INTEREST ON ENHANCED COMPENSATION IS TAXABLE AS “INCOME FROM OTHER SOURCES” IN YEAR OF RECEIPT
ISSUE
Whether interest received on enhanced compensation for the compulsory acquisition of agricultural land is taxable as “Income from Other Sources” under Section 56(2)(viii) read with Section 145B(1) in the year of receipt, or if it constitutes a capital receipt/solatium governed by the Land Acquisition Act, 1894.
FACTS
Assessment Year: 2018-19.
The Receipt: The assessee received enhanced compensation due to the compulsory acquisition of their agricultural land. Along with this, the assessee received a specific amount as interest on the enhanced compensation.
TDS Deduction: The Land Acquisition Officer deducted tax at source (TDS) on this interest payment under Section 194A.
AO’s Stand: The Assessing Officer (AO) treated the interest component as taxable income under the head “Income from Other Sources” by invoking Section 56(2)(viii) read with Section 145B(1).
Assessee’s Plea: The assessee likely argued that based on judicial precedents regarding Section 28 of the Land Acquisition Act, this receipt should be treated as part of the compensation (solatium) and not separately as taxable interest.
DECISION
Statutory Amendment (Finance Act, 2010): The Tribunal/Court noted that the Finance Act, 2010, inserted specific provisions—Section 56(2)(viii) and Section 145B(1)—with effect from 01-04-2010.
Clear Taxability: These sections explicitly provide that income by way of interest received on compensation or on enhanced compensation is chargeable to tax under the head “Income from Other Sources.”
Year of Taxability: Section 145B(1) mandates that such interest shall be deemed to be the income of the previous year in which it is actually received.
Income Tax Act Overrides Land Acquisition Act: The Court held that the deeming fiction under Section 28 of the Land Acquisition Act (which might treat interest as part of compensation) cannot displace the specific statutory scheme enacted in the Income-tax Act. Since the Income Tax Act now has a specific charging section for this receipt, it prevails.
Verdict: The authorities correctly applied the law. The interest is fully taxable under Section 56(2)(viii). [In Favour of Revenue]
KEY TAKEAWAYS
50% Flat Deduction: While this interest is taxable, the assessee is entitled to a standard deduction of 50% under Section 57(iv). You only pay tax on half of the interest received.
Year of Receipt Matters: Unlike other mercantile income, this specific interest is taxable only in the year it hits your bank account (Receipt Basis), irrespective of the year it relates to.
Distinction from Section 28 vs. 34: Historically, courts distinguished between interest u/s 28 (part of compensation) and u/s 34 (interest for delay) of the Land Acquisition Act. However, post-2010 amendment, Section 56(2)(viii) covers all interest on compensation, making the old distinction largely irrelevant for tax purposes.
IN THE ITAT CHANDIGARH BENCH ‘A’
Ajay Kumar
v.
Income-tax Officer
Laliet Kumar, Judicial Member
and KRINWANT SAHAY, Accountant Member
and KRINWANT SAHAY, Accountant Member
IT Appeal Nos. 432, 463 and 731 (Chd) of 2022 AND OTHERS
[Assessment years 2012-13 to 2023-24]
[Assessment years 2012-13 to 2023-24]
NOVEMBER 11, 2025
Suraj Bhan Nain, Adv. for the Appellant. Manav Bansal, CIT, DR for the Respondent.
ORDER
1. These appeals are filed by the different assessee against the separate orders passed by the various CIT(A)’s/ NFAC Ld. Commissioner of Income-tax (Appeals), National Faceless Appeal Centre, Delhi against the common legal ground mentioned in the respective appeals. Since all the appeals were heard together, they are being disposed of by this consolidated order for the sake of convenience and brevity.
2. It has been brought to our notice that, in certain appeals, there is a delay in filing the same before the Tribunal as pointed out by the Registry. Considering that the issue involved is purely legal in nature, and respectfully following the ratio laid down by the Hon’ble Supreme Court in Collector, Land Acquisition v. Mst. Katiji [1987] 167 ITR 471 (SC), which emphasizes that substantial justice should prevail over technical considerations, we condone the delay in filing these appeals.
3. We shall take appeal of the assessee in ITA No. 463/Chd/2023 for A.Y 2018-19 as a lead case for discussion wherein assessee has raised the following effective grounds:
| 1. | That having regard to the facts and circumstances of the case and in law, the Ld. Commissioner of Income Tax (Appeals) has erred both in law and on facts in confirming the addition of Rs. 34,65,610/- made by the Ld. Assessing Officer under the head “Income from other sources” u/s 56(viii) of the Income-tax Act 1961 (the Act) on account of interest u/s 28 of the Land Acquisition Act 1894 of Rs. 34,65,610/-received by the appellant during the year, which was part of enhanced compensation for compulsory acquisition of his agricultural land exempt u/s 10(37) of the Income -tax Act 1961. |
| 2. | Without prejudice to the above, even if for arguments sake it is assumed that interest u/s 28 of the Land Acquisition Act received by the appellant is assessable as ‘Income from other sources’ u/s 56(2)(viii) of the Act, the Ld. Assessing Officer as well as Ld. Commissioner of Income Tax (Appeals) erred in not allowing statutory deduction u/s 57(iv) of a sum equal to fifty percent of the said amount of interest. |
| 3. | That having regard to the facts and circumstances of the case and in law, the Ld. Commissioner of Income Tax (Appeals) has erred both in law and on facts in confirming the addition of Rs. 34,65,610/- made by the Ld. Assessing Officer under the head “Income from other sources” u/s 56(viii) of the Income-tax Act referring to the provisions of section 199 of the Act, which is not relevant to determine nature of receipt of interest u/s 28 of the Land Acquisition Act 1894 as to whether it is a capital receipt forming part of enhanced compensation or a revenue receipt chargeable u/s 56(viii) of the Act. |
4. Briefly the facts of the case are that the assessee, Shri Ajay Kumar, filed his original return of income for A.Y. 2018-19 on 29.09.2018 declaring total income of Rs.3,51,090/-, which was processed u/s 143(1). The case was subsequently selected for Complete Scrutiny under the e-Assessment Scheme, 2019 on two issues, namely, (i) reduction of income in the revised return coupled with claim of refund, and (ii) mismatch between interest/winnings reported in Form 26AS and the income shown under “Income from Other Sources” in the return. Statutory notices u/ss 143(2) and 142(1) were issued calling for details.
5. In response, the assessee submitted that he had received enhanced compensation of Rs.56,34,922/- from the Land Acquisition Officer, Hisar (HUDA), Haryana, pursuant to compulsory acquisition of agricultural land. It was explained that the original award was passed on 31.03.2008, subsequently enhanced by the Additional District Judge on 24.12.2013 and further enhanced by the Hon’ble High Court on 22.07.2015. During the relevant previous year, the assessee received enhanced compensation along with interest of Rs.34,65,610/-, on which TDS of Rs.3,46,561/- was deducted by the Land Acquisition Officer u/s 194A.
6. It was further stated that in the original return the assessee had inadvertently offered the said interest amount to tax, however, upon realising that the interest received was interest u/s 28 of the Land Acquisition Act, 1894, being part of compensation and exempt u/s 10(37) of the Income-tax Act, he revised the return and withdrew the interest income while claiming refund of TDS. The assessee relied on the nature of interest u/s 28 being integral to compensation. During the course of assessment proceedings, the AO examined the submissions and found that, although the assessee claimed exemption on the interest component in the revised return, he continued to claim credit for TDS deducted thereon, which was duly reflected in Form 26AS. A show-cause notice dated 10.12.2020 was issued, proposing to treat the interest as taxable u/s 56(2)(viii) read with section 145B(1). In reply, the assessee reiterated that interest u/s 28 forms part of compensation and is exempt. The AO, however, held that section 10(37) applies only to capital gains arising from transfer of agricultural land, and not to interest on delayed payment; that interest received on enhanced compensation is deemed to be taxable u/s 56(2)(viii) in the year of receipt; and that the assessee could not reduce income in a revised return while simultaneously claiming full TDS credit u/s 199. Accordingly, the AO held the interest of Rs.34,65,610/- to be taxable, added the same to the returned income, determined assessed income at Rs.38,16,700/-, and initiated penalty proceedings u/s 270A for under-reporting of income.
7. Feeling aggrieved by the order passed by the Ld. Assessing Officer the assessee preferred the appeal before the Ld. CIT(A) / NFAC. The Ld. CIT(A) considered the assessment order, the written submissions of the assessee, and the material available on record. At the outset, the Ld. CIT(A) observed that the Assessing Officer had made an addition of Rs.34,65,610/- on account of interest on enhanced compensation received by the assessee in respect of compulsory acquisition of agricultural land, and that the assessee had claimed TDS credit on such interest while not offering the corresponding income in the revised return. It was noted that the assessee had initially filed the return, declaring interest income. Subsequently, it revised the return to withdraw the same on the grounds that interest received under Section 28 of the Land Acquisition Act forms part of compensation and is exempt under Section 10(37). The Ld. CIT(A) recorded that the Assessing Officer had examined this claim and determined that the assessee’s reliance on section 10(37) was misplaced, as that provision applies to capital gains arising from compulsory acquisition of agricultural land and does not extend to interest received on delayed payment of compensation.
8. The appellate authority / CIT(A) further concurred with the AO’s analysis that section 145B(1) read with section 56(2)(viii) provides a specific statutory mandate to treat interest received on compensation or enhanced compensation as taxable in the year of receipt under the head income from other sources. The Ld. CIT(A) emphasized that interest under section 28 and interest under section 34 were distinct in nature, and the AO had already reproduced judicial interpretation explaining that interest under section 28 may partake the character of compensation, while interest under section 34 compensates for delay; however, in view of the express provisions of section 145B and section 56, such interest is an enhanced compensation under section 28 of the LA Act is chargeable to tax upon receipt basis. It was observed that the assessee’s revised return disclosed a lower income while claiming refund based on the TDS deducted, which was impermissible in light of section 199, which requires that for claiming TDS credit, the corresponding income must be offered to tax.
9. The Ld. CIT(A) also took note that although the assessee contended that the land acquired was agricultural and the interest was part of compensation exempt u/s 10(37), the assessee had not offered any capital gains computation in either the original or revised return to demonstrate the applicability of section 10(37). It was held that exemption under section 10(37) cannot be presumed and must be reflected through proper computation, which was lacking in the present case. The Ld. CIT(A) also echoed the AO’s view that filing a revised return to exclude the interest income while retaining TDS.
10. Feeling aggrieved by the order passed by the Ld. CIT(A) the assessee is in appeal before us on the grounds mentioned hereinabove.
11. The ld. AR, Shri Suraj Bhan Nain, Advocate thereafter, placing reliance on the scheme of the Land Acquisition Act and the judicial position, invited our attention to the judgment of the Hon’ble Supreme Court in CIT v. Ghanshyam (HUF) ITR 1. It was submitted that the Hon’ble Supreme Court, after dealing with the statutory framework of the Land Acquisition Act, particularly Sections 23(1A), 23(2), 28 and 34, has categorically held that interest awarded under Section 28 forms part and parcel of compensation, whereas interest awarded under Section 34 is in the nature of interest simplicitor, merely compensating for delay in payment.
12. Our attention was specifically drawn to paragraphs 30 to 36 of the said judgment. The ld. AR emphasized that the Hon’ble Supreme Court, in unequivocal terms, held that the interest awarded u/s 28 has the same colour and character as compensation and, therefore, is liable to be treated as part of the enhanced compensation for income-tax purposes, whereas interest u/s 34 stands on a distinct footing being compensatory in nature on account of delay in making payment. It was stressed that the legislative intent behind Section 28 is to provide recompense/restitution for the deprivation of property and, therefore, it assumes the character of compensation in entirety.
13. It was further argued that the Apex Court clarified that the entire enhanced compensation, including interest u/s 28, becomes taxable in the year of receipt under the provisions of section 45(5) of the Income-tax Act. In contrast, interest u/s 34 is to be taxed as income from other sources. Thus, the ld. AR submitted that the interest component in the present case—being interest awarded on enhanced compensation under Section 28 of the Land Acquisition Act—is to be treated as compensation and not as interest simplicitor.
14. The ld. AR also pointed out that the Hon’ble Supreme Court distinguished the statutory scheme wherein Section 28 of the LA Act relates to compensation determination, while Section 34 of the Last falls within the realm of payment mechanism. Therefore, interest awarded u/s 28 is intrinsically linked with the judicial determination of compensation, and is inseparable from the award, thereby qualifying as part of the compensation itself. In CIT v. Govindbhai Mamaiya ITR 498/[2015] it was held as under:-
“30. For the said purpose, the cost of acquisition is to be taken as Nil [See: Explanation (i)]. Also, where the enhanced compensation is received by any person, other than the transferor by reason of the death of the transferor or for any reason, the amount of such additional compensation or additional consideration is to be deemed to be the income of the recipient of the previous year in which such amount is received by him.
31. Two aspects need to be highlighted. Firstly, section 45(5) of the 1961 Act, deals with transfer(s) by way of compulsory acquisition and not by way of transfers by way of sales etc., covered by section 45(1) of the 1961 Act. Secondly, section 45(5) of the 1961 Act talks about enhanced compensation or consideration which in terms of L.A. Act, 1894 results in payment of additional compensation.
32. The issue to be decided before us – what is the meaning of the words “enhanced compensation/consideration” in section 45(5)(b) of the 1961 Act? Will it cover “interest”? These questions also bring in the concept of the year of taxability.
33. It is to answer the above questions that we have analysed the provisions of sections 23, 23(1A), 23(2), 28 and 34 of the 1894 Act. As discussed hereinabove, section 23(1A) provides for additional amount. It takes care of increase in the value at the rate of 12 per cent per annum. Similarly, under section 23(2) of the 1894 Act, there is a provision for solatium which also represents part of enhanced compensation. Similarly, section 28 empowers the Court in its discretion to award interest on the excess amount of compensation over and above what is awarded by the Collector. It includes additional amount under section 23(1 A) and solatium under section 23(2) of the said Act. Section 28 of the 1894 Act applies only in respect of the excess amount determined by the Court after reference under section 18 of the 1894 Act. It depends upon the claim, unlike interest under section 34 which depends on undue delay in making the award. It is true that “interest” is not compensation. It is equally true that section 45(5) of the 1961 Act, refers to compensation. But as discussed hereinabove, we have to go by the provisions of the 1894 Act, which awards “interest” both as an accretion in the value of the lands acquired and interest for undue delay. Interest under section 28 unlike interest under section 34 is an accretion to the value, hence it is a part of enhanced compensation or consideration which is not the case with interest under section 34 of the 1894 Act. So also additional amount under section 23(1A) and solatium under section 23(2) of the 1961 Act forms part of enhanced compensation under section 45(5)(b) of the 1961 Act. In fact, what we have stated hereinabove is reinforced by the newly inserted clause (c) in section 45(5) by the Finance Act, 2003 with effect from 1-4-2004. This newly added clause envisages a situation where in the assessment for any year,—
| _ | the capital gain arising from the transfer of a capital asset is computed by taking the – |
| _ | compensation or consideration referred to in clause (a) of section 45(5) or, as the case may be, |
| _ | enhanced compensation or consideration referred to in clause (b) of section 45(5), and subsequently such compensation or consideration is reduced by any Court, Tribunal or other authority. |
34. In such a situation, such assessed capital gain of that year shall be recomputed by taking the compensation or consideration as so reduced by such Court, Tribunal or other authority to be the full value of the consideration. For giving effect to such recomputation, the provisions of the newly inserted (with effect from 1-4-2004) section 155(16) by the Finance Act, 2003 (32 of 2003), have been enacted.
