Q whether interest received under section 28 of Land Acquisition Act was taxable in hands of assessee under section 56 as income from other sources in year of receipt ?
HIGH COURT OF PUNJAB AND HARYANA
Manjet Singh (HUF) Karta Manjeet Singh
Union of India
CWP NO. 15506 OF 2013
JANUARY 14, 2014
Pankaj Jain, Adv. for the Petitioner. Yogesh Putney, Adv. for the Respondent.
Ajay Kumar Mittal, J. – This order shall dispose of CWP Nos. 15506, 26907, 26921 and 26924 of 2013 as according to the learned counsel for the parties, the issues involved herein are identical. However, the facts have been extracted from CWP No. 15506 of 2013.
2. Briefly, the facts necessary for adjudication of the controversy involved, as narrated in CWP No.15506 of 2013 are that Notifications under sections 4 and 6 of the Land Acquisition Act, 1894 (in short, “the 1894 Act”) were issued on 2.1.2002 and 24.12.2002 respectively for acquisition of land in Village Budha Khera, Hadbust No.1, Tehsil and District Karnal. After considering all the relevant factors, the Land Acquisition Collector assessed the compensation vide award No.22 for Rs. 4 lacs per acre for all kinds of plain land except low lying area having depression upto 2-1/2 feet for which compensation @ Rs. 3 lacs per acre was assessed. The reference was made under Section 18 of the 1894 Act which was accepted vide order dated 11.8.2009, Annexure P.1. Compensation was awarded at the rate of Rs. 439/- per square yard alongwith other statutory benefits. It was further held that the petitioners shall also get compulsory acquisition charges @ 30%, additional amount @ 12% per annum and interest in accordance with sections 23(1-A), 23(2) and 28 of the 1894 Act. Thereafter, Form ‘D’, Annexure P.2 had been drawn on 11.5.2010 and 27.5.2010 by the Land acquisition Officer containing the complete details regarding the names of the petitioners, principal, interest, cost, total amount, TDS and net payable in accordance with the decision dated 11.8.2009, Annexure P.1. Proceedings for reassessment were initiated under Section 148 of the Income Tax Act,1961 (for brevity, “the Act”) on 9.4.2012, Annexure P.5. Notice under Section 148 of the Act was issued to the assessee. He submitted written submissions and prayer was made for supply of reasons for initiation of re-assessment proceedings. According to the petitioner, the notice was issued primarily relying upon decision of this Court in CIT v. Bir Singh (HUF) [IT Appeal No.209 of 2004, dated 27-10-2010]. In the reply submitted to the Assessing Officer, the benefit of exemption under Section 10(37) of the Act was claimed. It was also pointed out that interest under section 28 of the 1894 Act does not fall for taxation under Section 56 of the Act as income from other sources in view of judgment of the Apex Court and in case still it was treated as income from other sources then the assessee was entitled to mandatory deduction as enumerated under Section 57(iv) of the Act on protective basis. The main grievance is regarding the treatment given qua the amount of interest received under section 28 of the 1894 Act while arriving at the chargeable income under the Act. In accordance with the decision of the Apex Court in CIT v. Ghanshyam (HUF) 315 ITR 1 it was claimed that the amount of interest component contained under section 28 of the 1894 Act should form part of enhanced compensation and secondly the concluded matters should not be reopened. The earlier petition filed by the petitioner was dismissed as withdrawn vide order 3.7.2013, Annexure P.10 with liberty to file the fresh one with better particulars. Hence the present petitions with a further prayer to refund the Tax Deduction at source made out of the compensation of the land acquisition amount which is exempt from deduction under Section 194LA of the Act.
3. The claim of the assessee was controverted by the revenue by filing written statement. In the reply, the initiation of proceedings under Section 148 of the Act was sought to be justified by relying upon judgment of this Court in Bir Singh (HUF’s case (supra). It has also been stated that legislature has introduced Section 56(2) (viii) and also Section 145A(b) of the Act by Finance (No.2) Act, 2009 with effect from 1.4.2010, according to which the interest received by the assessee on compensation or enhanced compensation shall be deemed to be his income in the year of receipt irrespective of the method of accountancy followed by the assessee. Income referred to in Section 56(2) (viii) of the Act, shall, however, be subject to deduction of 50% under Section 57(iv) of the Act. It has further been pleaded that the amendment is applicable with effect from assessment year 2010-11 and the assessee had received the interest amount during the period relevant to assessment year 2010-11 and therefore, the assessee is liable to pay tax.
4. We have heard learned counsel for the parties and perused the record.
5. Learned counsel for the petitioner submitted that the judgment of this Court in Bir Singh (HUF)’s case (supra) requires reconsideration being contrary to the decision of the Hon’ble Supreme Court in Ghanshyam’s case (supra). In CWP No. 15506 of 2013, besides the aforesaid reassessment notice under Section 148 of the Act has been challenged whereas in CWP Nos.26907, 26921 and 26924 of 2013, proceedings under Section 154 of the Act are under challenge.
