Interest u/s 28 of Land Acquisition Act from date of possession of land till date of judgement is not taxable

Sanjay Bhimrao Patil Vs ITO (ITAT Pune)

ITAT Pune held that interest granted by the reference Court u/s. 28 of the Land Acquisition Act from the date of possession of land till the date of judgment of High Court is an accretion of the value of the land acquired and accordingly not taxable.

Facts- According to the AO, the assessee received an amount of Rs.2,10,45,467/- from Special Land Acquisition Officer, Udgir on account of enhanced compensation on compulsory acquisition of agricultural land belonging to the assessee and interest on enhanced compensation vide order dated 22-04-2008 on the file of Civil Judge, S.D., Ahmedpur.

AO did not accept the submissions of assessee and was of the opinion, the 50% of the interest received on enhanced compensation is taxable under amended provisions u/s. 56 w.e.f. 01-04-2010. AO relied on the judgement of Hon’ble Supreme Court in the case of Bikram Singh reported in 224 ITR 551 (SC) and held interest of Rs.69,30,640/- which is 50% of interest received on enhanced compensation as taxable u/s. 56(2)(viii) of the Act.

CIT(A) also held the interest received u/s. 28 of Land Acquisition Act is taxable u/s. 56(2)(viii) of the Act. Aggrieved by the order of CIT-A, the assessee is before us.

Conclusion- We hold that the interest granted by the reference Court u/s. 28 of the Land Acquisition Act from the date of possession of land till the date of judgment of High Court is an accretion of the value of the land acquired.

Held that respectfully following the decision of Hon’ble Jurisdictional High Court of Bombay in the case of Rupesh Rashmikant Shah, we hold the interest received u/s. 28 of the Land Acquisition Act would not fall within the ambit of the expression interest as envisaged u/s. 145A(b) of the Act.

FULL TEXT OF THE ORDER OF ITAT PUNE

This appeal by the assessee against the order dated 26-10-2016 passed by the Commissioner of Income Tax (Appeals)-2, Aurangabad [‘CIT(A)’] for assessment year 2013-14.

2. We note that this appeal was filed with a delay of 40 days. The assessee filed an affidavit explaining the reasons for delay. On perusal of record and hearing both the parties, we find that the reasons stated by the assessee are bonafide which really prevented the assessee to file the present appeal in time. Therefore, the delay of 40 days is condoned.

3. Ground No. 1 & 2 raised by the assessee challenging the action of CIT(A) in confirming the addition made by the AO under the provisions of sec. 56 of the Income Tax Act “ hereafter the “Act”.

4. It is noted that the assessee is an individual, filed return of income declaring a total income of Rs.52,879/- and claimed refund of Rs.14,27,712/- on account of TDS. The said return was processed u/s. 143(1) of the Act. Under scrutiny, notices u/s. 143(2) and 142(1) of the Act were issued and the assessee appeared in person before the AO and furnished the documents as called for. According to the AO, the assessee received an amount of Rs.2,10,45,467/- from Special Land Acquisition Officer, Udgir on account of enhanced compensation on compulsory acquisition of agricultural land belonging to the assessee and interest on enhanced compensation vide order dated 22-04-2008 on the file of Civil Judge, S.D., Ahmedpur. The said details were reproduced at page 2 of the assessment order which are reproduced as under for ready reference:

5. The assessee contended that Sl. No. 1, 2 and 3 above are relating to Solatium and interest u/s. 28 of the L.A. Act are exempt from tax and only Rs.52,879/- granted u/s. 34 of the L.A. Act is taxable. The assessee placed reliance on the decision of Hon’ble High Court of Punjab and Haryana in the case of Haryana State Industrial Development Corp. in support of his contention. The AO did not accept the submissions of assessee and was of the opinion, the 50% of the interest received on enhanced compensation is taxable under amended provisions u/s. 56 w.e.f. 01-04-2010. The AO held the facts and circumstances in the case of Haryana State Industrial Development Corp. (supra) are different and the said decision is not applicable to the facts on hand. Further, he relied on the decision of Hon’ble Supreme Court in the case of Bikram Singh reported in 224 ITR 551 (SC) and held interest of Rs.69,30,640/- which is 50% of interest received on enhanced compensation as taxable u/s. 56(2)(viii) of the Act. The CIT(A) by placing reliance in the cases of Bikram Singh (supra), Manjeet Singh (HUF) reported in 65 taxmann.com 160 (Punjab & Haryana) and Balasaheb Raosaheb Bidwe and Others in Writ Petition No. 5401 of 2013, held the interest received u/s. 28 of Land Acquisition Act is taxable u/s. 56(2)(viii) of the Act. Aggreived by the order of CIT-A, the assessee is before us.