35. It was urged on behalf of the assessee that section 45(5)(b) of the 1961 Act deals only with re-working, its object is not to convert the amount of enhanced compensation into deemed income on receipt. We find no merit in this argument. The scheme of section 45(5) of the 1961 Act was inserted with effect from 1-4-1988 as an overriding provision. As stated above, compensation under the L.A. Act, 1894, arises and is payable in multiple stages which does not happen in cases of transfers by sale etc. Hence, the legislature had to step in and say that as and when the assessee-claimant is in receipt of enhanced compensation it shall be treated as “deemed income” and taxed on receipt basis. Our above understanding is supported by insertion of clause (c) in section 45(5) with effect from 1-4-2004 and section 155(16) which refers to a situation of a subsequent reduction by the Court, Tribunal or other authority and recomputation/amendment of the assessment order. Section 45(5) read as a whole (including clause “c”) not only deals with reworking as urged on behalf of the assessee but also with the change in the full value of the consideration (computation) and since the enhanced compensation/consideration (including interest under section 28 of the 1894 Act) becomes payable/paid under 1894 Act at different stages, the receipt of such enhanced compensation/consideration is to be taxed in the year of receipt subject to adjustment, if any, under section 155(16) of the 1961 Act, later on. Hence, the year in which enhanced compensation is received is the year of taxability. Consequently, even in cases where pending appeal, the Court/Tribunal/Authority before which appeal is pending, permits the claimant to withdraw against security or otherwise the enhanced compensation (which is in dispute), the same is liable to be taxed under section 45(5) of the 1961 Act. This is the scheme of section 45(5) and section 155(16) of the 1961 Act. We may clarify that even before the insertion of section 45(5)(c) and section 155(16) with effect from 1-4-2004, the receipt of enhanced compensation under section 45(5j(b) was taxable in the year of receipt which is only reinforced by insertion of clause (c) because the right to receive payment under the 1894 Act is not in doubt. It is important to note that compensation, including enhanced compensation/consideration under the 1894 Act, is based on the full value of property as on date of notification under section 4 of that Act. When the Court/Tribunal directs payment of enhanced compensation under section 23(1A), or section 23(2) or under section 28 of the 1894 Act it is on the basis that award of Collector or the Court, under reference, has not compensated the owner for the full value of the property as on date of notification.
36. Having settled the controversy going on for last two decades, we are of the view that in this batch of cases which relate back to assessment years 1991-92 and 1992-93, possibly the proceedings under the L.A. Act 1894 would have ended. In number of cases we find that proceedings under the 1894 Act have been concluded and taxes have been paid. Therefore, by this judgment we have settled the law but we direct that since matters are decade old and since we are not aware of what has happened in Land Acquisition Act proceedings in pending appeals, the recomputation on the basis of our judgment herein, particularly in the context of type of interest under section 28 vis-a-vis interest under section 34, additional compensation under section 23(1A) and solatium under section 23(2) of the 1894 Act, would be extremely difficult after all these years, will not be done.”
15. The ld. AR submitted that the sum and substance of the judgment of the Hon’ble Supreme Court in Ghanshyam (HUF) (supra) is that interest awarded on enhanced compensation—irrespective of whether it is described as interest or solatium—forms an integral part of the compensation and is, therefore, liable to be taxed under section 45(5)(b) of the Income-tax Act, 1961 (“the Act”). It was further submitted that the said decision was delivered by the Hon’ble Supreme Court on 16.07.2009.
The decision of the Hon’ble Supreme Court in the case of ‘Ghanshyam’ was later on followed in the case of Govindbhai Mamalya (supra).
“6. In the present case, the admitted facts are that the property in question which was acquired by the Government, came to the respondents on inheritance from their father i.e. by the operation of law. Furthermore, even the income which is earned in the form of interest is not because of any business venture of the three assessees but it is the result of the act of the Government in compulsorily acquiring the said land. In these circumstances, the case is squarely covered by the ratio of the judgment laid down in Meera & Co. (supra) inasmuch as it is not a case where any “Association of Persons” was formed by volition of the parties for the purpose of generation of income. This basic test to determine the status of AoP is absent in the present case.
7. Insofar as the second question is concerned, that is also covered by another judgment of this Court in CIT v. Ghanshyam (HUF) [2009] 8 SCC 412, albeit, in favour of the Revenue. In that case, the court drew distinction between the “interest” earned under Section 28 of the Land Acquisition Act and the “interest” which is under Section 34 of the said Act. The Court clarified that whereas compensation given to the assessee of the land acquired would be ‘income’, the enhanced compensation/ consideration becomes income by virtue of Section 45(5)(b) of the Income Tax Act. The question was whether it will cover “interest” and if so, what would be the year of taxability. The position in this respect is explained in paras 49 and 50 of the judgment which make the following reading:
“49. As discussed hereinabove, Section 23(1-A) provides for additional amount. It takes care of the increase in the value at the rate of 12% per annum. Similarly, under Section 23(2) of the 1894 Act there is a provision for solatium which also represents part of the enhanced compensation. Similarly, Section 28 empowers the court in its discretion to award interest on the excess amount of compensation over and above what is awarded by the Collector. It includes additional amount under Section 23(1-A) and solatium under Section 23(2j of the said Act. Section 28 of the 1894 Act applies only in respect of the excess amount determined by the court after reference under Section 18 of the 1894 Act. It depends upon the claim, unlike interest under section 34 which depends on undue delay in making the award.
50. It is true that “interest” is not compensation. It is equally true that Section 45(5) of the 1961 Act refers to compensation. But as discussed hereinabove, we have to go by the provisions of the 1894 Act which awards “interest” both as an accretion in the value of the lands acquired and interest for undue delay. Interest under Section 28 unlike interest under Section 34 is an accretion to the value, hence it is a part of enhanced compensation or consideration which is not the case with interest under Section 34 of the 1894 Act. So also additional amount under Section 23 (1-A) and solatium under Section 23(2) of the 1961 Act forms part of enhanced compensation under Section 45(5)(b) of the 1961 Act.”
8. It is clear from the above that whereas interest under Section 34 is not treated as a part of income subject to tax, the interest earned under Section 28, which is on enhanced compensation, is treated as a accretion to the value and therefore, part of the enhanced compensation or consideration making it exigible to tax. After holding that interest on enhanced compensation under Section 28 of 1894 Act is taxable, the Court dealt with the other aspect namely, the year of tax and answered this question by holding that it has to be tested on receipt basis, which means it would be taxed in the year in which it is received. It would mean that converse position i.e. spread over of this interest on accrual basis is not permissible. Here again, we would like to reproduce the discussion contained in paras 53 and 54 which gives the rational in coming to the said conclusion. Paras 53 and 54 read as under:
“53. The scheme of Section 45(5) of the 1961 Act was inserted w.e.f. 1-4-1988 as an overriding provision. As stated above, compensation under the L.A.Act, 1894, arises and is payable in multiple stages which does not happen in cases of transfers by sale, etc. Hence, the legislature had to step in and say that as and when the assessee claimant is in receipt of enhanced compensation it shall be treated as “deemed income” and taxed on receipt basis. Our above understanding is supported by insertion of clause (c) in Section 45(5j w.e.f. 1-4-2004 and Section 155(16) which refers to a situation of a subsequent reduction by the court, tribunal or other authority and recomputation/ amendment of the assessment order.
54. Section 45 (5) read as a whole [including clause (c) not only deals with reworking as urged on behalf of the assessee but also with the change in the full value of the consideration (computation) and since the enhanced compensation/consideration (including interest under Section 28 of the 1894 Act) becomes payable/ paid under the 1894 Act at different stages, the receipt of such enhanced compensation/ consideration is to be taxed in the year of receipt subject to adjustment, if any, under Section 155(16) of the 1961 Act, later on. Hence, the year in which enhanced compensation is received is the year of taxability. Consequently, even in cases where pending appeal, the court/tribunal/authority before which appeal is pending, permits the claimant to withdraw against security or otherwise the enhanced compensation (which is in dispute), the same is liable to be taxed under Section 45(5) of the 1961 Act. This is the scheme of Section 45(5) and Section 155(16) of the 1961 Act. We may clarify that even before the insertion of Section 45(5)(c) and Section 155(16) w.e.f. 1-4-2004, the receipt of enhanced compensation under Section 45(5)(b) was taxable in the year of receipt which is only reinforced by insertion of clause (c) because the right to receive payment under the 1894 Act is not in doubt.”
9. In view of the above discussion, we allow these appeals in part and set aside that portion of the impugned judgment of the High Court whereby spread over of the interest received under section 28 of the 1894 Act, on the enhanced income is allowed with the direction that it would be taxed in the year in which such interest on enhanced compensation was received.”
16. The ld. AR further submitted that the aforesaid legal position has subsequently been reaffirmed by the Hon’ble Supreme Court in Chet Ram (supra). Our attention was also invited to page 265 of the paper book, which contains the judgment of the Hon’ble Punjab & Haryana High Court in Haryana State Industrial Development Corporation Ltd. v. Savitri Devi [CR No. 2509 of 2012 O&M, dated 29-82012] Referring to page 275 of the paper book, it was pointed out that the Hon’ble High Court, vide judgment dated 29.11.2013, expressly directed the authorities to follow the ratio laid down by the Hon’ble Supreme Court in Ghanshyam (HUF) (supra), by observing as under:
“Admittedly, in the instant case the land was agricultural land and enhanced compensation and interest was awarded under Section 28. Thus, in view of specific finding of Hon’ble Supreme Court in Ghanshyam’s case (supra) that amount awarded under Section 28 of the Land Acquisition Act is accretion in value of land and interest therein forms part of compensation; income tax cannot be deducted at source since land acquired is agricultural land.
In view of above, I do not find any illegality or perversity in the impugned order.”
17. The ld. AR further submitted that against the judgment of the Hon’ble Punjab & Haryana High Court in the case of Haryana State Industrial Development Corporation Ltd. (supra), a Special Leave Petition was preferred before the Hon’ble Supreme Court. It was pointed out that the Hon’ble Supreme Court, vide order dated 31.03.2016, has been pleased to dispose of the said SLP, thereby leaving the decision of the Hon’ble High Court undisturbed.
18. The ld. AR thereafter invited our attention to the legislative developments post the judgment in Ghanshyam (HUF)(supra). It was submitted that w.e.f. 01.04.2010, the Legislature, through the Finance (No. 2) Act, 2009, inserted section 145A (subsequently renumbered as section 145B) and simultaneously amended section 56(2) by inserting clause (viii) to specifically deal with taxability of interest on compensation or enhanced compensation. The ld. AR submitted that the CBDT also issued a clarificatory Circular explaining the intent and scope of these amendments. In this connection, our attention was drawn to paragraph 11 of the judgment of the Hon’ble Gujarat High Court in Movaliya Bhikhubhai Balabhai v. ITO ITR 343 (Gujarat), SCA No. 17944 of 2015, dated 31.03.2016 (placed at page 278 of the paper book), wherein the Hon’ble Court reproduced the relevant CBDT Circular and explained the legislative purpose in the following terms:
11. It has been vehemently contended on behalf of the first respondent that the above decision has been rendered prior to the substitution of section 145A of the I.T. Act by Finance (No. 2) Act, 2009 with effect from 1st April, 2010, and hence, would have no applicability to the facts of the present case. The scope and effect of the substitution (with effect from 1st April, 2010) of section 145A, as also amendment made in section 56(2) by Act 33 of 2009 have been elaborated in the following portion of the departmental circular No. 5/2010, dated 3.6.2010, as follows:
“Rationalizing the provisions for taxation of interest received on delayed compensation or on enhanced compensation.-
Thus, the substitution of section 145A by Finance (No. 2) Act, 2009 was not in connection with the decision of the Supreme Court in Ghanshyam (HUF)’s case (supra,) but was brought in to mitigate the hardship caused to the assessee on account of the decision of the Supreme Court in Rama Bai v. CIT whereby it was held that arrears of interest computed on delayed or enhanced compensation shall be taxable on accrual basis. Therefore, when one reads the words “interest received on compensation or enhanced compensation” in section 145A of the I.T. Act, the same have to be construed in the manner interpreted by the Supreme Court in Ghanshyam (HUF)’s case (supra,).
12. On behalf of the first respondent, reliance has been placed upon decisions of different High Courts taking a different view. This court is not in agreement with the view adopted by the other High Courts which are not consistent with the law laid down in the case of Ghanshyam (HUF) (supra,). In Manjet Singh (HUF) Karta Manjeet Singh’s case (supra), the Punjab and Haryana High Court has chosen to place reliance upon various decisions of the Supreme Court rendered during the period 1964 to 1997 and has chosen to brush aside the subsequent decision of the Supreme Court in Ghanshyam (HUF)’s case (supra) which is directly on the issue by observing that the assessee cannot derive any benefit from the observations made by the Supreme Court as quoted therein. In Hari Kishan’s case (supra), the Punjab and Haryana High Court has placed reliance upon its earlier decision in the case of Manjet Singh (HUF) Karta Manjeet Singh (supra). In Bir Singh (HUF)’s case (supra), the Punjab and Haryana High Court has held that under the scheme of the 1894 Act, interest under section 34 is part of compensation while interest under section 28 is not the interest which partakes the character of compensation and is treated differently. In the opinion of this court, the above view of the Punjab and Haryana High Court is contrary to what has been held in the decision of the Supreme Court in Ghanshyam (HUF)’s case (supra) wherein it has been held that interest under section 28 unlike interest under section 34 is an accretion to the value, hence it is a part of enhanced compensation or consideration which is not the case with interest under section 34 of the 1894 Act. This court is in agreement with the view adopted by the Punjab and Haryana High Court in Jagmal Singh’s case (supra), which has been extensively referred to in paragraph 4.1 above. The decision of the Delhi High Court in Sharda Kochhar’s case (supra), having been rendered in the context of a different controversy would have no applicability to the facts of the present case.
13. The upshot of the above discussion is that since interest under section 28 of the Act of 1894, partakes the character of compensation, it does not fall within the ambit of the expression “interest” as contemplated in section 145A of the I.T. Act. The first respondent – Income Tax Officer was, therefore, not justified in refusing to grant a certificate under section 197 of the I.T. Act to the petitioner for non-deduction of tax at source, inasmuch as, the petitioner is not liable to pay any tax under the head “income from other sources” on the interest paid to it under section 28 of the Act of 1894.
