High Court of Delhi

Principal Commissioner of Income Tax Vs. Inderjit Singh Sodhi (Neutral Citation: 2024:DHC:2820-DB)

MANU/DE/2633/2024

08.04.2024

Direct Taxation

Income received by way of interest on compensation or on enhanced compensation shall be chargeable to tax

The present appeal involves an examination of the taxability of the interest component, earned on compensation or enhanced compensation, ordered under Land Acquisition Act, 1894 ["Act of 1894"].

The instant appeal has been preferred by the Revenue against the order passed by the Income Tax Appellate Tribunal ["ITAT"], whereby, the ITAT deleted the addition made by the Assessing Officer ["AO"] under Section 56(2)(viii) of the Income Tax Act, 1961 for the Assessment Year ["AY"] 2016-17.

The solitary question which arises for 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.

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 on the 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.

A conjoint reading of the 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.

Present Court 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 present Court 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.

The ITAT has erred in relying upon the decision of Commissioner of Income Tax vs. Ghanshyam, ignoring the changes brought about by Finance (No. 2) Act, 2009, which came into effect in the year 2010. Present Court set aside the order of the ITAT. Appeal allowed.

Tags : Tax Levy Interest

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