6. The ld. AR placed reliance in the case of Hari Singh reported in 302 CTR 458 (SC) for the proposition that the AO shall keep in mind the provisions of section 28 of the Land Acquisition Act as to whether the interest given therein is amounts to part of compensation or not, in view of the law laid down in the case of Ghanshyam (HUF) reported in 315 ITR 1 (SC). He argued that the Hon’ble Supreme Court in the said case reiterated the law laid down in the case of Ghanshyam (HUF) (supra), which held that the interest u/s. 28 is part of compensation. Interest u/s. 28 is a part of enhanced value of land and interest u/s. 34 is only for delay in making payment after the compensation is determined. The Hon’ble Supreme Court observed that there is a vital difference between section 28 and 34 of the Land Acquisition Act which needs to be kept in mind in deciding the issues concerning therein vide para 24 of the said order. Further, vide para 35 of the said order the Hon’ble Supreme Court observed that section 28 of the Land Acquisition Act empowers the Court in its discretion to award interest on the excess amount of compensation over and above what is awarded by the Collector. The interest u/s. 28 of the Land Acquisition Act is only applicable in respect of excess amount determined by the Court after reference u/s. 18 of the Land Acquisition Act. Further, the Hon’ble Supreme Court deliberated the interest u/s. 28 of the Land Acquisition Act is unlike interest u/s. 34, is an accretion to the value, hence, it is a part of enhanced compensation or consideration, which is not the case with interest u/s. 34 of the Act.

7. The ld. DR, Shri M.G. Jasnani submits that the Co-ordinate Bench of this Tribunal in the case of Bashewar Mallikarjun Bidwe in ITA No. 1012/PN/2017 for A.Y. 2013-14 confirmed the order of CIT(A) in holding that the interest u/s. 28 of the Land Acquisition Act is chargeable to tax by placing reliance in the case of Shivajirao of Hon’ble High Court of Bombay at Aurangabad along with statutory amendment carried out to section 56(2) inserting Clause (viii) w.e.f. 01-04-2010. He drew our attention to the para No. 10 of the said order. Further, he submits that the Co-ordinate Bench of this Tribunal in the case of Madhav Pandharinath Kande reported in 140 taxmann.com 105 (Pune-Trib.) by following the decision of Hon’ble Supreme Court rendered by three Judges Bench in the case of T.N.K. Govindaraju Chetty reported in 66 ITR 465 and insertion of 56(2)(viii) through Finance Act, 2009 w.e.f. 01-04-2010 held the law laid down by the Ghanshyam (HUF) (supra) is not applicable and interest received on enhanced compensation referred to in clause (b) of section 145A is income from other sources, chargeable to tax. He vehemently argued that the case laws as relied on by the ld. AAR are not applicable in view of the orders of this Tribunal on similar issue and also in view of the amendments brought in by substitution of section 145A of the Act and insertion of clause (iii) to section 56(2) of the Act. He submits that the law laid down by the Hon’ble High Court of Bombay in the case of Rupesh Rashmikant Shah reported in 417 ITR 169 (Bom) is not applicable to the facts on hand as the Hon’ble High Court held the charging of interest on compensation/enhanced compensation of motor accident case is not taxable which is a pure question of law. He prayed to dismiss the grounds of appeal raised by the assessee.