19. The ld. AR further invited our attention to paragraph 12 of the judgment of the Hon’ble Gujarat High Court in Movaliya Bhikhubhai Balabhai (supra). It was submitted that, after examining the statutory scheme and considering the catena of judicial pronouncements on the issue, the Hon’ble High Court categorically held that the ratio laid down by the Hon’ble Supreme Court in Ghanshyam (HUF)(supra) continues to govern the field insofar as the taxability of interest even after 01/04/2010,on enhanced compensation is concerned. The ld. AR emphasised that the Hon’ble High Court reaffirmed that interest awarded under Section 28 of the Land Acquisition Act forms part of the compensation and must be taxed accordingly. Thereafter, the ld. AR drew our attention to page 290 of the paper book, wherein Civil Appeal No. 15145 in the case of ITO (TDS) v. MovaliyaBhikhu Bhai arising out of the decision of Gujarat High Court was disposed of by the Hon’ble Supreme Court. Further reference was made to page 291 of the paper book, being the Civil Writ Petition filed by Shri Braham Prakash before the Hon’ble Supreme Court. Our attention was then invited to page 339 of the paper book wherein in para 19 the assessee in the said case made a prayer to the Hon’ble Supreme Court citing the contradictory decisions by Gujarat & Punjab & Haryana High Courts with respect to the issue of charging the interest on enhanced compensation. The contents of the para 19 of the pleading before the Hon’ble Supreme Court read as under :
“19. The State of Punjab and Haryana has taken a view in the judgments of Manjeet Singh and Ram Pal has held that the interest component under Section 28 of the Land Acquisition Act is exigible to tax under Section 56 (2) (viii) as” income from other sources”. The Hon’ble High Court of Gujarat at Ahmedabad in Special Civil Application No. 17944/2015, by its judgment and order dated 31.03.2016, has taken a different view than the one taken by the Hon’ble High Court of Punjab and Haryana. The Hon’ble High Court of Gujarat held as under:
“13. The upshot of the above discussion is that since interest under section 28 of the Act of 1894, partakes the character of compensation, it does not fall within the ambit of the expression “interest” as contemplated in section 145A of the I.T. Act. The first respondent Income Tax Officer was, therefore, not justified in refusing to grant a certificate under Section 197 of the I.T. Act to the petitioner for non-deduction of tax at source, in as much as, the petitioner is not able to pay any tax under the head “income from other sources” on the interest paid to it under Section 28 of the Act of 1894″.
A copy of the judgment and order dated 31.03.2016 passed by the Hon’ble High Court of Gujarat in Special Civil Application No. 17944/2015 is produced as Annexure-P-18 (pg. 304 to 326).”
20. Subsequently, the ld. AR invited our attention to page 352 of the paper book, pointing to the reliefs sought by the assessee in the writ petition. Particular emphasis was placed on Ground (b) at page 352, which reads as under:
(b) issue writ of mandamus or in the nature of mandamus or any other writ or direction directing that the interest component under Section 28 of the Land Acquisition Act is not exigible to tax under Section 56 (2) (viii) r/w Section 145A (b) of the Income-tax Act as “income from other sources””; and /or.
21. The ld. AR thereafter invited our attention to page 364 of the paper book, wherein a consolidated order passed by the Hon’ble Supreme Court is placed on record. Further reference was made to page 366 of the paper book, where the Hon’ble Supreme Court made the following observations::-
| (ii) | WP (C) No. 590/2016 (page 291) – Brahamaprakash & Ors. |
| (iii) | Civil Appeal No. 15145/2017 (arising out of SLP (C) No. 18495/2017) -MovaliyaBhikubhgaiBalabhai |
22. It was submitted that the operative part of the direction of the Hon’ble Supreme Court dated 15.9.2017 reads as under:-
2) While determining as to whether the compensation paid was for agricultural land or not, the Assessing Officer(s) will keep in mind the provisions of Section 28 of the Land Acquisition Act and the law laid down by this Court in Commissioner of Income Tax, Faridabad v. Ghanshyam (HUF) [2009 (8) SCC 412] in order to ascertain whether the interest given under the said provision amounts to compensation or not.”
23. On the basis of the submissions made before us, as reproduced hereinabove, the Learned Authorised Representative (Ld. AR) has emphasized that the ratio laid down by the Hon’ble Supreme Court in the case of Ghanshyamdas (HUF) (supra) continues to hold the field and has been consistently followed by the Hon’ble Supreme Court itself, without any reservations or qualifications, even after the subsequent amendments to the Act.
24. It was submitted that the Hon’ble Gujarat High Court, relying upon the decision in the case of Movaliya Bhikubhai Balabhai (supra), has decided another writ petition in favour of the Assessee, and our attention was drawn to page 375 in the case ‘Mukta Nand Giri Mahesh Giri v. Direct District Development officer‘.
25. The Ld. AR had further drawn our attention to the decision of the Hon’ble Supreme Court in the case of Mukta Nand Giri Mahesh Giri v. Direct District Development officer‘ where again the Hon’ble Supreme Court had reiterated the applicability and enforceability of the decision of the Hon’ble Supreme Court in the case of Ghanshyam HUF. It was submitted that a Misc. petition was filed by the Revenue in the decision of ‘Brahamaparkash v. State of Haryana State Industrial and Infrastructure Development Corporation Ltd. ‘ by the Revenue. However, the said Misc. The application was withdrawn by the Revenue.
26. The Ld. AR, thereafter, had drawn our attention to page 389 of the paper book, where another writ petition is placed and in the title Jai Bhagwan Singh v. HSIDC, wherein the following prayer has been sought at page 416.
“Prayer
In the facts and circumstance of the case, it is prayed that this Hon’ble Court may be pleased to;
| (a) | issue writ of mandamus or in the nature of mandamus or any other writ or direction directing the respondents to apply the judgment and order dated 15.09.2017 in C.A. No. 15041/2017 (Union of India & Ors. v. Hari Singh & Ors) to the case of all the land owners and rectify the mistake by refunding the tax amount along with interest to the petitioners as the tax is not payable on compensation including interest under Section 28 of L.A. Act received against the acquisition of rural agricultural lands And/or |
| (b) | pass such order or orders as this Hon’ble Court may deem fit in the facts and circumstances of the case.” |
27. The Hon’ble Supreme Court after considering the submissions of the parties have passed the following order at pages 420 and 421 of paper book
“We are not inclined to entertain the writ petition under Article 32 of the Constitution.
The writ petition is accordingly dismissed. It shall, be without prejudice to any of the remedies available to the petitioners including praying for a fresh decision on the return filed in pursuance of the judgment of this Court in Civil Appeal 15041 of 2017 titled Union of India & Ors. v. Hari Singh & Ors. decided on 15.09.2017. Learned ASG submits that the review petition which was earlier filed to review the judgment dated or passing the fresh assessment order on the return filed by the 15.09.2017 has already been withdrawn hence, steps will be taken petitioner
28. Thereafter, a communication dated 22.5.2016 was brought to our notice whereby the PCIT was asked to comply with the direction. The Ld. AR had drawn our attention to various orders passed by the Tribunal whereby the Tribunal followed the decision of the Ghanhsyan (supra). It as submission of the Ld. AR that the decision in the case of Ghanshyam (supra) be followed.
“2) While determining as to whether the compensation paid was for agricultural land or not, the Assessing Officer(s) will keep in mind the provisions of Section 28 of the Land Acquisition Act and the law laid down by this Court in ‘Commissioner of Income Tax, Faridabad v. Ghanshyam (HUF) [2009 (8) SCC 412) in order to ascertain whether the interest given under the said provision amounts to compensation or not.
29. The Ld. Authorised Representative (AR) submitted that there is no specific provision in Section 2(24) of the Income-tax Act, 1961, incorporating within its ambit any “other income” referred to in Section 56(2)(viii) of the Act. It was contended that unless a particular receipt is expressly brought within the inclusive definition of “income” under Section 2(24), the same cannot be subjected to tax under Section 56(2)(viii). The Ld. AR pointed out that Section 56(2)(viii) does not have any corresponding mention in Section 2(24)(xvi) or elsewhere, and hence, any amount described under that clause would not automatically form part of taxable income.
30. It was further contended that the decision of the Hon’ble Punjab & Haryana High Court in the case of Mahender Singh Narang was rendered per incurium, since the Hon’ble Court did not take into account the binding precedents of the Hon’ble Supreme Court in the cases of Hari Singh (SC), Savitri Devi v. CIT [1976] 104 ITR 385 (Patna), and other connected matters. Therefore, it was argued that this Tribunal is not bound to follow a per in curium decision. The Ld. AR emphasised that the interest received on enhanced compensation under Section 28 of the Land Acquisition Act, 1894, cannot be taxed as “Income from other sources,” since there exists no charging provision in the Income-tax Act which brings such receipts to tax under Section 56(2)(viii).
31. It was also submitted that the amendment to Section 145A(b) was introduced by the Finance (No. 2) Act, 2009 with effect from 1 April 2010 (notification dated 09/07/2009), subsequent to the Supreme Court judgment in Ghanshyam (HUF)(supra). Therefore, the legislature did not have the benefit of considering the said decision while enacting the amendment. According to the Ld. AR, this is not a case of legislative overruling of the judicial pronouncement, and consequently, the law as laid down in Ghanshyam (HUF) continues to govern the field. The Ld. AR further referred to the Explanatory Notes to the Finance (No. 2) Act, 2009, wherein the amendment was stated to address the hardship arising from the decision in Ramabai (supra) and similar cases, and notably, there was no reference to Ghanshyam (HUF) therein, which supports the assessee’s interpretation that the amendment had a limited curative scope.
32. Lastly, on the basis of the orders passed by the Hon’ble Supreme Court in the case of Brahm Prakash (supra), the subsequent orders in the miscellaneous petitions filed therein, the withdrawal order in the case of Jai Bhagwan, the decision rendered in the case of Hari Singh, as well as the order of the Hon’ble High Court and the communication issued by the Learned Additional Solicitor General, the Ld. Authorised Representative submitted that the ratio laid down by the Hon’ble Supreme Court has remained undisturbed. On the contrary, it has been reinforced and reiterated by the Hon’ble Supreme Court on multiple occasions. Accordingly, it was contended that the impugned order passed by the lower authorities, being contrary to the binding decision of the Hon’ble Supreme Court, deserves to be set aside and the additions made are liable to be deleted.
33. The ld. Counsel, Shri Dharminder Singh, Advocate, appearing in Item No. 56, submitted that the award of the LAC was passed on 20.02.2008; thereafter, the learned Additional District Judge enhanced the compensation vide order dated 09.10.2014;at page 103 of PB it was held as under:-
30. In view of findings recorded on the issues above, the present petitions are hereby accepted partly with costs in favour of the petitioners and against the respondents. The market value of the acquired land is assessed at Rs.28,65,500/- per acre i.e. at the rate of Rs.592,045 per sq. yards as on the day of issuance of the notification under Section 4 of the Act. The petitioners are also held entitled to all the statutory benefits including solatium at the rate of 30% and additional amount at the rate of 12% per annum and interest at the rate of 9% per annum for the first year and at the rate of 15% per annum for the subsequent period, in accordance with Sections 23(1-A), 23(2) and 28 of the Land Acquisition Act. However the relief as sought by the petitioners for enhancement of compensation amount with regard to the trees, buildings/structures and tubewells etc. stand declined.
And subsequently, on further appeal, the Hon’ble High Court again enhanced the compensation vide order dated 20.03.2021, at pages 107-108 Hon’ble High Court held as under:-
“The market value assessed in Tara Chand’s case (supra) was Rs.904/- per square yard. Granting the benefit of 12% annual increase on the abovesaid market value of Rs.904/- per square yard, to the land owners of instant set of appeals, for this time gap of one year, the market value comes to Rs.1012.50, which is rounded off to Rs.1013/- per square yard. Accordingly, the land owners are held entitled to receive the amount of compensation at the uniform rate of Rs. 1013/- per square yard for their acquired land, from the date of notification under Section 4 of the Act.
Let it be specifically recorded here that no better evidence or any judicial precedent was pressed into service nor any other argument was raised on behalf of either of the parties.
Considering the peculiar facts and circumstances of the cases noted above, coupled with the reasons aforementioned, this Court is of the considered view that so far as the appeals filed by the beneficiary department i.e. HSIIDC are concerned, the same have been found wholly misconceived, bereft of merit and without any substance, thus, these must fail and are hereby dismissed. The appeals filed by the land owners deserve to be partly accepted and the same are allowed to the extent indicated above. The land ownersare held entitled to receive the compensation for their acquired land at the rate of Rs.1013/- per square yard, from the date of notification under Section 4 of the Act. Besides this, the land owners shall also be entitled to all the statutory benefits available to them, under the relevant provisions of the Act.
Resultantly, with the observations made above, all these 134 appeals stand disposed of, in the abovesaid terms, however, with no order as to costs”.
34. It was submitted that both the learned ADJ and the Hon’ble High Court granted enhanced compensation under section 28 of the Land Acquisition Act and not under section 34. Accordingly, the amount awarded under Section 28 partakes the character of compensation, not interest simpliciter.
35. In ITA No. 486, the ld. AR also advanced an alternative submission adopting the arguments of Shri Suraj Bhan, submitting that there is no dispute regarding the tax character of the interest received by the assessee up to 01.04.2010, since the field stood governed by the law laid down by the Hon’ble Supreme Court in Ghanshyam (HUF) (supra). It was contended that the interest is required to be bifurcated on a pro rata basis, i.e., the portion relatable to the period up to 01.04.2010 is to be treated as part of the compensation, while the portion accruing thereafter may, if applicable, be assessed in terms of section 56(2)(viii) of the Act.
36. In Item No. 32, in the case of Shri Avtar Singh, Shri Vineet Krishan, the learned AR appearing for the assessee, submitted that the law declared by the Hon’ble Supreme Court under Article 141 of the Constitution of India is binding on all Courts and authorities. It was contended that once the Hon’ble Supreme Court in Ghanshyam (HUF) (supra) has categorically held that interest on enhanced compensation partakes the character of compensation, the subsequent statutory amendment cannot retrospectively alter the settled legal position to the detriment of the assessee. The learned AR further submitted that several assessees similarly situated have not been subjected to tax under the head “Income from Other Sources” in respect of such interest. Reliance was placed on the judgment of the Hon’ble Punjab & Haryana High Court in Jaswant Rai v. CBDT (SC), as well as a decision of the Hon’ble Kerala High Court, in support of the contention that the interest awarded on enhanced compensation has to be treated as part of compensation and not as independent interest income.
37. Per contra, the learned DR, Shri Manav Bansal, appearing for the Revenue, submitted that sections 11, 23 and 24 of the Land Acquisition Act are required to be read strictly in the context of the enquiry relating to the determination of compensation. It was contended that, on a plain reading of section 28 of the LAC, the provision contemplates two distinct components: first, the determination of the amount payable in excess of the compensation awarded initially by the Collector; and second, the grant of interest on such excess amount at the statutory rate of 9%. According to the learned DR, the statute consciously employs separate terminology one about “enhanced amount/award” and the other to “interest on such excess amount” and therefore, both elements must be treated distinctly in law.
38. The learned DR further placed reliance on section 2(24) of the Income-tax Act, which defines “income”, and section 2(28A), which defines “interest”, to contend that the statutory definition squarely encompasses any interest received pursuant to a claim, and hence such receipt constitutes income. Having referred to the definition clause, the learned DR drew attention to section 56(2)(viii) of the Act, which expressly provides that interest on compensation or enhanced compensation is taxable under the head “Income from Other Sources”. It was thus argued that the legislative scheme clearly mandates separate taxation of the interest component, independent of the compensation.
39. The learned DR further submitted that the ratio laid down by the Hon’ble Supreme Court in Ghanshyam (HUF) (supra) has been subsequently considered and followed by the jurisdictional Punjab & Haryana High Court in the case of Mohinder Pal Narang as well as by the Hon’ble Delhi High Court in the case of Interjesh Singh Sodhi. The relevant portions of the aforesaid judgments are reproduced elsewhere.
