Commissioner of Income Tax, Shimla vs Keshwa Devi and Others

Sanjay Karol, J.—These appeals, except appeal No. 41 of 2007 were admitted on the following common substantial questions of law:-

Whether on the facts and in the circumstances of the case, the ITAT was correct in holding that the interest comprised in the amount of enhanced compensation released unconditionally to the assessee under orders of the High Court, could not be taxed as income until the appeal was finally decided by the higher Courts?

Whether the ITAT was correct in holding that the interest on enhanced compensation actually received by the assessee was not taxable in the year of receipt on the ground that such interest had not yet accrued, ignoring the fact that the assessee was not following the mercantile system of accounting for such interest and hence, under Sections 5 and 145 of the Income Tax Act and in view of Section 45(5) of the Act, such interest was taxable in the year under consideration on the basis of receipt?

Facts are not much in dispute. Respondents'' land was acquired for a public purpose by the Government. The amount of compensation, inclusive of interest was enhanced by this Court in various appeals filed by various land owners. Such information was obtained by the Assessing Officer, who while assessing the income as per the return filed by the assessee, came to the conclusion that the component of interest was to be taken as income in the respective financial year. Order dated 23.1.2006 passed by the Income Tax Officer, Khaneri, Rampur Bushahr was affirmed by the Commissioner of Income Tax (Appeals), Shimla in the appeal filed by the assessee. But however in a further appeal filed by the assessee, before the Income Tax Appellate Tribunal, Chandigarh Bench (Camp at Shimla-Bench-II) vide order dated 13.6.2007, order passed by the Assessing Officer as affirmed by the Appellate Authority, was set-aside by holding that since the appeals filed by the assessee, seeking enhancement of compensation were pending before this Court, as such, the component of interest was not liable to be taxed in the year under appeal.

That the amount received by the assessee is compensation under sections 23 & 28 of the Land Acquisition Act, 1894 (for short ''the Act''), is not in dispute.

The Apex Court in Commissioner of Income Tax, Faridabad Vs. Ghanshyam (HUF), has held as under:-

To sum up, interest is different from compensation. However, interest paid on the excess amount u/s 28 of the 1894 Act depends upon a claim by the person whose land is acquired whereas interest u/s 34 is for delay in making payment. This vital difference needs to be kept in mind in deciding this matter. Interest u/s 28 is part of the amount of compensation whereas interest u/s 34 is only for delay in making payment after the compensation amount is determined. Interest u/s 28 is a part of enhanced value of the land which is not the case in the matter of payment of interest u/s 34.

It is clear from reading of Sections 23(1A), 23(2) as also Section 28 of the 1894 Act that additional benefits are available on the market value of the acquired lands u/s 23(1A) and 23(2) whereas Section 28 is available in respect of the entire compensation. It was held by the Constitution Bench of the Supreme Court in Sunder Vs. Union of India, , that "indeed the language of Section 28 does not even remotely refer to market value alone and in terms it talks of compensation or the sum equivalent thereto. Thus, interest awardable u/s 28, would include within its ambit both the market value and the statutory solatium. It would be thus evident that even the provisions of Section 28 authorise the grant of interest on solatium as well." Thus solatium means an integral part of compensation, interest would be payable on it. Section 34 postulates award of interest at 9% per annum from the date of taking possession only until it is paid or deposited. It is a mandatory provision. Basically Section 34 provides for payment of interest for delayed payment.

Thus, in our considered view, question of law does not survive and arise for consideration as the amount of the enhanced compensation, including the component of interest, received by the land owners/assessee was actually not interest u/s 34 of the Act, but compensation within the purview of provisions of Sections 23 and 28 of the Act.

Present appeals are accordingly dismissed, so also the pending application(s), if any.

In view of the dismissal of the other appeals, appeal No. 41/2007 is also dismissed.