8. Heard both the parties and perused the material available on record. In the present case there is no dispute with regard to taxability of interest u/s. 34 of the Land Acquisition Act as the assessee himself offered the same for taxation. The only issue emanates for our consideration is as to whether the interest u/s. 28 of the Land Acquisition Act is taxable or not being part and parcel of compensation. We note that, after the preliminary survey u/s. 3A of the Land Acquisition Act by the Government, to determine whether the land in any locality is needed, or is likely to be needed for any public purpose, issues preliminary notification for acquisition of any such land under the provisions of section 4 of the Land Acquisition Act. Any person interested in any land published u/s. 4(1) of the Land Acquisition Act, can make objection within 30 days for such Acquisition u/s. 5A of the Land Acquisition Act. After hearing the objections the appropriate Government may declare that the land is required for a public purposes u/s. 6 of the Land Acquisition Act. Thereafter, the Collector has to take order for the acquisition of land u/s. 7 of the Land Acquisition Act. If such lands are not already marked out u/s. 4, the Collector causes the land to be measured and make a plan for the same u/s. 8 of the Land Acquisition Act. The Collector u/s. 9 of the Land Acquisition Act issues public notice stating that the Government intends to take possession of the land and claims may be made to him u/s. 10 of the Land Acquisition Act. The Collector requires to make the statement containing names of every person possessing any interest in the land. The Collector conducts enquiry and passes order u/s. 11 of the Land Acquisition Act. Any person interested who has not accepted the award passed by the Collector may, by written application to the Collector requesting the matter be referred for determination of Court u/s. 18 of the Land Acquisition Act in respect of amount of compensation etc. within six weeks from the date of the Collector’s award. It is pertinent to note that granting of additional amount of compensation is the subject matter under reference u/s. 18 of the Land Acquisition Act. We note that section 25 explains amount of compensation awarded by the Court not to be lower than the amount awarded by the Collector. If Court opines the Collector ought to have awarded as compensation in excess of the sum already awarded as compensation, may direct the Collector to pay interest on such excess compensation @ 9% from the date of possession to the payment of such excess compensation into the Court. Therefore, the main point to be decided in the present appeal is the interest on excess compensation from the date of possession to date of payment into the Court is part and parcel of compensation?

9. Vide order dated 29-01-2018, the Co-ordinate Bench of this Tribunal in the case of Dnyanoba Shajirao Jadhav in ITA No. 168/PUN/2016 for A.Y. 2011-12 in para 10, observed that the decision in the case of Bikram Singh & Ors. (supra) by three Judges Bench of Hon’ble Supreme Court was not considered by the two Judges Bench of Hon’ble Supreme Court in the case of Ghanshyam (HUF) (supra). The Tribunal further observed that there was no conflict of law laid down in the said decisions of Hon’ble Supreme Court as both the judgments held the payment of interest on delayed payment of compensation u/s. 34 of the Land Acquisition Act is chargeable to tax. Further, also observed that two Judges Bench in the case of Ghanshyam (HUF) (supra) is clearly marked the distinction between the interest received u/s. 23(1A) and 23(2) r.w.s. 28 of the L.A. Act vis-à-vis interest on delayed payment of compensation u/s. 34 of the L.A. Act, by holding so remanded the issue to the file of AO for examination of facts of the case and determine the nature of interest received by the assessee under the provisions of Land Acquisition Act de-novo.

10. Vide order dated 11-09-2019, the Co-ordinate Bench of this Tribunal in the batch of case of Shri Satish Wamanrao Honerao and Others held the interest received u/s. 28 of the Land Acquisition Act is part of compensation not chargeable to tax by placing reliance in the case of Ghanshyam (HUF) (supra).

11. Vide order dated 26-06-2020, the Co-ordinate Bench of this Tribunal in the case of Bhaguram Pandurang Komatwad in ITA No. 1723/PUN/2017 and in the case of Dnyanoba Shajirao Jadhav in ITA No. 168/PUN/2016 remanded such issues to the file of AO to decide the issue in terms of law laid down by the Hon’ble Supreme Court in the case of Ghanshyam (HUF) (supra).

12. Vide order dated 05-10-2020, the Co-ordinate Bench of this Tribunal in the case of Bashewar Mallikarjun Bidwe in ITA No. 1012/PN/2017 for A.Y. 2013-14 confirmed the order of CIT(A) in holding that the interest u/s. 28 of the Land Acquisition Act is chargeable to tax by placing reliance in the case of Shivajirao of Hon’ble High Court of Bombay at Aurangabad along with statutory amendment carried out to section 56(2) inserting Clause (viii) w.e.f. 01-04-2010.

13. Vide order dated 28-04-2022, the Co-ordinate Bench of this Tribunal in the case of Madhav Pandharinath Kande reported in 140 com 105 (Pune-Trib.) by following the decision of Hon’ble Supreme Court rendered by three Judges Bench in the case of T.N.K. Govindaraju Chetty reported in 66 ITR 465 and insertion of 56(2)(viii) through Finance Act, 2009 w.e.f. 01-04-2010 held the law laid down by the Ghanshyam (HUF) (supra) is not applicable and interest received on enhanced compensation referred to in clause (b) of section 145A is income from other sources, chargeable to tax.

14. Vide order dated 27-08-2013, the Division Bench i.e. two Judges Bench of Hon’ble High Court of Bombay at Aurangabad in batch of cases lead case being Shivajirao in Writ Petition No. 5402 of 2013 decided a dispute whether in facts TDS has been deducted only on amount of compensation or then on amount of interest also. The Hon’ble High Court while dealing the said issue referred to the decision of Hon’ble Supreme Court in the case of Bikram Singh (supra) and Ghanshyam (HUF) (supra) and pleased to hold by following the decision of larger Bench in the case of Bikram Singh (supra) held the interest paid u/s. 28 is not by way of any charge on compensation determined u/s. 23(1) of the Land Acquisition Act.

