The Commissioner Of Income Taxpanchkula v. Ajay Kumar Mittal, J

IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH --- Income-tax Appeal No. 955 of 2008Date of decision: 27.10.2010 The Commissioner of Income TaxPanchkula --- Appellant Versus Smt. Rani Shakuntla Devi --- Respondent CORAM:HON’BLE MR. JUSTICE ADARSH KUMAR GOELHON’BLE MR. JUSTICE AJAY KUMAR MITTAL --- Present:Mr. Yogesh Putney, Senior Standing Counsel for the Revenue. Mr. H.N. Mehtani, Advocatefor the respondent-assessee. --- AJAY KUMAR MITTAL, J. This order will dispose of Income-tax Appeal Nos. 955and 956 of 2008 as the substantial questions of law raised thereinare common. The facts have been taken from Income Tax AppealNo. 955 of 2008. This appeal under Section 260A of the Income-tax Act,1961 (for short “the Act’”) has been filed by the Revenue againstthe order dated 7.7.2008, passed by the Income Tax AppellateTribunal, Chandigarh Bench (B), Chandigarh (in short “theTribunal”) in ITA No. 990/CHANDI/2007 in respect of theassessment year 2003-04, raising the following substantialquestions of law for determination by this Court: 1-Whether on the basis and in the circumstances of thecase, the Hon’ble ITAT was right in cancelling the orderof the Commissioner of Income Tax u/s 263 to bring totax an enhanced compensation of Rs. 1,41,59,163/- byignoring the provisions of section 45(5) of the I.T. Act,1961 and also the fact that the compensation isreceived and retained in A.Y. 2003-04?case, the Hon’ble ITAT was right in cancelling the orderof the Commissioner of Income Tax u/s 263 to bring totax an enhanced compensation of Rs. 1,41,59,163/- byignoring the provisions of section 45(5) of the I.T. Act,1961 and also the fact that the compensation isreceived and retained in A.Y. 2003-04? 2-Whether the Hon’ble ITAT was right in holding thatprovisions under Section 45(5)(c) and 155(16) are notapplicable with retrospective effect for the A.Y. 2003-04and are contrary to the ratio laid down by the Hon’bleSupreme Court in 224 ITR 677 in Allied Motors (P)Ltd.?provisions under Section 45(5)(c) and 155(16) are notapplicable with retrospective effect for the A.Y. 2003-04and are contrary to the ratio laid down by the Hon’bleSupreme Court in 224 ITR 677 in Allied Motors (P)Ltd.? In short, the facts necessary for adjudicating theappeal are that the assessee-respondent derives income frominterest. She filed return declaring income of Rs. 3,46,480/- on30.9.2003. The assessing officer, however, during theproceedings of assessment found that the assessee had receiveda sum of Rs. 2,27,32,695/- on account of enhanced compensationand amount of interest on enhanced compensation, i.e. Rs.1,41,49,163/- and Rs. 86,11,120/- respectively. A notice dated5.8.2005, under Section 148 of the Act was issued to the assesseecalling upon her to respond why the amount of interest of Rs.86,11,120/- received by her and which had escaped assessmentbe not included in her income. The assessee furnished reply on11.2.2005. The assessment proceedings under Section 143(3)were thereafter completed on 29.8.2005 by adding the amount ofinterest in the following manner: The Commissioner of Income (in short the “CIT”), inexercise of revisional jurisdiction under Section 263 of the Actnoticed that the enhanced amount of compensation of Rs.1,41,49,163/- was received by the assessee in the financial year 2002-03 relevant to the assessment year 2003-04 besides Rs.86,11,120/- as interest on the enhanced compensation. The CITobserved that the order of the assessing officer to that extent waserroneous, and accordingly issued a notice under Section 263(1)of the Act to the assessee. The CIT, thus, vide order dated7.11.2007, Annexure A-2, directed the assessing officer to modifythe assessment order dated 29.8.2005 accordingly. The Commissioner of Income (in short the “CIT”), inexercise of revisional jurisdiction under Section 263 of the Actnoticed that the enhanced amount of compensation of Rs.1,41,49,163/- was received by the assessee in the financial year 2002-03 relevant to the assessment year 2003-04 besides Rs.86,11,120/- as interest on the enhanced compensation. The CITobserved that the order of the assessing officer to that extent waserroneous, and accordingly issued a notice under Section 263(1)of the Act to the assessee. The CIT, thus, vide order dated7.11.2007, Annexure A-2, directed the assessing officer to modifythe assessment order dated 29.8.2005 accordingly. The assessee challenged the order dated 7.11.2007passed by the CIT under Section 263 of the Act before theTribunal. The Tribunal vide its order dated 7.7.2008 cancelled theorder of the CIT observing that the matter of award of enhancedcompensation payable to the assessee in respect of her acquiredland had not yet been finalized and further that the assessee hadbeen allowed to retain enhanced compensation and earn interestthereon would be of no consequence. It is how the present appeal has been filed by theRevenue raising the aforesaid substantial questions of law fordetermination by this Court: We have heard learned counsel for the parties andperused the record. The primary question that requires answer is, whetherthe enhanced compensation is exigible to capital gains tax in theyear of receipt irrespective of pendency of litigation relating toaward of compensation. The issue is no longer res integra. The said questioncame up before the Hon’ble Supreme Court in Commissioner ofIncome-tax v. Ghanshyam (HUF) [2009] 315 ITR 1 (SC) and thesame was decided in favour of the Revenue by holding thatirrespective of the fact whether litigation with regard to award ofcompensation had attained finality or not, under Section 45(5)(b) ofthe Act, which was inserted retrospectively w.e.f. 1.4.1988,taxability of income shall be in the year of receipt. In view of the above, the CIT had rightly invokedrevisional jurisdiction under Section 263 of the Act. Accordingly, weset aside the order of the Tribunal and answer question No.1 infavour of the Revenue and remit the matter to the Tribunal for passing orders in accordance with law. Question No.2 has beenrendered academic in view of answer to question No.1. The parties through their counsel are directed toappear before the Tribunal on 16.12.2010. The appeals stand disposed of accordingly. (AJAY KUMAR MITTAL) JUDGE October 27, 2010*rkmalik* (ADARSH KUMAR GOEL) JUDGE