40. The learned DR submitted that the decision in the case of Hari Singh (supra) pertains to an entirely different issue and, therefore, has no application to the present controversy. In this regard, he drew our attention to page 366 of the paper book filed by the learned AR, which records the following observations:
“An admitted fact which is common in all these appeals that while disbursing the compensation, the Land Acquisition Collector had deducted the tax at source and deposited the same with the Income Tax Department. These appellants preferred the writ petition in the High Court stating that no such deduction at source was permissible in view of the provisions of Section 194LA of the Income Tax land and this provision categorically mentions that in Act, 1961, since the land which was acquired was agricultural respect of agricultural land, tax at source is not to be deducted.
41. Similarly, the learned DR submitted that the writ petition filed by Jai Bhagwan Singh pertained to deduction of tax at source under section 194LA of the Act and the applicability of exemption under section 10(37) of the Act. It was contended that the scope and ambit of the decisions in Hari Singh as well as in Jai Bhagwan Singh were confined to the interpretation of section 194LA and section 10(37) of the Income-tax Act, and did not deal with section 56(2)(viii), section 145A/145B of the Act, or section 28 of the Land Acquisition Act. Therefore, according to the learned DR, those decisions have no bearing on the present dispute. It was submitted that Section 194LA of the Income-tax Act, 1961 mandates deduction of tax at source (TDS) by the payer at the time of making payment for compulsory acquisition of immovable property other than agricultural land. It was further contended that in the case of Hari Singh (supra) the issue of chargeability of interest to tax was not the lis before the Hon’ble Supreme Court. The only question before the Hon’ble Court was whether the disbursing authority was required to deduct tax at source under Section 194LA while releasing the award amount pertaining to agricultural land, which is otherwise excluded from the ambit of the said provision. He had drawn our attention to para 2&3 of the judgement of the Hon’ble Supreme Court which is to the following effect:
2. In all these appeals the short question of law which needs consideration is as to whether the tax at source is to be deducted on the amounts which are paid as compensation or enhanced compensation, etc., on account of compulsory acquisition of land under the provisions of Land Acquisition Act, 1894.
3. An admitted fact which is common in all these appeals is that while disbursing the compensation, the Land Acquisition Collector had deducted the tax at source and deposited the same with the Income Tax Department. These appellants preferred the writ petition in the High Court stating that no such deduction at source was permissible in view of the provisions of Section 194LA of the Income Tax Act, 1961, since the land which was acquired was agricultural land and this provision categorically mentions that in respect of agricultural land, tax at source is not to be deducted.
42. The learned DR further submitted that when the Hon’ble Supreme Court rendered its decision in Ghanshyam (HUF) (supra), the Court did not have the benefit of considering the subsequent statutory amendments brought into effect from 01.04.2010 by insertion of section 56(2)(viii) and section 145A/145B. It was also pointed out that the CBDT, vide Circular dated 03.06.2010, in paragraphs 46.1to 46.4, has clearly clarified the legislative intent behind the said amendments, which reads as under:-
CIRCULAR NO. 5/2010/[F. NO. 142/13/2010-SO(TPL)]
FINANCE (NO. 2) ACT, 2009 – EXPLANATORY NOTES TO THE PROVISIONS OF THE
FINANCE (NO. 2) ACT, 2009
CIRCULAR NO. 5/2010/[F. NO. 142/13/2010-SO(TPL)], DATED 3-6-2010
[AS CORRECTED BY CORRIGENDUM NO.5/2010 [F.NO.142/13/2010-SO(TPL)],
DATED 30-9-2010]
46. Rationalizing the provisions for taxation of interest received on delayed compensation or on enhanced compensation
46.1 The existing provisions of Income-tax Act provide that income chargeable under the head “Profits and gains of business or profession” or “Income from other sources”, shall be computed in accordance with either cash or mercantile system of accounting regularly employed by the assessee. Further, the Hon’ble Supreme Court in the case of Rama Bai v.CIT (181 ITR 400 ) has held that arrears of interest computed on delayed or enhanced compensation shall be taxable on accrual basis. This has caused undue hardship to the taxpayers.
46.2 With a view to mitigate the hardship, section 145A is amended to provide that the interest received by an assessee on compensation or enhanced compensation shall be deemed to be his income for the year in which it was received, irrespective of the method of accounting followed 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 way of interest received on compensation or on enhanced compensation referred to in clause (b) of section 145A shall be assessed as “income from other sources” in the year in which it is received.
46.4 Applicability – This amendment has been made applicable with effect from 1st April, 2010, and will accordingly, apply in relation to assessment year 2010-11 and subsequent assessment years.
43. In sum and substance, the learned DR submitted that a plain reading of section 56(2)(viii) of the Act clearly provides that interest received on compensation or on enhanced compensation is taxable under the head “Income from Other Sources”, and therefore the assessees are liable to pay tax on such receipts.
44. Rebutting the submissions advanced by the learned AR, it was contended that the absence of any specific reference to section 56(2)(viii) in section 2(24) of the Act, which defines “income”, is of no consequence. The definition in section 2(24) is inclusive in nature, and several categories of income or deemed income chargeable to tax do not find express mention therein. Further, the Ld. DR refer to Sections 4 and 14 of the Income Tax Act, 1961 to support the case of the Revenue. It was submitted that the deemed income is chargeable under section 4 of the Act, and Section 14 provide the heads of income and Clause F provide income from other sources and income from other sources is provided under section 56 of the Act. Thus, once the interest on enhanced compensation is included as income from other sources under section 56 then the same is chargeable to tax under section 4 being the deemed income.
45. It was further argued that where the statutory language is clear and unambiguous, literal interpretation must prevail. Lastly, the learned DR submitted that the taxability of the impugned receipts must be determined strictly in accordance with the provisions of the Income-tax Act and not on the basis ofthe definition of compensation under the Land Acquisition Act. The Income-tax Act being a special statute governing taxation will prevail over the meaning assigned to compensation under section 28 of the Land Acquisition Act.
46. The Ld. Departmental Representative (DR) drew attention to the Explanatory Notes to the Finance (No. 2) Act, 2009, emphasising that the legislative intent was to bring uniformity in taxation of interest on compensation or enhanced compensation and to mitigate practical hardship in such cases. The Ld. DR submitted that the omission of any reference to Ghanshyam (HUF) in the said Notes does not dilute the legislative intent. According to the Ld. DR, the insertion of clause (viii) in Section 56(2) and corresponding amendments in Section 145A were designed to codify the law and provide a specific charging mechanism for interest on compensation, whether under Section 28 or 34 of the Land Acquisition Act. Hence, the receipt of interest in question squarely falls within the purview of taxable income.
47. He had drawn our attention to the following two decision of the Punjab & Haryana High Court in the case of Mahender Pal Narang v. CBDT ITR 13 (Punjab & Haryana)/C.W.P. No. 17971 of 2019 dt. 19/02/2020 has held as under :
7. Before dealing with the contentions, relevant portion of the circular is quoted below:
’46. Rationalizing the provisions of taxation of interest received on delayed compensation or on enhanced compensation.
46. 1 The existing provisions of Income-tax Act provide that income chargeable under the head “Profits and gains of business or profession” or “Income from other sources”, shall be computed in accordance with either cash or mercantile system of accounting regularly employed by the assessee. Further, the Hon’ble Supreme Court in the case of Rama Sai v. CIT (181 ITR 400 ) has held that arrears of interest computed on delayed or enhanced compensation shall be taxable on accrual basis. This has caused undue hardship to the taxpayers.
46. 2 With a view to mitigate the hardship, section 145A is amended to provide that the interest received by an assessee on compensation or enhanced compensation shall be deemed to be his income for the year in which it was received, irrespective of the method of accounting followed 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 way of interest received on compensation or on enhanced compensation referred to in clause (b) of section 145A shall be assessed as “income from other sources” in the year in which it is received.
46. 4 Applicability- This amendment has been made applicable with effect from 1st April,2010, and will accordingly apply in relation to assessment year 2010-11 and subsequent assessment years.’
8. Section 45 of the 1961 Act deals with capital gains. By Finance Act, 1987, subsection (5) was inserted in Section 45 and as per its clause (b), the enhanced compensation shall be chargeable under the head “Capital gains” of the previous year in which the amount is received by the assessee. This issue came up before Apex Court in Ghanshyam’s case (supra). Considering Sections 45(5) and 155(16) of the 1961 Act, it was held that enhanced compensation received under the 1894 Act may be received in multiple stages but the same is to be treated as “deemed income” at the time when it is received and is to be taxed on receipt basis. It was further held, the fact that enhanced compensation is in dispute and the withdrawal is conditional will not make a difference. While dealing with the said issue, it was held that interest on enhanced value of land forms part of compensation and is exigible to tax in the year of receipt whereas interest on delayed payment of enhanced compensation is income in a different nature.
9. The scheme with regard to chargeability of interest received on compensation and enhanced compensation has undergone a sea change with the insertion of sections 56(2)(viii) and 57(iv) of the 1961 Act. Section 56 deals with income from other sources and a specific provision has been inserted by way of sub-section 2(viii), whereby the interest received on compensation or enhanced compensation, as referred to in clause (b) to section 145A has been included under the head ‘Income from other sources’. In clause (iv) to section 57, deduction of fifty per cent is provided on interest received on compensation or enhanced compensation.
10. In view of the amendments, the decision of Apex Court in Ghanshyam’s case (supra) does not come to the rescue of the petitioner to claim that interest received under section 28 of the 1894 Act is to be treated as compensation and to be dealt with under “Capital gains”. The fact that there is no amendment carried out under section 10(37) of the 1961 Act will not change the position. Section 10 deals with deductions and sub-section (37) thereof deals with capital gains arising from transfer of agricultural land, it no where provides as to what is to be included under the head “Capital gains”. The argument raised is not well founded.
11. Learned counsel has relied on Circular No. 5 of 2010 by merely reading clause 46.1. The said clause talks about undue hardship being caused as arrears of interest being taxable on accrual basis. Clause 46.2 states that Section 145A is amended to overcome the difficulty, by deeming the income for the year in which it is received. Clause 46.3 has been ignored in which section 56(2)(viii) is dealt with that interest on compensation or on enhanced compensation referred to in clause (b) of section 145A shall be assessed as “income from other sources”.
12. Gujarat High Court in Movaliya Bhikhubhai Balabhai’s case (supra) while dealing with deduction of tax at source relying upon Circular No. 5 of 2010 held that amendment to the provisions of the 1961 Act by Finance Act, 2010 Act was not in connection with the decision of Supreme Court in Ghanshyam’s case (supra) but to mitigate the hardship caused by the decision of Supreme Court in Rama Bai’s case (supra). It was held that interest under section 28 of the 1894 Act continues to part take the character of compensation and will not fall within the ambit of expression “interest”. In view of discussion above, we with utmost respect are not in agreement with the view taken by Gujarat High Court. There is another aspect, i.e. the language of sections 56(2)(viii) and 57(iv) of the 1961 Act is plain, simple and unambiguous. There is no scope of taking outside aid for giving an interpretation to newly inserted sub-sections and clauses. Supreme Court in I.T.C. Ltd. v. CCE [2004] 7 SCC 591 held as under:
“23………These decisions exemplify the general rule of statutory construction that words have to be construed strictly according to their ordinary and natural meaning, particularly when the statute is a fiscal one irrespective of the object with which the provision was introduced. Of course if there is ambiguity in the statutory language, reference may be made to the legislative intent to resolve the ambiguity. But if the statutory language is unambiguous then that must be given effect to. The legislature is deemed to intend and mean what it says. The need for interpretation arises only when the words used in the statute are, on their own terms ambivalent and do not manifest the intention of the legislature.”
13. In view of the above, it is held that the interest received on compensation or enhanced compensation is to be treated as ‘income from other sources” and not under the head “Capital gains”
48. Against the abovesaid decision the SLP filed by the assessee was dismissed by the Hon’ble Supreme Court and the order of the Hon’ble Supreme Court was reported in Mahender Pal Narang v. CBDT, Ministry of Finance ITR 498(SC).
49. Similarly the Hon’ble Delhi High Court in the case of Pr. CIT v. Inderjit Singh Sodhi (HUF) ITR 294 (Delhi) has held as under;
17. We have heard the learned counsels appearing on behalf of the parties and perused the record.
18. The solitary question which arises for our consideration in the present appeal is whether the interest on enhanced compensation received by the respondent-assessee partakes the character of income from other sources under Section 56(2)(viii) of the Act, to be considered as separable from the enhanced compensation.
19. At the outset, it is significant to refer to Sections 28 and 34 of the Act of 1894, which deal with the payment of interest on compensation, and read as under:-
“28. Collector may be directed to pay interest on excess compensation. –
If the sum which, in the opinion of the court, the Collector ought to have awarded as compensation is in excess of the sum which the Collector did award as compensation, the award of the Court may direct that the Collector shall pay interest on such excess at the rate of [nine per centum] per annum from the date on which he took possession of the land to the date of payment of such excess into Court.”
***
“34. Payment of interest. – When the amount of such compensation is not paid or deposited on or before taking possession of the land, the Collector shall pay the amount awarded with interest thereon at the rate of nine per centum per annum from the time of so taking possession until it shall have been so paid or deposited.
Provided that if such compensation or any part thereof is not paid or deposited within a period of one year from the date on which possession is taken, interest at the rate of fifteen per centum per annum shall be payable from the date of expiry of the said period of one year on the amount of compensation or part thereof which has not been paid or deposited before the date of such expiry.”
20. A reading of Section 28 of the Act of 1894 indicates that the said provision comes into play in cases where the Court finds that some higher compensation ought to have been provided by the Collector. In such situations, the Court may direct for payment of an interest on the excess awarded amount. Whereas, Section 34 of the Act of 1894 stipulates that the Collector shall award interest onthe compensation at the rate of 9% per annum from the date of taking possession. It further lays down the condition that in case of non-payment despite expiry of a period of one year, the said interest on the amount of compensation which remains unpaid, shall be awarded at the rate of 15% per annum, calculable from the date of such expiry.
21. It is the contention of the respondent-assessee that the interest awarded under Section 28 of the Act of 1894, as discussed above, shall constitute a part of the compensation itself. The ITAT has also drawn strength from the observation of the Hon’ble Supreme Court in the case of Ghanshyam (supra) and the relevant paragraph of the said decision reads as under:-
“35. To sum up, interest is different from compensation. However, interest paid on the excess amount under Section 28 of the 1894 Act depends upon a claim by the person whose land is acquired whereas interest under Section 34 is for the delay in making payment. This vital difference needs to be kept in mind in deciding this matter. Interest under Section 28 is part of the amount of compensation whereas interest under Section 34 is only for delay in making payment after the compensation amount is determined. Interest under Section 28 is a part of enhanced value of the land which is not the case in the matter of payment of interest under Section 34.” 22. However, vide Finance (No.2) Act, 2009 (with effect from 01.10.2010), Clause (viii) of sub-Section 2 to Section 56 of the Act was inserted and the same is extracted hereunder as:-
“56. Income from other sources.
***
(2) In particular and without prejudice to the generality of the provisions of sub-section (1), the following incomes shall be chargeable to income tax under the head “Income from other sources”, namely:
***
[(viii) income by way of interest received on compensation or on enhanced compensation referred to in [sub-section (1) of Section 145-B].]”