6. On the other hand, learned counsel for the revenue besides supporting the action of the department by relying upon judgment in Bir Singh (HUF)’s case (supra) also drew support from the following observations in the judgment of the Apex Court in the case of State of Punjab v. Amarjit Singh JT 2011 (2) SC 393, wherein the Apex Court held as under:—
“13. Learned counsel for the respondents placed reliance on the following observations of this Court in Commissioner of Income Tax, Faridabad v. Ghanshyam (HUF)  8 SCC 412:
‘The additional amount payable under Section 23(1A) of the 1894 Act is neither interest nor solatium. It is an additional compensation designed to compensate the owner of the land, for the rise in price during the pendency of the land acquisition proceedings. It is a measure to offset the effect of inflation and the continuous rise in the value of properties. Therefore, the amount payable under Section 23(1A) of the 1894 Act is an additional compensation in respect to the acquisition and has to be reckoned as part of the market value of the land.’
14. The learned counsel for respondents submitted that as this court has treated additional amount under Section 23(1A) as part of the market value, additional amount is payable on the solatium. There is no logic in the contention as the decision nowhere holds that solatium is part of market value nor holds that additional amount under Section 23(1A) is payable on the solatium amount. Be that as it may.
15. More importantly, what requires to be noticed is that the entire consideration and analysis in that decision was with reference to the question whether solatium, additional amount and interest are part of ‘enhanced compensation’ for the purposes of Section 45(5) (b) of the Income Tax Act, 1961. The observations therein should be understood in the context of the provisions of the Income Tax Act. For example the decision also holds that interest payable under Section 28 of the Act is ‘enhanced compensation’ for the purposes of Section 45(5) (b) of Income Tax Act, which if taken as the interpretation with reference to the Land Acquisition Act, 1894, will be contrary to the Constitution bench decision in Sunder (supra).
16. We may also note that the decision clearly holds that additional amount is awardable only against the market value and not solatium:
‘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 acquire lands under Section 23(1A) and 23(2) whereas Section 28 is available in respect of the entire compensation.’
17. In view of the above, the appeal is allowed, the orders of the High Court and the Executing Court, in so far as they hold that additional amount under Section 23(1A) is payable on solatium, are set aside. It is declared that additional amount under section 23(1A) is awardable only on the market value determined under the first factor of Section 23 (1) of the Act and cannot be calculated on the solatium payable under Section 23(2) of the Act.”
It was contended that the judgment in Bir Singh (HUF)’s case (supra) neither requires any reconsideration nor any clarification as the same is in consonance with the Scheme of 1894 Act and law enunciated by the Constitution Bench of the Apex Court in Sunder v. Union of IndiaJT 2001 (8) SC 130.
7. The primary question for consideration that arises in these petitions relates to the nature of interest received by the landowner-assessee under Section 28 of the 1894 Act. In other words, whether the interest which is received by the assessee-landowner partakes the character of income or not and, in such a situation is it taxable under the provisions of the Act.
8. It would be apposite to quote herein below Sections 28 and 34 of 1894 Act which read thus:—
“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.”
9. The award of interest under Section 28 of the 1894 Act applies when the amount originally awarded has been paid or deposited and when the Court awards excess amount. In such cases interest on that excess alone is payable. Section 28 empowers the Court to award interest on the excess amount of compensation awarded by it over the amount awarded by the Collector. The compensation awarded by the Court includes the additional compensation awarded under Section 23(1A) and the solatium under Section 23(2) of the said Act. Section 28 is applicable only in respect of the excess amount, which is determined by the Court after a reference under Section 18 of the 1894 Act.
10. Under Section 34 of the 1894 Act, the Collector awards interest on the compensation offered at the rate of 9% per annum for a period of one year from the date of taking possession and thereafter at the rate of 15% per annum from the date of expiry of one year on the amount of compensation or part thereof which remains unpaid or deposited before the date of such expiry.
11. A plain reading of Sections 23(1A), 23(2) as also Section 28 of the 1894 Act clearly spells out that additional benefits are available on the market value of the acquired lands under Section 23(1A) and 23(2) whereas Section 28 is available in respect of the entire compensation. The Constitution Bench of the Supreme Court in Sunder’s case (supra) had approved the following observations of the Division Bench of this Court in State of Haryana v. Smt Kailashwati, AIR 1980 Punj. & Har. 117:—
“10. Once it is held as it inevitably must be that the solatium provided for under Section 23(2) of the Act forms an integral and statutory part of the compensation awarded to a landowner, then from the plain terms of Section 28 of the Act, it would be evident that the interest is payable on the compensation awarded and not merely on the market value of the land. Indeed the language of Section 28 does not even remotely refer to market value alone and in terms talks of compensation or the sum equivalent thereto. The interest awardable under Section 28 therefore would include within its ambit both the market value and the statutory solatium. It would be thus evident that the provisions of Section 28 in terms warrant and authorize the grant of interest on solatium as well.”