15. Vide order dated 31-03-2016, the Division Bench i.e. two Judges Bench of Hon’ble High Court of Gujarat in the case of Movaliya Bhikhubhai Balabhai reported in 388 ITR 343 (Guj.) by following the decision of Hon’ble Supreme Court in the case of Ghanshyam (HUF) (supra) held the amount paid u/s. 28 of the Land Acquisition Act forms part of the compensation which partakes the character of compensation.

16. Vide order dated 08-08-2019, the Division Bench i.e. two Judges Bench of Hon’ble High Court of Bombay in the case of Rupesh Rashmikant Shah reported in 417 ITR 169 (Bom), while dealing with a question under Motor Vehicles Act, held interest awarded in the motor accident claim cases from the date of the claim petition till the passing of the award or in case of appeal, till the judgment of the High Court in such appeal, could not be exigible to tax, not being an income vide para 57. The Hon’ble High Court, since the question involved complex issues, requested a senior counsel as amicus curie. The said amicus curie opined the taxability of the interest would depend on the nature and the purpose for grant of interest. If it is held that the interest is compensatory in nature and forms part of the compensation, the same may not be exigible to tax. Further, none of the provisions under Sections 194A(3)(ix), 145A(b) and 56(2)(viii) make such interest chargeable to tax if it is otherwise not taxable vide para 17. Considering the decision of Hon’ble High Court of Gujarat in the case of Movaliya Bhikhubhai Balabhai (supra) which held the ratio of Hon’ble Supreme Court in the case of Ghanshyam (HUF) (supra), would continue to apply post amendment in section 145A by virtue of Finance Act, 2009. Further, considering the decision of Hon’ble Supreme Court in the cases of Abati Bezbaruah, Kaushnuma Begum, Patricia G. Mahajan and Dharampal, in the context of motor accident claims, opined the nature of interest awarded in motor accident claims would be that such interest is compensatory in nature and will thus, form part of the compensation itself. The Hon’ble High Court in order to come to such conclusion observed that there was three crucial dates i.e. (i) is the date of accident, (ii) is date of filing of the claim petition and (iii) is date of passing of the award by Claims Tribunal vide para 56. The Hon’ble High Court was pleased to hold that the interest awarded in the motor accident claims cases from the date of the Claim Petition till the passing of the award or in case of Appeal, till the judgment of the High Court in such Appeal, would not be exigible to tax, not being an income. Further, categorically held the said position would not change on account of clause (b) of section 145A of the Act as it stood at the relevant time amended by Finance Act, 2009 which provision now finds place in sub-section (1) of section 145B of the Act. Neither clause (b) of section 145A, as it stood at the relevant time, nor clause (viii) of sub­section (2) of section 56 of the Act make the interest chargeable to tax whether such interest is income of the recipient or not vide para 57 of the said decision.

17. Vide order dated 16-07-2009, two Judges Bench of Hon’ble Supreme Court in the case of Ghanshyam (HUF) (supra) observed that the provisions of Land Acquisition Act 1894, awards “interest” both as an accretion in the value of the lands acquired and interest for undue delay, interest u/s. 28 of Land Acquisition Act is an accretion to the value of land, hence, it is a part of enhanced compensation or consideration. Interest u/s. 34 is only for delay in making payment after the compensation amount is determined. Having said that opined while dealing the interest u/s. 28 and 34 of the Land Acquisition Act, the vital difference between these two sections needs to be kept in mind while dealing the issues relating to interest u/s. 28 and 34 of the Land Acquisition Act.

18. Vide order dated 15-09-2017, two Judges Bench of Hon’ble Supreme Court in the case of Hari Singh (supra) held, 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 in the case of Ghanshyam (HUF) (supra) to ascertain whether interest given under the said provisions amounts to compensation or not.

19. Vide order dated 12-09-1996, three Judges Bench of Hon’ble Supreme Court in the case of Bikram Singh & Ors. (supra) observed that the interest received as income on delayed payment of compensation determined u/s. 28 and 34 of the Land Acquisition Act is a revenue receipt and is exigible to tax.