23. For the sake of clarity, Section 145-B of the Act is reproduced as under:-“[145-B. Taxability of certain income.-(1) Notwithstanding anything to the contrary contained in Section 145, the interest received by an assessee on any compensation or on enhanced compensation, as the case may be, shall be deemed to be the income of the previous year in which it is received.
(2) Any claim for escalation of price in a contract or export incentives shall be deemed to be the income of the previous year in which reasonable certainty of its realisation is achieved.
(3) The income referred to in sub-clause (xviii) of clause (24) of Section 2 shall be deemed to be the income of the previous year in which it is received, if not charged to income-tax in any earlier previous year.]”
24. A conjoint reading of the aforementioned provisions i.e., Sections 56(2)(viii) and 145-B of the Act vividly stipulate that the income received by way of interest on compensation or on enhanced compensation shall be chargeable to tax under the head „income from other sources’. Therefore, since the position with respect to the imposition of tax on interest on compensation or enhanced compensation, as it exists today, came into being only in the year 2010, the conclusions drawn from the decision in Ghanshyam (supra), which was passed in the year 2009, are unsustainable in the facts of the present case.
25. Further, much reliance has been placed by the ITAT upon the decision of the Hon’ble Supreme Court in the case of Ghanshyam (supra) to hold that the interest on enhanced compensation received under Section 28 of the Act of 1894 is exigible to tax on receipt basis. However, a deeper analysis of the decision in Govindbhai Mamaiya (supra) would show that it does not deal with any issue pertaining to the change in the taxability, put in place through the concerned amendment of 2010. Therefore, the said decision lacks any applicability in the facts and circumstances of the present case.
26. Notably, a three-Judges Bench of the Hon’ble Supreme Court in the case of Sham Lal Narula (Dr.) v. CIT [1964] 53 ITR 151 (SC) ], while considering the interest under Section 28 of the Act of 1894 to be analogous to the interest under Section 34 of the Act, took the view that the same did not form part of compensation. The relevant extract of the said decision is culled out as under:-
“9. —
As we have pointed out, earlier, as soon as the Collector has taken possession of the land either before or after the award the title absolutely vests in the Government and thereafter the owner of the land so acquired ceases to have any title or right of possession to the land acquired. Under the award he gets compensation for both the rights. Therefore, the interest awarded under Section 28 of the Act, just like under Section 34 thereof, cannot be a compensation or damages for the loss of the right to retain possession but only compensation payable by the State for keeping back the amount payable to the owner.
__”
[Emphasis supplied]
27. The decision in Sham Lal Narula (supra) was subsequently followed by the Hon’ble Supreme Court in the case of Bikram Singh v. Land Acquisition Collector [(1997) 10 SCC 243], wherein, it was held that interest under Section 28 of the Act of 1894 was in the nature of a revenue receipt and hence, the same was considered to be taxable. The relevant paragraphs of the said decision read as under:-
“8. The controversy is no longer res integra. This question was considered elaborately by this Court in Sham Lal Narula (Dr) v. CIT [1964] 53 ITR 151 (SC) : AIR 1964 SC 1878]. 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 other cases and had held at p. 158 as under:
“In a case where title passes to the State, the statutory interest provided thereafter can only be regarded either as representing the profit which the owner of the land might have made if he had the use of the money or the loss he suffered because he had not that use. In no sense of the term can it be described as damages or compensation for the owner’s right to retain possession, for he has no right to retain possession after possession was taken under Section 16 or Section 17 of the Act. We, therefore, hold that the statutory interest paid under Section 34 of the Act is interest paid for the delayed payment of the compensation amount and, therefore, is a revenue receipt liable to tax under the Income Tax Act.”
9. This position of law has been consistently reiterated by this Court in the case of T.N.K. Govindaraju Chetty v. CIT [1967] 66 ITR 465 (SC) : AIR 1968 SC 129], Rama Bai v. CIT [1990 Supp SCC 699 : (1990) 181 ITR 400 ] and K.S. Krishna Rao v. CIT [1990] 84 CTR 144/181 ITR 408 /(1991] (SC). Thus by a catena of judicial pronouncements, it is settled law that the interest received on delayed payment of the compensation is a revenue receipt exigible to income tax. It is true that in amending the definition of “interest” in Section 2(28-A), interest was defined to mean interest payable in any manner in respect of any money borrowed or debt incurred including a deposit, claim or other similar right or obligation and includes any service, fee or other charges in respect of the moneys borrowed or debt incurred or in respect of any credit facility which has not been utilised. It is seen that the word “interest” for the purpose of the Act was interpreted by the inclusive definition. A literal construction may lead to the conclusion that the interest received or payable in any manner in respect of any moneys borrowed or a debt incurred or enumerated analogous transaction would be deemed interest. That was explained by the Board in the circular referred to hereinbefore.”
[Emphasis supplied]
28. In the case of Puneet Singh (supra), the High Court of Punjab and Haryana, while enunciating the effect of Section 145A(b) and Section 56(2)(viii) of the Act, has held as under:-
“19. The cumulative effect of section 145A(b) and section 56(2)(viii) would be that any interest received on compensation or on enhanced compensation shall be taxable under the head “Income from other sources” in the year of receipt.
20. However, by section 27 of the 2009 Act, a new clause (iv) in section 57 has been inserted with effect from April 1,2010 which lays down that in the case of income of the nature referred to in section 56(2)(viii), a deduction of a sum equal to 50 per cent. of such income would be allowable thereunder and no deduction would be allowed under any other clause of section 57. The said provision reads thus:
“57. Deductions.-The income chargeable under the head ‘Income from other sources’ shall be computed after making the following deductions, namely :.
..
(iv) in the case of income of the nature referred to in clause (viii) of subsection (2) of section 56, a deduction of a sum equal to fifty per cent. of such income and no deduction shall be allowed under any other clause of this section.”
21. The Assessing Officer in I. T. A. No. 132 of 2018 where the assessee had received Rs. 11,30,561 as interest income, held that the interest payment received on compensation/enhanced compensation to the tune of Rs. 5,65,280 (50 per cent. of Rs. 11,30,561) is taxable as income from other sources as per provisions of sections 56(2)(viii) read with 57(iv) and section 145A(b) of the Act for the assessment year 2010-11. The Commissioner of Income-tax (Appeals) and the Tribunal had upheld the order of the Assessing Officer in that regard.
22. No illegality or perversity could be pointed out by learned counsel for the assessee in the concurrent findings of fact recorded by the authorities below which may warrant interference by this court. No question of law, much less, substantial question of law arise in these appeals.
23. Accordingly, finding no merit in the appeals, the same are hereby dismissed.”
[Emphasis supplied]
29. Considering the foregoing discussion, we affirm the concurrent findings of the AO and CIT(A) and find that the view taken by the ITAT is unsustainable, as the same is based on an incorrect appreciation of law. The 2010 amendment was a conscious departure by the Legislature from the earlier position and the said departure holds good law, as on date. There is no question with respect to the vires of the amendment before us or regarding any ambiguity in the language of the amendment. The only concern is regarding the enunciation of the applicable law and we hold the same to unequivocally mean that interest, whether on compensation or on enhanced compensation, shall be considered as income from other sources and shall be exigible to income tax.
30. We, accordingly, answer the substantial question of law which has arisen in the instant appeal in affirmative and in favour of the Revenue. We, thus, hold that the ITAT has erred in relying upon the decision of Ghanshyam (supra), ignoring the changes brought about by Finance (No.2) Act, 2009, which came into effect in the year 2010.
50. Besides thatDR has also relied upon the following case laws:
| • | Dr. Shamlal Narula v. CIT [1964] 53 ITR 151 (SC) |
| • | T.N.K. Govindaraju Chetty v. CIT [1967] 66 ITR 465 (SC) |
| • | State of Haryana v. Kailashwati (P&H) dated 11-09-1979 |
| • | Rama Bai v CIT ITR 400 (SC)/54 Trueman 496 dt. 08/11/1989 |
| • | K.S. Krishna Rao v CIT ITR 408 (SC) |
| • | Bikram Singh v Land Acquisition Collector ITR 551 (SC) |
| • | Sunder v. UOI [Civil Appeal No. 6271 of 1998 (SC), dated 19/09/2001] |
| • | Shivajirao s/o Dnyanoba Ghanwat v. State of Maharashtra [Writ Petition No. 5402 of 2013, dated 27-8-2013] |
| • | Manjet Singh (HUF) Karta Manjeet Singh v. UOI (Punjab & Haryana) |
| • | SLP of Manjet Singh (HUF) Karta Manjeet Singh v. Union of India dismissed by Hon’ble Supreme Court dated 18.12.2014 |
| • | Puneet Singh v. CIT ITR 215 (Punjab & Haryana) |
| • | Mahender Pal Narang v. CBDT. New Delhi in High Court of Punjab and Haryana (2020) 423 !TR l3 dated 19.02.2020 |
| • | SLP of Mahender Pal Narang v. CBDT, New Delhi dismissed by Hon’ble Supreme Court dated 04.03.2021 |
| • | Braham Prakash v. ITO [IT Appeal No. 5819/Del/20l7, dated 20.10.2023] |
| • | Madhav Pandharinath Kande v. ITO ITD 579 (Pune – Trib.) |
| • | Pr. CIT v. Inderjit Singh Sodhi (HUF) ITR 294 (Delhi), dated 08.04.2024 |
| • | Jagit Singh Kataria v. Pr. CIT [IT Appeal No. 1245/Del/2024, dated 10.12.2024] |
| • | Leelu Ram v. ITO (Delhi – Trib.) |
| • | Om Prakash v. Pr. CIT ITD 437 (Delhi – Trib.) |
| • | ITO v. Gurdev Singh ITD 654 (Delhi – Trib.) |
| • | CBDT-circular-5/2010-No.142/13/2010-50 (TPL) Date of pronouncement 2010-50 (TPL) dated 30.09.2010 |
It was submitted that the appeals of the assessee are required to be dismissed
51. We have heard the rival contention of the parties and perused the material available on the record. Before we discuss the dispute in the present set of appeals, it is necessary to review various provisions of the Income Tax Act, 1961, which are relevant for the decision of the present controversy.
Section 2 (14)(iii) the Agriculture land, income under section 2(24), 28A, as under:
| (iii)| | [agricultural land55 in India, not being land situate— |
| (a) | in any area which is comprised within the jurisdiction of a municipality55 (whether known as a municipality, municipal corporation, notified area committee, town area committee, town committee, or by any other name) or a cantonment board and 56 which has a population^ of not less than ten thousand 57 [***] ; or |
| 58 | [(b) in any area within the distance, measured aerially,— |
| (I) | not being more than two kilometres, from the local limits of any municipality or cantonment board referred to in item (a) and which has a population of more than ten thousand but not exceeding one lakh; or |
| (II) | not being more than six kilometres, from the local limits of any municipality or cantonment board referred to in item (a) and which has a population of more than one lakh but not exceeding ten lakh; or |
| (III) | not being more than eight kilometres, from the local limits of any municipality or cantonment board referred to in item (a) and which has a population of more than ten lakh. |
Explanation.—For the purposes of this sub-clause, “population” means the population according to the last preceding census of which the relevant figures have been published before the first day of the previous year;]]
42 (24) “income”43 includes43 —
| (i) | profits and gains43 ; |
| (ii) | dividend ; |
| 44 | [(iia) voluntary contributions received by a trust created wholly or partly for charitable or religious purposes or by an institution established wholly or partly for such purposes 43 [or by an association or institution referred to in clause (21) or clause (23J43, or by a fund or trust or institution referred to in sub-clause (iv) or sub-clause (v) ^[or by any university or other educational institution referred to in sub-clause (iiiad) or sub-clause (vi) or by any hospital or other institution referred to in sub-clause (iiiae) or sub-clause (via)] of clause (23C) of section 1048 [or by an electoral trust]]. |
Explanation.—For the purposes of this sub-clause, “trust” includes any other legal obligation ;]
| (iii) | the value of any perquisite or profit in lieu of salary taxable under clauses (2) and (3) of section 17; |
| 49 | [(iiia) any special allowance or benefit, other than perquisite included under subclause [iii], specifically granted to the assessee to meet expenses wholly, necessarily and exclusively for the performance of the duties of an office or employment of profit; |
| (iiib) | any allowance granted to the assessee either to meet his personal expenses at the place where the duties of his office or employment of profit are ordinarily performed by him or at a place where he ordinarily resides or to compensate him for the increased cost of living ;] |
| (iv) | the value of any benefit or perquisite33, whether convertible into money or not, obtained from a company either by a director or by a person who has a substantial interest in the company, or by a relative of the director or such person, and any sum paid by any such company in respect of any obligation which, but for such payment, would have been payable by the director or other person aforesaid ; |
| 51 | [(iva) the value of any benefit or perquisite52, whether convertible into money or not, obtained by any representative assessee mentioned in clause (iii) or clause (iv) of sub-section (1) of section 160 or by any person on whose behalf or for whose benefit any income is receivable by the representative assessee (such person being hereafter in this sub-clause referred to as the “beneficiary”) and any sum paid by the representative assessee in respect of any obligation which, but for such payment, would have been payable by the beneficiary ;] |
| (v) | any sum chargeable to income-tax under clauses (II) and (Hi) of section __28 or section 41 or section 59 |
| 53 | [(va) any sum chargeable to income-tax under clause (iiia) of section 28 ;] |
| 54 | [(vb) any sum chargeable to income-tax under clause (iiib) of section 28 ;] |
| 55 | [(vc) any sum chargeable to income-tax under clause (iiic) of section 28 ;] |
| 56 | [(vd)] the value of any benefit or perquisite taxable under clause (lv) of section 28 ; |
| 57 | [(ve) any sum chargeable to income-tax under clause (v) of section 28 ;] |
| (vi) | any capital gains chargeable under section 45 ; |
| (vii) | the profits and gains of any business of insurance carried on by a mutual insurance company or by a co-operative society, computed in accordance with section 44 or any surplus taken to be such profits and gains by virtue of provisions contained in the First Schedule ; |
| 58 | [(viia) the profits and gains of any business of banking (including providing credit __facilities) carried on by a co-operative society with its members;] |
| (viii) | (Omitted by the Finance Act, 1988, w.e.f. 1-4-1988. Original sub-clause (viii) was inserted by the Finance Act, 1964, w.e.f. 1-4-1964;] |
| 59 | [(ix) any winnings from lotteries^, crossword puzzles, races including horse races, card games and other games of any sort or from gambling or betting of any form or nature whatsoever.] |
61 [Explanation.—For the purposes of this sub-clause,—
| (i) | “lottery” includes winnings from prizes awarded to any person by draw of lots or by chance or in any other manner whatsoever, under any scheme or arrangement by whatever name called; |
| (ii) | “cardgame and other game of any sort” includes any game show, an entertainment programme on television or electronic mode, in which people compete to win prizes or any other similar game ;] |
| 62 | [(x) any sum received by the assessee from his employees as contributions to any provident fund or superannuation fund or any fund set up under the provisions of the Employees’ State Insurance Act, 1948 (34 of 1948), or any other fund for the welfare of such employees;] |
| 63 | [(xi) any sum received under a Keyman insurance policy including the sum allocated by way of bonus on such policy. |
Explanation. —For the purposes of this clause_*, the expression “Keyman insurance policy” shall have the meaning assigned to it in the Explanation to clause (10D) of section 10;]
| 64 | [(xii) any sum referred to in ^[clause (va)] of section 28;] |
| 66 | [(xiia) the fair market value of inventory referred to in clause (via) of section 28;] |
| 67 | [(xiii) any sum referred to in clause (v) of sub-section (2) of section 56;] |
| 68 | [(xiv) any sum referred to in clause (vi) of sub-section (2) of section 56;] |
| 69 | [(xv) any sum of money or value of property referred to in clause (vii) 70 [or clause (viia)] of sub-section (2) of section 56;] |
| 71 | [(xvi) any consideration received for issue of shares as exceeds the fair market value of the shares referred to in clause (viib) of sub-section (2) of section 56;] |
| 72 | [(xvii) any sum of money referred to in clause (ix) of sub-section (2) of section 56;] |
| 73 | [(xviia) any sum of money or value of property referred to in clause (x) of sub-section (2) of section 56;] |
| 74 | [(xviib) any compensation or other payment referred to in clause (xl) of sub-section (2) of section 56;] |
| 75 | [(xviii) assistance in the form of a subsidy or grant or cash incentive or duty drawback or waiver or concession or reimbursement (by whatever name called) by the Central Government or a State Government or any authority or body or agency in cash or kind to the assessee 76 [other than,— |
| (a) | the subsidy or grant or reimbursement which is taken into account for determination of the actual cost of the asset in accordance with the provisions of Explanation 10 to clause (1) of section 43; or |
| (b) | the subsidy or grant by the Central Government for the purpose of the corpus of a trust or institution established by the Central Government or a State Government, as the case may be];] |
80 [81 (28A)82 “interest”83 means interest payable in any manner in respect of any moneys borrowed or debt incurred (including a deposit, claim or other similar right or obligation) and includes any service fee or other charge in respect of the moneys borrowed or debt incurred or in respect of any credit facility which has not been utilised ;]
Section 4
Charge of income-tax.