12. Adverting to the case law on the subject, inevitably, reference is made to the judgment by the three Judges bench of the Supreme Court in the case of Dr. Shamlal Narula v. CIT  53 ITR 151, which had considered the issue regarding award of interest under the 1894 Act. Interest under Section 28 of the 1894 Act was considered akin to interest under Section 34 thereof as both were held to be on account of keeping back the amount payable to the owner and did not form part of compensation or damages for the loss of the right to retain possession. It was noticed as under:—
“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 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 s. 28 of the Act, just like under s. 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.”
The principle of Dr. Shamlal Narula’s case (supra) had subsequently been applied by three Judges Bench of the Apex Court in a later decision in T.N.K. Govindaraju Chetty v. CIT  66 ITR 465.
13. Further Section 2(28A) of the Act defines “interest” and was inserted by Finance Act, 1976 to be effective from 1.6.1976. It reads thus:—
“‘interest’ 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.”
The expression ‘interest’ occurring in sub-section (28A) of Section 2 of the Act widens the scope of the term ‘interest’ for the purposes of the Act.
14. Another three Judges bench of the Apex Court in Bikram Singh v. Land Acquisition Collector  224 ITR 551 following Dr.Shamlal Narula’s case (supra) and taking into consideration definition of “interest” in Section 2(28A) of the Act had recorded that interest under Section 28 of the 1894 Act was a revenue receipt and is taxable. It was held as under:—
‘The controversy is no longer res integra. This question was considered elaborately by this Court in Dr. Shamlal Narula v. CIT  53 ITR 151 (SC). 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 page 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.”
This position of law has been consistently reiterated by this Court in the case of TMK Govindaraju Chetty v. Commissioner of Income-tax, Madras [66 ITR 465], Rama Rai & Ors. v. CIT, Andhra Pradesh [181 ITR 400] and K.S. Krishna Rao v. CIT, A.P. [181 ITR 408]. 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 eligible to income tax. It is true that in amending the definition of “interest” in Section 2(28A) 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. But the question is: whether the interest on delayed payment on the acquisition of the immovable property under the Acquisition Act would not be eligible to income-tax? It is seen that this Court has consistently taken the view that it is a revenue receipt. The amended definition of “interest” was not intended to exclude the revenue receipt of interest on delayed payment of compensation from taxability. Once it is construed to be a revenue receipt, necessarily, unless there is an exemption under the appropriate provisions of the Act, the revenue receipt is exigible to tax. The amendment is only to bring within its tax net, income received from the transaction covered under the definition of interest. It would mean that the interest received as income on the delayed payment of the compensation determined under Section 28 or 31 of the Acquisition Act is a taxable event.’
15. Now, we advert to the judgment of the Apex Court in Ghanshyam (HUF)’s case (supra) on the basis of which learned counsel for the assessee had sought reconsideration of judgment of this Court in CIT v. Bir Singh, ITA No.209 of 2004 decided on 27.10.2010 where Division Bench of this Court has held that element of interest awarded by the court on enhanced amount of compensation under Section 28 of the 1894 Act falls for taxation under Section 56 as ‘income from other sources’ in the year of receipt.
16. The reliance was placed upon following observations in Ghanshyam (HUF) ‘s case (supra):—
“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 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 the enhanced value of the land which is not the case in the matter of payment of interest under Section 34.”
17. In view of the authoritative pronouncements of the Apex Court in Dr. Sham Lal Narula, T.N.K. Govindaraja Chetty, Amarjit Singh, Sunder, Bikram Singh’s cases (supra), Rama Bai v. CIT  181 ITR 400 and KS. Krishna Rao v. CIT  181 ITR 408 the assessee cannot derive any benefit from the aforesaid observations quoted above.
18. At this stage, learned counsel for the petitioner submitted that the issue regarding tax deduction at source was not being agitated in this case and that it shall be taken up in appropriate case and thus the issue may be left open. We make it clear that since no arguments have been addressed with regard to the tax deduction at source, the said issue is being left open which may be taken up in accordance with law.
19. It may also be noticed that as regards the claim of the assessee based on provisions of Section 10(37) and 57(iv) of the Act is concerned, the issue requires examination based on factual matrix and therefore, the petitioners have alternative remedy to plead and claim the benefit thereof before the Assessing Officer in accordance with law.
20. Accordingly, finding no merit in these petitions, the same are hereby dismissed.