipt of interest on enhanced compensationin his return but additional compensation was not included in thecomputation and separate notes were attached with the return. TheAssessing Officer disallowed the claim of the assessee relating toenhanced compensation and included in the taxable income in the yearof receipt. The penalty proceedings under Section 271(1)(c) of the Actwere also initiated against the assessee for non-disclosure of income.Feeling aggrieved, the assessee approached the Commissioner ofIncome Tax (Appeals) [in short “the CIT(A)”] while partly allowing theappeal of the assessee had given the guidelines to be followed by theAssessing Officer. The relevant guidelines for the purpose of thisappeal are as under:- “(i)The income from capital gain and interest should becharged in the year of receipt.charged in the year of receipt. (ii)The percentage of capital gain arising out of paymentwhich is covered by security should not be treated asincome for the year but the remaining balance whichhas been unconditionally released should be chargedto income from capital gain. Similar will be theamount of interest paid to be charged to tax.”which is covered by security should not be treated asincome for the year but the remaining balance whichhas been unconditionally released should be chargedto income from capital gain. Similar will be theamount of interest paid to be charged to tax.” 3.The revenue had challenged the aforesaid direction of theCIT (A) by filing the appeal before the Tribunal. The Tribunal had held ITA No. 3 of 2005 that the basis of taxation of compensation and enhanced compensationwas the actual receipt by the assessee. Accordingly, the Tribunalreversed the findings of the CIT (A) holding the amount of additionalcompensation and interest received by the assessee subject to thefurnishing of security not liable to be considered for the purposes ofcomputation of capital gain under Section 45 of the Act in the year of itsreceipt. 4.We have heard learned counsel for the parties. 3.The revenue had challenged the aforesaid direction of theCIT (A) by filing the appeal before the Tribunal. The Tribunal had held ITA No. 3 of 2005 that the basis of taxation of compensation and enhanced compensationwas the actual receipt by the assessee. Accordingly, the Tribunalreversed the findings of the CIT (A) holding the amount of additionalcompensation and interest received by the assessee subject to thefurnishing of security not liable to be considered for the purposes ofcomputation of capital gain under Section 45 of the Act in the year of itsreceipt. 4.We have heard learned counsel for the parties. 5.The question in this appeal is whether the enhancedcompensation received by the assessee conditionally on furnishingsecurity for its release would be exigible to capital gains tax in the yearof receipt even after insertion of Section 45(5) of the Act retrospectivelyw.e.f. 1.4.1988. 6.The issue is no longer res integra. The Hon'ble SupremeCourt in Commissioner of Income-tax v. Ghanshyam (HUF), [2009]315 ITR 1 (SC) has held that in such a situation the year of taxability isthe year of receipt of enhanced compensation. Once that is so, no errorcan be found with the view adopted by the Tribunal. 7.Accordingly, there is no merit in this appeal and the same ishereby dismissed. (AJAY KUMAR MITTAL) JUDGE October 14, 2010gbs (ADARSH KUMAR GOEL) JUDGE