13 4. 14(1) Where any Central Act enacts that income-tax15 shall be charged for any assessment year at any rate or rates, income-tax at that rate or those rates shall be charged for that year 16in accordance with, and 17[subject to the provisions (including provisions for the levy of additional income-tax) of, this Act] in respect of the total income16 of the previous year 18[***] of every person :
Provided that where by virtue of any provision of this Act income-tax is to be charged in respect of the income of a period other than the previous year, income-tax shall be charged accordingly.
(2) In respect of income chargeable under sub-section (1), income-tax shall be deducted at the source or paid in advance, where it is so deductible or payable under any provision of this Act.
Incomes not included in total income.
10. In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included—
[(37) in the case of an assessee, being an individual or a Hindu undivided family, any income chargeable under the head “Capital gains” arising from the transfer of [agricultural land, where—
| (i) | such land is situate in any area referred to in item (a) or item (b) of sub-clause (lii) of clause (14) of section 2; |
| (ii) | such land, during the period of two years immediately preceding the date of transfer, was being used for agricultural purposes by such Hindu undivided family or individual or a parent of his; |
| (iii) | such transfer is by way of compulsory acquisition under any law, or a transfer the consideration for which is determined or approved by the Central Government or the Reserve Bank of India; |
| (iv) | such income has arisen from the compensation or consideration for such [transfer received by such assessee on or after the 1 st day of April, 2004. |
Explanation.—For the purposes of this clause, the expression “compensation or consideration” includes the compensation or con-sideration enhanced or further enhanced by any court, Tribunal or other authority;
Chapter IV
COMPUTATION OF TOTAL INCOME
Heads of income
Heads of income.
80 14. Save as otherwise provided by this Act, all income shall, for the purposes of charge of income-tax and computation of total income, be classified under the following heads of income :—
| A. | —Salaries. |
| B. | —81 [***] |
| C. | —Income from house property. |
| D. | —Profits and gains of business or profession. |
| E. | —Capital gains. |
| F. | —Income from other sources. |
Capital gains.
74 45. 75 [(1)] Any profits or gains arising from the transfer76 of a capital asset76 effected76 in the previous year shall, save as otherwise provided in sections 77 [***] 78[54, 54B, 79[***] 80[81[54D, 82[54E, 83[54EA, 54EB,] 54F84 [, 54G and 54H]]]]], be chargeable to income-tax under the head “Capital gains”, and shall be deemed to be the income of the previous year in which the transfer took place.
……………………………………………….
………………………………..
……………………………..
[(5) Notwithstanding anything contained in sub-section (1), where the capital gain arises from the transfer of a capital asset, being a transfer by way of compulsory acquisition under any law, or a transfer the consideration for which was determined or approved by the Central Government or the Reserve Bank of India, and the compensation or the consideration for such transfer is enhanced or further enhanced by any court, Tribunal or other authority, the capital gain shall be dealt with in the following manner, namely:–
| (a) | the capital gain computed with reference to the compensation awarded in the first instance76 or, as the case may be, the consideration determined or approved in the first instance by the Central Government or the Reserve Bank of India shall be chargeable as 95 [income under the head “Capital gains” of the previous year in which such compensation or part thereof, or such consideration or part thereof, was first received]; and |
| (b) | the amount by which the compensation or consideration is enhanced or further enhanced by the court, Tribunal or other authority shall be deemed to be income chargeable under the head “Capital gains” of the previous year in which such [amount is received by the assessee : |
| 96 [Provided that any amount of compensation received in pursuance of an interim order of a court, Tribunal or other authority shall be deemed to be income chargeable under the head “Capital gains” of the previous year in which the final order of such court, Tribunal or other authority is made;] | |
| (c) | 97 [(c) where in the assessment for any year, the capital gain arising from the transfer of a capital asset is computed by taking the compensation or consideration referred to in clause (a) or, as the case may be, enhanced compensation or consideration referred to in clause (b), and subsequently such compensation or consideration is reduced by any court, Tribunal or other authority, such assessed capital gain of that year shall be recomputed by taking the compensation or consideration as so reduced by such court, Tribunal or other authority to be the full value of the consideration.] |
Explanation.—For the purposes of this sub-section,—
| (i) | in relation to the amount referred to in clause (b), the cost of acquisition and the cost of improvement shall be taken to be nil; |
| (ii) | the provisions of this sub-section shall apply also in a case where the transfer took place prior to the 1st day of April, 1988; |
| (iii) | where by reason of the death of the person who made the transfer, or for any other reason, the enhanced compensation or consideration is received by any other person, the amount referred to in clause (b) shall be deemed to be the income, chargeable to tax under the head “Capital gains”, of such other person.] |
Income from other sources.
43 56. (1) Income of every kind which is not to be excluded from the total income under this Act shall be chargeable to income-tax under the head “Income from other sources”, if it is not chargeable to income-tax under any of the heads specified in section 14, items A to E.
(2) In particular, and without prejudice to the generality of the provisions of sub-section (1), the following incomes, shall be chargeable to income-tax under the head “Income from other sources”, namely :—
…………………………..
……………………….
…………………..
| [(viii) | income by way of interest received on compensation or on enhanced compensation referred to in 70a [sub-section (1) of section 145B];] |
Taxability of certain income.
145B. (1) Notwithstanding anything to the contrary contained in section 145, the interest received by an assessee on any compensation or on enhanced compensation, as the case may be, shall be deemed to be the income of the previous year in which it is received.
(2) Any claim for escalation of price in a contract or export incentives shall be deemed to be the income of the previous year in which reasonable certainty of its realisation is achieved.
(3) The income referred to in sub-clause (xviii) of clause (24) of section 2 shall be deemed to be the income of the previous year in which it is received, if not charged to income-tax in any earlier previous year.]
Payment of compensation on acquisition of certain immovable property.
20 194LA. Any person responsible for paying to a resident any sum 21, being in the nature of compensation or the enhanced compensation 21 or the consideration or the enhanced consideration on account of compulsory acquisition, under any law for the time being in force, of any immovable property (other than agricultural land), shall, at the time of payment of such sum in cash or by issue of a cheque or draft or by any other mode 21, whichever is earlier, deduct an amount equal to ten per cent of such sum as income-tax thereon:
Provided that no deduction shall be made under this section where the amount of such payment or, as the case may be, the aggregate amount of such payments to a resident during the financial year does not exceed 22 [five lakh] rupees:
23 [Provided further that no deduction shall be made under this section where such payment is made in respect of any award or agreement which has been exempted from levy of income-tax under section 96 of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 (30 of 2013).]
Explanation.-For the purposes of this section,-
| (i) | “agricultural land” means agricultural land in India including land situate in any area referred to in items (a) and (b) of sub-clause (iii) of clause (14) of section 2; | |
| (ii) | “immovable property” means any land (other than agricultural land) or any building or part of a building.] |
Having mentioned the relevant provisions of the Income tax Act, now we are required to examine the core issue raised before us, i.e.
“Whether the amendment brought by the Finance Act, 2010, inserting Section 56(2)(viii) read with Section 145B(1), can be invoked to tax the interest received by the assessee on enhanced compensation under the head “Income from Other Sources” for the assessment year under consideration, or whether the legal position as declared by the Hon’ble Supreme Court in CIT v. Ghanshyam (HUF) (2009) 315 ITR 1 (SC) continues to govern such receipts”
52 Before we answer this question, we are reiterating that the law applicable to an assessment is the law in force in the relevant assessment year unless a subsequent amendment is expressly made retrospective.
53. The Constitution Bench of the Hon’ble Supreme Court in CIT v. Scindia Steam Navigation Co. Ltd. [1961] 42 ITR 589 (SC) held that taxability must be determined by the law existing for the assessment year in question. This principle was reiterated in Karimtharuvi Tea Estate Ltd. v. State of Kerala [1966] 60 ITR 262 (SC) holding that the law on the first day of the assessment year governs the assessment unless specifically provided otherwise.
54. In Govinddas v. ITO [1976] 103 ITR 123 (SC), it was emphasised that taxing provisions imposing a new liability are presumed to be prospective unless the statute clearly indicates otherwise. Likewise, in CIT v. Hindustan Electro Graphites Ltd. ITR 48 (SC), the Hon’ble Court held that a subsequent amendment cannot impose a tax burden for a period when such liability did not exist.
55. The Constitution Bench in CIT (Central) v. Vatika Township (P.) Ltd. ITR 466 (SC), further clarified that fiscal amendments affecting substantive rights are presumed to be prospective, unless expressly or by necessary implication made retrospective. The jurisprudence thus recognises the settled principle that new charging provisions operate prospectively.
56. We are reproducing the relevant paras of some of these judgments for completeness of record :-
In the case of Karimtharuvi Tea Estate Ltd. [1966] 60 ITR 262 (SC) it was held by SUPREME COURT OF INDIA
“13. This court affirmed this decision in Commissioner of Income tax v. Scindia Steam Navigation Co. Ltd. [1961] 42 I.T.R. 589; [1962] 1 S.C.R. 788, where it was stated at page 816 as follows:
“On the merits, the appellant had very little to say. He sought to contend that the proviso though it came into force on May 5, 1946, was really intended to operate from April 1, 1946, and he referred us to certain other enactments as supporting that inference. But we are construing the proviso. In terms, it is not retrospective, and we cannot import into its construction matters which are ad extra legis, and thereby alter its true effect.”
14. In Commissioner of Sales Tax, Uttar Pradesh v. Modi Sugar Mills Ltd. [1961] 2 S.C.R. 189 ; 12 S.T.C. 183 this court held by a majority at page 199 as follows:
“A legal fiction must be limited to the purpose for which it has been created, and cannot be extended beyond its legitimate field. The turnover of the previous year is fictionally made the turnover of the year of assessment : it is not the actual or the real turnover of the year of assessment. By the imposition of a different tariff in the course of the year, the incidence of tax liability may competently be altered by the legislature, but for effectuating that alteration, the legislature must devise machinery for enforcing it against the taxpayer and if the legislature has failed to do so, the court cannot resort to a fiction which is not prescribed by the Legislature and seek to effectuate that alteration by devising machinery not found in the statute.
18. The Surcharge Act having come into force on September 1, 1957, and the said Act not being retrospective in operation, it could not be regarded as law in force at the commencement of the year of assessment 1957-58. Since the Surcharge Act was not the law in force on April 1, 1957, no surcharge could be levied under the said Act against the appellant in the assessment year 1957-58.”
Similarly In the matter Commissioner of Income-tax v. Shah Sadiq & Sons [1987] (SC) the sc held
” 8. This Court in Karimtharuvi Tea Estate Ltd. v. State of Kerala [1966] 60 ITR 262 observed that it was well settled that the Income-tax Act as it stands amended on the first day of April of any financial year must apply to the assessment of that year. Any amendments in that Act which came into force after the first day of April of a financial year, would not apply to the assessment for that year, even if the assessment was actually made after the amendments came into force. There, the Kerala Surcharge on Taxes Act, 1957, having come into force on 1-9-1957, being the date appointed by the Kerala Government under section 1(3) of that Act, and not being retrospective in operation, by express intendment or necessary implication, could not be made applicable from 1-4-1957. Since the Act was not the law in force on 1-4-1957, no surcharge on agricultural income-tax could be levied under that Act in respect of the assessment year 1957-58. That decision had also not dealt with the question of affecting vested rights.
9. In our opinion, the right given to the assessee for the assessment year 196162 under section 24(2) was an accrued right and a vested right. It could have been taken away expressly or by necessary implication. It has not been so done. Neither section 297(2)(b) nor any other sub-clauses of sub-section (2) of section 297 indicates contrary intention of the Legislature regarding any vested right of the assessee under the 1922 Act. On the contrary, section 6(c) indicates that that right should be preserved.”
Similarly in vatika town ship (SC), hon’ble supreme court held as under;-
31. Of the various rules guiding how a legislation has to be interpreted, one established rule is that unless a contrary intention appears, a legislation is presumed not to be intended to have a retrospective operation. The idea behind the rule is that a current law should govern current activities. Law passed today cannot apply to the events of the past. If we do something today, we do it keeping in view the law of today and in force and not tomorrow’s backward adjustment of it. Our belief in the nature of the law is founded on the bed rock that every human being is entitled to arrange his affairs by relying on the existing law and should not find that his plans have been retrospectively upset. This principle of law is known as lex prospicit non respicit : law looks forward not backward. As was observed in Phillips v. Eyre [1870] LR 6 QB 1, a retrospective legislation is contrary to the general principle that legislation by which the conduct of mankind is to be regulated when introduced for the first time to deal with future acts ought not to change the character of past transactions carried on upon the faith of the then existing law.
32. The obvious basis of the principle against retrospectivity is the principle of ‘fairness’, which must be the basis of every legal rule as was observed in the decision in L’OfficeCherifien des Phosphates v. YamashitaShinnihon Steamship Co. Ltd. [1994] 1 AC 486. Thus, legislations which modified accrued rights or which impose obligations or impose new duties or attach a new disability have to be treated as prospective unless the legislative intent is clearly to give the enactment a retrospective effect; unless the legislation is for purpose of supplying an obvious omission in a former legislation or to explain a former legislation. We need not note the cornucopia of case law available on the subject because aforesaid legal position clearly emerges from the various decisions and this legal position was conceded by the counsel for the parties. In any case, we shall refer to few judgments containing this dicta, a little later
57. In view of the foregoing discussion, it is a settled proposition of law that the law in force at the time of the assessment year or the law in force at the beginning of the assessment year is the law to be applied for the purpose of determining the tax liability of the assessee.
58. Now turning to the legal position prior to the Finance Act, 2010, the Hon’ble Supreme Court in Ghanshyam (HUF) (supra) held that interest awarded under Section 28 of the Land Acquisition Act, 1894 forms part of the compensation and is taxable u/s 45(5) of the Income-tax Act in the year of receipt. This view was based on the statutory scheme prevailing at the time and the deeming fiction under the Land Acquisition Act, which treated such interest as compensation. Admittedly, there is no change in the Land Acquisition Act and the decisions rendered on section 28 and the scope thereof. However, the legal landscape governing the taxation of interest on compensation or enhanced compensation has undergone a material change post the Finance Act, 2010, in the Income Tax Act, 1961.
59. The following propositions emerge from a conjoint reading of the relevant statutory provisions of the income tax after its amendment w.e.f 1/4/2010 reproduced hereinabove :
| (i) | By inserting Section 56(2)(viii) and Section 145B(1) with effect from 1st April 2010, the Legislature introduced a specific charging mechanism mandating that interest received on compensation or enhanced compensation shall be taxable under the head “Income from Other Sources”, and that such income shall be brought to tax on receipt basis. |
| (ii) | This amendment marks a substantive legislative departure from the earlier scheme of Section 45(5), wherein the entire compensation, including enhanced compensation, was treated as part of capital gains. The post-2010 regime thus establishes a distinct head of income and a clear basis of charge for interest on such compensation. |
| (iii) | It is pertinent to note that the opening words of Section 56(2)—”In particular, and without prejudice to the generality of the provisions of subsection (1), the following incomes shall be chargeable to income-tax under the head ‘Income from Other Sources'”—constitute a deeming provision, bringing within its sweep certain categories of income which might not otherwise fall under this head. The inclusion of clause (viii) therein deems interest on compensation or enhanced compensation to be taxable as Income from Other Sources, notwithstanding its earlier characterization under capital gains. |
| (iv) | A conjoint reading of Section 2(24), Section 2(28A), Section 4, Section 10(37), Section 14, Section 45(5), Section 56(2)(viii), Section 145B(1) and Section 194LA of the Act makes it abundantly clear that any income which arises or is deemed to arise or accrue in India is chargeable to tax in the hands of a resident assessee. |
| (v) | The definition of “interest” under Section 2(28A) specifically includes any interest payable in any manner in respect of moneys borrowed or debt incurred, including a deposit, claim, or other similar right or obligation. The expression “claim” is wide enough to encompass the amount of compensation or consideration payable to an assessee, particularly in cases of compulsory acquisition. |
| (vi) | Further, under Section 14 read with Section 56(2)(viii), any income not falling under other specific heads shall be chargeable to tax under the head “Income from Other Sources.” The timing of such taxation, as per Section 145B(1), is on receipt basis. |
| (vii) | Consequently, the definition of “interest” under Section 2(28A) squarely covers interest on enhanced compensation, which—being in the nature of a claim—falls within the charging ambit of Section 4 of the Act. |
| (viii) | Hence, such interest is deemed to be taxable in the hands of the assessee under the specific deeming provision contained in Section 56(2)(viii), read with Section 145B(1), in accordance with the legislative scheme introduced by the Finance Act, 2010. |
60. It is trite law that once Parliament enacts a specific charging provision dealing with a particular species of income, characterisation under another statute cannot override such specific provision. The Income-tax Act is a self-contained code, and definitions or deeming fiction under another statute (including the Land Acquisition Act) cannot be imported unless expressly incorporated. Reference in this regard may be made to Scindia Steam Navigation (supra), and Vatika Township (supra). Further at the time of passing of the order by Hon’ble Supreme Court in the case of Ghanshyam (HUF) (supra), did not have the benefit of examining the various provisions of law, as mentioned herein above.
61. Equally, the principle is well-settled that a judicial interpretation continues to apply only until the Legislature steps in and amends the law. In Sedco Forex International Drill Inc. v. CIT ITR 310 (SC), the Hon’ble Supreme Court held that judicial interpretation stands superseded when the statutory provision is subsequently amended prospectively. It was held asunder:-
12. In our view the 1999 Explanation could not apply to assessment years for the simple reason that it had not come into effect then. Prior to introducing the 1999 Explanation, the decision in S. G. Pgnatale’s case (supra) was followed in 1989 by a Division Bench of the Gauhati High Court in CIT v. Goslino Mario [2000] 241 ITR 314. It found that the 1983 Explanation had been given effect from 1-4-1979 whereas the year in question in that case was 1976-77 and said: “… it is settled law that assessment has to be made with reference to the law which is in existence at the relevant time. The mere fact that the assessments in question has somehow remained pending on April 1, 1979, cannot be cogent reason to make the Explanation applicable to the cases of the present assessees. This fortuitous circumstance cannot take away the vested rights of the assessees at hand… ” (p. 318)
13. The reasoning of the Gauhati High Court was expressly affirmed by this Court in CIT v. Goslino Mario [2000] 241 ITR 314. These decisions are thus authorities for the proposition that the 1983 Explanation expressly introduced with effect from a particular date would not effect earlier assessment years.
20. As was affirmed by this Court in Goslino Mario’s case (supra), a cardinal principle of the tax law is that the law to be applied is that which is in force in the relevant assessment year unless otherwise provided expressly or by necessary implication. See also Reliance Jute & Industries Ltd. v. CIT [1980] 1 SCC 139. An Explanation to a statutory provision may fulfil the purpose of clearing up an ambiguity in the main provision or an Explanation can add to and widen the scope of the main section – Sonia Bhatia v. State of U. P. AIR 1981 SC 1274, 1282. If it is in its nature clarificatory then the Explanation must be read into the main provision with effect from the time that the main provision came into force. Shyam Sunder v. Ram Kumar [2001] 8 SCC 24, Brij Mohan Das Laxman Das v. CIT [1997] 1 SCC 352, 354, CIT v. Podar Cement (P.) Ltd. [1997] 5 SCC 482, 506. But if it changes the law it is not presumed to be retrospective irrespective of the fact that the phrase used are ‘it is declared’ or ‘for the removal of doubts’.
21. There was and is no ambiguity in the main provision of section 9(1) (ii). It includes salaries in the total income of an assessee if the assessee has earned it in India. The word “earned” had been judicially defined in S. G. Pgnatale’s case (supra) by the High Court of Gujarat, in our view, correctly, to mean as income “arising or accruing in India”. The amendment to the section by way of an Explanation in 1983 effected a change in the scope of that judicial definition so as to include with effect from 1979, “income payable for service rendered in India. “
62. Applying these settled principles, it is clear that the ratio of Ghanshyam (HUF) (supra) represents the legal position under the unamended law, whereas with the introduction of Section 56(2)(viii) read with Section 145B(1), the Legislature has provided an explicit statutory mandate governing the tax treatment of interest on enhanced compensation for assessment years from 01.04.2010 onwards. Accordingly, for post-amendment years, interest on enhanced compensation is taxable under Section 56(2)(viii) irrespective of its characterisation under the Land Acquisition Act, and the deeming fiction under Section 28 of the Land Acquisition Act cannot displace the statutory scheme enacted in the Income-tax Act.
63. In view of the above legal position, we hold that the amended provisions apply prospectively from 01.04.2010 and govern the present assessment year. Consequently, the judicial interpretation in Ghanshyam (HUF) (supra) applies only to pre-amendment years and cannot be relied upon to exclude such income from tax under the amended scheme. The authorities below have correctly applied the statutory provisions inserted by the Finance Act, 2010, and the taxability of the impugned receipt under Section 56(2)(viii) stands confirmed. The assessee has placed reliance on the decisions of the Hon’ble Supreme Court in Hari Singh (supra) and Commissioner v. Braham Prakash (SLP (C) Diary No. 22662/2018, SC) to contend that interest awarded under Section 28 of the Land Acquisition Act continues to partake the character of compensation and, therefore, cannot be brought to tax under the head “Income from Other Sources”. We have carefully examined these authorities. It is noted that both decisions merely reiterate the principles laid down in Ghanshyam (HUF), particularly directing the tax authorities to treat interest under Section 28 as part of compensation for the assessment years governed by the pre-amendment law.
Effect of Hari Singh (supra) and Braham Prakash (supra)
64. Importantly, neither Hari Singh (supra) nor Braham Prakash (supra) considered or dealt with the effect of the statutory amendment introduced by the Finance Act, 2010, inserting Section 56(2)(viii) read with Section 145B(1). These judgments were rendered in the context of the legal framework prior to the insertion of the specific charging provision, and are silent on the income tax consequences post-amendment. The Hon’ble Supreme Court in these cases did not examine, interpret, or pronounce upon the effect, scope, or applicability of Section 56(2)(viii).
65. It is a settled principle that a precedent is an authority only for what it explicitly decides, and cannot be extended to situations or statutory regimes which the Court did not consider. [See State of Orissa v. Sudhansu Sekhar Misra AIR 1968 SC 647; UOI v. Major Bahadur Singh (SC)/(2006) 1 SCC 368 ]. In the latter decision it was noted by Hon’ble SC
Courts should not place reliance on decisions without discussing as to how the factual situation fits in with the fact situation of the decision on which reliance is placed. Observations of Courts are neither to be read as Euclid’s theorems nor as provisions of the statute and that too taken out of their context. These observations must be read in the context in which they appear to have been stated. Judgments of Courts are not to be construed as statutes. To interpret words, phrases and provisions of a statute, it may become necessary for judges to embark into lengthy discussions but the discussion is meant to explain and not to define. Judges interpret statutes, they do not interpret judgments. They interpret words of statutes; their words are not to be interpreted as statutes.
In London Graving Dock Co. Ltd. V. Horton (1951 AC 737 at p.761), Lord Mac Dermot observed:
“The matter cannot, of course, be settled merely by treating the ipsissima vertra of Willes, J as though they were part of an Act of Parliament and applying the rules of interpretation appropriate thereto. This is not to detract from the great weight to be given to the language actually used by that most distinguished judge.”
In Home Office v. Dorset Yacht Co. (1970 (2) All ER 294) Lord Reid said, “Lord Atkin’s speech…….is not to be treated as if it was a statute definition. It will require qualification in new circumstances.” Megarry, J in (1971) 1 WLR 1062 observed: “One must not, of course, construe even a reserved judgment of Russell L.J. as if it were an Act of Parliament.” And, in Herrington v. British Railways Board (1972 (2) WLR 537) Lord Morris said:
“There is always peril in treating the words of a speech or judgment as though they are words in a legislative enactment, and it is to be remembered that judicial utterances made in the setting of the facts of a particular case.”
Circumstantial flexibility, one additional or different fact may make a world of difference between conclusions in two cases. Disposal of cases by blindly placing reliance on a decision is not proper.
The following words of Lord Denning in the matter of applying precedents have become locus classicus:
“Each case depends on its own facts and a close similarity between one case and another is not enough because even a single significant detail may alter the entire aspect, in deciding such cases, one should avoid the temptation to decide cases (as said by Cordozo) by matching the colour of one case against the colour of another. To decide, therefore, on which side of the line a case falls, the broad resemblance to another case is not at all decisive. “
*** *** *** “Precedent should be followed only so far as it marks the path of justice, but you must cut the dead wood and trim off the side branches else you will find yourself lost in thickets and branches. My plea is to keep the path to justice clear of obstructions which could impede it.”
Therefore, the reliance placed by the assessee on these decisions to govern the post-amendment regime is misplaced.
66. With the introduction of Section 56(2)(viii) and Section 145B(1), Parliament has enacted a specific charging mechanism to tax interest received on compensation or enhanced compensation as “Income from Other Sources” on receipt basis, thereby legislatively modifying the tax character of such receipts for assessment years commencing 01.04.2010 onwards. Once a direct charging provision exists, the characterisation of such receipt under the Land Acquisition Act or the judicial interpretation rendered under the erstwhile regime cannot prevail over the express statutory mandate of the Income-tax Act.
67. Accordingly, Hari Singh (supra) and Braham Prakash (supra) are confined to the legal position prevailing prior to the amendment and do not assist the assessee for post-amendment assessment years. The statutory change having altered the tax treatment expressly, reliance on these cases for the present assessment year is untenable.
Dealing With Per-Incuriam Argument
68. The assessee has argued that the decisions of the Hon’ble Delhi High Court and the Hon’ble Punjab & Haryana High Court, which have upheld the post-amendment taxability of interest on enhanced compensation under Section 56(2)(viii), are per incuriam as they did not expressly consider the Hon’ble Supreme Court’s rulings in Hari Singh and Braham Prakash. We are unable to accept this contention.
69. At the outset, it is trite law that a lower forum cannot declare a judgment of a High Court per incuriam, much less when such a judgment binds this Tribunal within its territorial jurisdiction. The doctrine of per incuriam is a narrow exception to stare decisis and applies only in exceptional situations where a court ignores a binding statute or binding precedent—not where the later decision arises in a different statutory context or post-amendment framework. As observed in Bajaj Allianz decision of supreme court, the rule of per incuriam cannot be invoked merely because another decision or line of reasoning exists.
70. In the present factual and legal matrix, both Hari Singh and Braham Prakash dealt with the pre-amendment legal regime and reiterated Ghanshyam (HUF) in that context. Neither decision examined nor interpreted the effect of the Finance Act, 2010 inserting Sections 56(2)(viii) and 145B(1). As held by the Hon’ble Supreme Court in Sedco Forex (279 ITR 310 ), a judicial interpretation governs only until the statute is amended. Therefore, the High Court decisions dealing with the post-amendment regime cannot be said to be per incuriam for not referring to decisions governing a prior legal regime.
71. The assessee’s reliance on the per incuriam doctrine is also misconceived because a binding High Court judgment cannot be disregarded by the Tribunal on the ground that the Court did not refer to some Supreme Court decision, particularly where the subject judgments (Hari Singh and Braham Prakash) did not adjudicate upon the statutory amendment now in issue. In State of Orissa v. Sudhansu Sekhar Misra AIR 1968 SC 647, the Hon’ble Supreme Court cautioned that a decision is an authority only for what it decides and must be read in the factual and statutory context.
72. Further as observed in CIT v. Haryana Vidyut Prasaran Nigam Ltd. (Punjab & Haryana). It was held as under :-
5. We notice that the judgment passed by the Delhi High Court has failed to take notice of the judgment passed by this Court in case Punjab Financial Corporation (supra) and therefore, a different view was taken by the Delhi High Court and the same could not be binding upon this Court as it is a settled law that earlier judgment passed by this Court would have a binding precedential value over and above any different view taken by any other High Court. The law has been settled by the Supreme Court in Official Liquidator v. Dayanand (2008) 10 SCC 1, wherein it was held as under:
“66. In State of Bihar v. Kalika Kuer and others [2003 (5) SCC 448], the Court elaborately considered the principle of per incuriam and held that the earlier judgment by a larger Bench cannot be ignored by invoking the principle of per incuriam and the only course open to the coordinate or smaller Bench is to make a request for reference to the larger Bench. In State of Punjab v. Devans Modem Breweries Ltd. [2004 (11) SCC 26], the Court reiterated that if a coordinate Bench does not agree with the principles of law enunciated by another Bench, the matter has to be referred to a larger Bench. In Central Board of Dwaoodi Bohra Community v. State of Maharashtra [2005 (2) SCC 673], the Constitution Bench interpreted Article 141, referred to various earlier judgments including Bharat Petroleum Corpn. Ltd. v. Mumbai Shramik Sangha (supra), Pradip Chandra Parija and others v. Pramod Chandra Patnaik and others (supra) and held that “the law laid down in a decision delivered by a Bench of larger strength is binding on any subsequent Bench of lesser or co-equal strength and it would be inappropriate if a Division Bench of two Judges starts overruling the decisions of Division Benches of three Judges. The Court further held that such a practice would be detrimental not only to the rule of discipline and the doctrine of binding precedents but it will also lead to inconsistency in decisions on the point of law; consistency and certainty in the development of law and its contemporary status – both would be immediate casualty”
Keeping in view thereto question No. (ii) is also answered in favour of the assessee and against the appellant.
73. In the case of citvs CIT v. Thana Electricity Supply Ltd. [1994] 206 ITR 727 (Bombay) hon’ble Bombay high court had held as under :-
“It is also well-settled that though there is no specific provision making the law declared by the High Court binding on subordinate courts, it is implicit in the power of supervision conferred on a superior Tribunal that the Tribunals subject to its supervision would confirm to the law laid down by it. It is in that view of the matter that the Supreme Court in East India Commercial Co, Ltd. v. Collector of Customs, AIR 1962 SC 1893 (at page 1905) declared : “We, therefore, hold that the law declared by the highest court in the State is binding on authorities or Tribunals under its superintendence, and they cannot ignore it..”
This position has been very aptly summed up by the Supreme Court in Mahadeolal Kanodia v. Administrator-General of West Bengal, AIR 1960 SC 936 (at page 941) as follows :
“Judicial decorum no less than legal propriety forms the basis of judicial procedure. If one thing is more necessary in law than any other thing, it is the quality of certainty. That quality would totally disappear if judges of coordinate jurisdiction in a High Court start overruling one another’s decisions. If one Division Bench of a High Court is unable to distinguish a previous decision of another Division Bench, and holding the view that the earlier decision is wrong, itself gives effect to that view, the result would be utter confusion. The position would be equally bad where a judge sitting singly in the High Court is of opinion that the previous decision of another single judge on a question of law is wrong and gives effect to that view instead of referring the matter to a larger Bench.”
The above decision was followed by the Supreme Court in Baradahanta Mishra v. Bhimsen Dixit, AIR 1972 SC 2466, wherein the legal position was reiterated in the following words (at page 2469j :
“It would be anomalous to suggest that a Tribunal over which the High Court has superintendence can ignore the law declared by that court and start proceedings in direct violation of it. If a Tribunal can do so, all the subordinate courts can equally do so, for there is no specific provision, just like in the case of Supreme Court, making the law declared by the High Court binding on subordinate courts. It is implicit in the power of supervision conferred on a superior Tribunal that all the Tribunals subject to its supervision should conform to the law laid down by it. Such obedience would also be conducive to their smooth working; otherwise there would be confusion in the administration of law and respect for law would irretrievably suffer.” Having decided whose decision binds whom, we may next examine what is binding. It is well-settled that it is only the ratio decidendi that has a precedent value. As observed by the Supreme Court in S.P. Gupta v. President of India, AIR 1982 SC 149 (at page 231) : “It is elementary that what is binding on the court in a subsequent case is not the conclusion arrived at in a previous decision, but the ratio of that decision, for it is the ratio which binds as a precedent and not the conclusion.” A case is only an authority for what it actually decides and not what may come to follow logically from it. Judgments of courts are not to be construed as statutes (see Amar Nath Om Parkash v. State of Punjab, AIR 1985 SC 218; [1985] 1 SCC 345).
While following precedents, the court should keep in mind the following observations in Mumbai Kamgar Sabha v. Abdulbhai Faizullabhai [1976] 49 FJR 15, 32 ; AIR 1976 SC 1455 (at pages 1467-68] :
“It is trite, going by Anglophonic principles, that a ruling of a superior court is binding law. It is not of scriptural sanctity but is of ratiowise luminosity within the edifice of facts where the judicial lamp plays the legal flame. Beyond those walls and de hors the milieu we cannot impart eternal vernal value to the decision, exalting the doctrine of precedents into a prison-house of bigotry, regardless of varying circumstances and myriad developments. Realism dictates that a judgment has to be read, subject to the facts directly presented for consideration and not affecting those matters which may lurk in the record. Whatever be the position of a subordinate court’s casual observations, generalisations and subsilentio determinations must be judiciously read by courts of co-ordinate jurisdiction.”
Decision on a point not necessary for the purpose of the decision or which does not fall to be determined in that decision becomes an obiter dictum. So also, opinions on questions which are not necessary for determining or resolving the actual controversy arising in the case partake of the character of obiter. Obiter observations, as said by Bhagwati J. (as his Lordship then wasj in Addl. District Magistrate, Jabalpur v. Shivahant Shukla, AIR 1976 SC 1207, 1378, would undoubtedly be entitled to great weight, but “an obiter cannot take the place of the ratio. Judges are not oracles”. Such observations do not have any binding effect and they cannot be regarded as conclusive. As observed by the Privy Council in Baker v. The Queen [1975] 3 All ER 55 (at page 64j, the court’s authoritative opinion must be distinguished from propositions assumed by the court to be correct for the purpose of disposing of the particular case. This position has been made further clear by the Supreme Court in a recent decision in CIT v. Sun Engineering Works P. Ltd. [1992] 198 ITR 297, at page 320, where it was observed :
“It is neither desirable nor permissible to pick out a word or a sentence from the judgment of this court, divorced from the context of the question under consideration and treat it to be the complete ‘law’ declared by this court. The judgment must be read as a whole and the observations from the judgment have to be considered in the light of the questions which were before this court. A decision of this court takes its colour from the questions involved in the case in which it is rendered and, while applying the decision to a later case, the courts must carefully try to ascertain the true principle laid down by the decision of this court and not to pick out words or sentences from the judgment, divorced from the context of the questions under consideration by this court, to support their reasoning.”
In the above decision, the Supreme Court, also quoted with approval, the following note of caution given by it earlier in Madhav Rao Jivaji Rao Scindia Bahadur v. Union of India, AIR 1971 SC 530, at page 578 (at page 320 of 198 ITR) :
“It is not proper to regard a word, a clause or a sentence occurring in a judgment of the Supreme Court, divorced from its context, as containing a full exposition of the law on a question when the question did not even fall to be answered in that judgment.”
It is thus clear that it is only the ratio decidendi of a case which can be binding—not obiter dictum. Obiter, at best, may have some persuasive efficacy.”
74. In the case of Mylan Laboratories Ltd. v. Addl. CIT/ITO ITR 734 (Telangana) it was held as under :-
34. We are afraid such a view taken by the Assessing Officer can be justified. Rather, it is highly objectionable for an Assessing Officer to say that decision of the Income Tax Appellate Tribunal is not acceptable; and that since it has been appealed against, the issue of allowability of depreciation on goodwill has not attained finality. Unless there is a stay, order/decision of the jurisdictional Income Tax Appellate Tribunal is binding on all income tax authorities within its jurisdiction.
35. In Union of India v. Kamlakshi Finance Corporation Ltd. , Supreme Court held and reiterated that the principles of judicial discipline require that the orders of the higher appellate authorities should be followed unreservedly by the subordinate authorities. The mere fact that the order of the appellate authority is not acceptable to the department, which in itself is an objectionable phrase, and is the subject matter of an appeal can be no ground for not following the appellate order unless its operation has been suspended by a competent court. If this healthy rule is not followed, the result will only be undue harassment to the assessee and chaos in administration of the tax laws.
36. Following the above decision, Supreme Court again in Collector of Customs v. Krishna Sales (P.) Ltd. 1994 Supp. (3) SCC 73, reiterated the proposition that mere filing of an appeal does not operate as a stay or suspension of the order appealed against. It was pointed out that if the authorities were of the opinion that the goods ought not to be released pending the appeal, the straight-forward course for them is to obtain an order of stay or other appropriate direction from the Tribunal or the Supreme Court, as the case may be. Without obtaining such an order they cannot refuse to implement the order under appeal.
37. Following the above decisions of the Supreme Court, a Division Bench of the Bombay High Court in Ganesh Benzoplast Ltd. v. Union of India 2020 (374) ELT 552 held that non-compliance of orders of the appellate authority by the subordinate original authority is disturbing to say the least as it strikes at the very root of administrative discipline and may have the effect of severely undermining the efficacy of the appellate remedy provided to a litigant under the statute. Principles of judicial discipline require that the orders of the higher appellate authorities should be followed unreservedly by the subordinate authorities.
38. This principle has been reiterated by the Bombay High Court in HimgiriBuildcon& Industries Ltd. v. Union of India 2021 (376) ELT 257.
39. Therefore, the stand taken by the Assessing Officer that since the decision of the Income Tax Appellate Tribunal in the case of the petitioner itself for the assessment year 2014-15 has been appealed against the issue in question has not attained finality, is not only wrong but is required to be deprecated in strong terms being highly objectionable.
40. The second view expressed by the Assessing Officer vis-a-vis the decision of the Supreme Court in SMIFS (1 supra) is still more problematic. It is not open to the Assessing Officer to try to evade from the binding effect of a Supreme Court decision by trying to find out ‘distinguishing features’. Though unnecessary, we are still compelled to refer to Article 141 of the Constitution of India which says that the law declared by the Supreme Court shall be binding on all Courts within the territory of India. Therefore, it is the bounden duty of all authorities whether administrative or quasi judicial or judicial to follow the law declared by the Supreme Court.
75. In view of above decision jurisdictional discipline and hierarchy of courts prohibit the Tribunal from questioning the binding force of a High Court judgment on the ground of alleged oversight.
76. Respectfully following the principle that a Tribunal cannot sit in appeal over, or test for per incuriam, a judgment of the High Court, we hold that the decisions of the Hon’ble High Courts upholding the applicability of Section 56(2)(viii) post-amendment cannot be disregarded. The assessee’s argument that such judgments are per incuriam is accordingly rejected.
77. In the light of the above discussion, the common legal ground raised in the lead matter stands decided against the assessee. Consequently, the appeal of the assessee is dismissed. Since the common legal issue has been adjudicated against the assessee, we do not find it necessary to adjudicate upon the individual grounds raised in these sets of appeals, as the same have become academic in nature.
78. In view of the foregoing, all the appeals filed by the assessee are dismissed, and the order passed by the Assessing Officer is hereby restored and upheld.
79. As regards the appeals filed by the Revenue, the same are allowed, and the order of the Assessing Officer is accordingly sustained
80. The summary of the outcome of each appeal isasunder:
| Sr. No. | ITA No. | Appeal filed by Assessee / Revenue | Result |
| 1 | ITA No. 463 /Chd/ 2023 | Assessee | Dismissed |
| 2 | ITA No. 1043/Chd/ 2019 | Assessee | Dismissed |
| 3 | ITA No. 1044/Chd/2019 | Assessee | Dismissed |
| 4 | ITA No. 432/Chd/ 2022 | Assessee | Dismissed |
| 5 | ITA No. 596 /Chd/ 2022 | Assessee | Dismissed |
| 6 | ITA No. 635 /Chd/2022 | Assessee | Dismissed |
| 7 | ITA No. 641 /Chd/ 2022 | Assessee | Dismissed |
| 8 | ITA No. 668/Chd/ 2022 | Assessee | Dismissed |
| 9 | ITA No. 731 /Chd/2022 | Assessee | Dismissed |
| 10 | ITA No. 6 /Chd/ 2023 | Assessee | Dismissed |
| 11 | ITA No. 50 /Chd/2023 | Assessee | Dismissed |
| 12 | ITA No. 51 /Chd/2023 | Assessee | Dismissed |
| 13 | ITA No. 100/Chd/ 2023 | Assessee | Dismissed |
| 14 | ITA No. 116/Chd/ 2023 | Assessee | Dismissed |
| 15 | ITA No. 129/Chd/ 2023 | Assessee | Dismissed |
| 16 | ITA No. 180 /Chd/ 2023 | Assessee | Dismissed |
| 17 | ITA No. 219 /Chd/2023 | Assessee | Dismissed |
| 18 | ITA No. 275 /Chd/ 2023 | Assessee | Dismissed |
| 19 | ITA No. 292 /Chd/ 2023 | Assessee | Dismissed |
| 20 | ITA No. 317/Chd/2023 | Assessee | Dismissed |
| 21 | ITA No. 539 /Chd/ 2023 | Assessee | Dismissed |
| 22 | ITA No. 565/Chd/2023 | Assessee | Dismissed |
| 23 | ITA No. 566 /Chd/ 2023 | Assessee | Dismissed |
| 24 | ITA No. 613/Chd/2023 | Revenue | Allowed |
| 25 | ITA No. 615/Chd/2023 | Revenue | Allowed |
| 26 | ITA No. 61 7/Chd/ 2023 | Assessee | Dismissed |
| 27 | ITA No. 656 /Chd/ 2023 | Assessee | Dismissed |
| 28 | ITA No. 697/Chd/2023 | Assessee | Dismissed |
| 29 | ITA No. 779 /Chd/ 2023 | Assessee | Dismissed |
| 30 | ITA No. 92 /Chd/ 2024 | Assessee | Dismissed |
| 31 | ITA No. 1 72 /Chd/ 2024 | Assessee | Dismissed |
| 32 | ITA No. 176/Chd/2024 | Assessee | Dismissed |
| 33 | ITA No. 208 /Chd/ 2024 | Assessee | Dismissed |
| 34 | ITA No. 245/Chd/ 2024 | Revenue | Allowed |
| 35 | ITA No. 435/Chd/ 2024 | Assessee | Dismissed |
| 36 | ITA No. 458/Chd/2024 | Assessee | Dismissed |
| 37 | ITA No. 503 /Chd/ 2024 | Assessee | Dismissed |
| 38 | ITA No. 531 /Chd/ 2024 | Revenue | Allowed |
| 39 | ITA No. 563 /Chd/ 2024 | Assessee | Dismissed |
| 40 | ITA No. 663 /Chd/ 2024 | Assessee | Dismissed |
| 41 | ITA No. 876 /Chd/ 2024 | Assessee | Dismissed |
| 42 | ITA No. 1112/Chd/2024 | Assessee | Dismissed |
| 43 | ITA No. 11 76 /Chd/ 2024 | Assessee | Dismissed |
| 44 | ITA No. 1184/Chd/2024 | Assessee | Dismissed |
| 45 | ITA No. 153 /Chd/ 2025 | Assessee | Dismissed |
| 46 | ITA No. 1 65 /Chd/ 2025 | Assessee | Dismissed |
| 47 | ITA No. 243/Chd/ 2025 | Assessee | Dismissed |
| 48 | ITA No. 458 /Chd/ 2025 | Assessee | Dismissed |
| 49 | ITA No. 483 /Chd/ 2025 | Assessee | Dismissed |
| 50 | ITA No. 725 /Chd/ 2025 | Assessee | Dismissed |
| 51 | ITA No. 1025 /Chd/ 2025 | Assessee | Dismissed |
| 52 | ITA No. 1153 /Chd/ 2025 | Assessee | Dismissed |
| 53 | ITA No. 486 /Chd/ 2025 | Assessee | Dismissed |
| 54 | ITA No. 992 /Chd/2025 | Assessee | Dismissed |
| 55 | ITA No. 528 /Chd/2025 | Assessee | Dismissed |
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