20. Having referred to the various case laws placed reliance by the ld.AR and ld. DR, as discussed by us in the above referred paragraphs of this order, we find the Hon’ble Jurisdictional High Court of Bombay in the case of Rupesh Rashmikant Shah (supra) discussed the issue in detail with reference to effect of substitution of section 145A with effect from 01-04­2010 read with amendment by inserting clause (viii) in section 56(2) of the Act, as the AO in the present case proceeded to allow 50% deduction u/s. 57(iv) and brought to tax remaining 50% u/s. 56(2)(viii) of the Act which is evident from the computation made in para 3.10 of the assessment order. The Hon’ble High Court was pleased to agree with the ratio laid down by the Hon’ble High Court of Gujarat in the case of Movaliya Bhikhubhai Balabhai (supra), where, it held, the ratio of Hon’ble Supreme Court in the case of Ghanshyam (HUF) (supra) would continue to apply post amendment in section 145A by virtue of Finance Act, 2009. We note that the Hon’ble High Court of Gujarat in the case of Movaliya Bhikhubhai Balabhai (supra) held the substitution of section 145A by Finance (No. 2) Act, 2009 was not in connection with the decision of Hon’ble Supreme Court in the case of Ghanshyam (HUF) (supra), but was brought into with a view to mitigate the hardship caused to the assessee on account of the decision of Hon’ble Supreme Court in the case of Smt. Ramabai reported in 181 ITR 400 (SC), taking into account Circular No. 5/2010 dated 03-06­2010 issued by the CBDT. It is pertinent to note the law laid down by the Hon’ble Supreme Court in the case of Ghanshyam (HUF) (supra) held, interest u/s. 28 is not like interest granted u/s. 34, the interest granted u/s. 28 is an accretion to the value of land and is a part of enhanced compensation. Further, it also held additional amount granted u/s. 23(1A) and solatium u/s. 23(2) of the Land Acquisition Act is also forms part of enhanced compensation. The Hon’ble High Court of Bombay in view of law laid down by the Hon’ble Supreme Court in the case of Ghanshyam (HUF) (supra) which was followed by the Hon’ble High Court of Gujarat in the case of Movaliya Bhikhubhai Balabhai (supra) observed there are three crucial dates in the context of determination of interest under motor accident claims i.e. date of accident, date of filing of the claim petition and date of passing of the award by Claims Tribunal, while observing so, held the AO had committed an error in levying tax on the interest components of the compensation awarded to the claimant till the date of judgment of the High Court, further held, any interest paid to the claimant post the judgment tax had to be collected as income from other sources. Therefore, it is clear from the judgment of Hon’ble Jurisdictional High Court that no interest could be brought to tax from the date of claim petition till the judgment of High Court. Applying the same principle to the present facts of the case that the interest granted u/s. 28 of Land Acquisition Act on enhanced compensation/compensation by the reference court u/s. 18 of Land Acquisition Act, from the date of possession of land and till the judgment of High Court, is part of compensation, could not be taxed in view of amendments by substitution of section 145A read with clause (iii) of section 56(2) of the Act.

21. In the present case, the AO simply proceeded on the premise that the amendments to provisions u/s. 145A which bears the heading method of accounting in certain cases, section 145A(b) provides that notwithstanding anything to the contrary contained in section 145, interest received by an assessee on compensation or on enhanced compensation shall be deemed to be the income of the year in which it is received read with section 56(2)(viii) of the Act which provides income by way of interest on compensation or on enhanced compensation referred to in sub-section (1) of section 145B of the Act shall be chargeable to income tax under the head “Income from other sources”. Therefore, we hold that the interest granted by the reference Court u/s. 28 of the Land Acquisition Act from the date of possession of land till the date of judgment of High Court is an accretion of the value of the land acquired. Thus, we reject the arguments of ld. DR, Shri M.G. Jasnani that the principle laid down by the Hon’ble Jurisdictional High Court of Bombay in the context of motor accident claims is not applicable to the present facts of the case. Admittedly, the Learned Civil Judge, S.D., Ahmedpur at Udgir passed decree on 22-04-2008 in L.A.R. No. 2 of 2004, a reference court, granted enhanced amount of Rs.71,84,186/- to the assessee which is evident from the execution petition filed to realize the decree amount which is on record, clearly shows the interest of Rs.6,46,577/- on enhanced compensation amount of Rs.71,84,186/- u/s. 28 of the Land Acquisition Act @ 9% from 17-06-1992 to 16-06-2000 (for one year). Further, interest of Rs.92,29,639/- u/s. 28 of the Land Acquisition Act @ 15% from 17-06-2002 to 21-02-2009 (for 103 months). Therefore, respectfully following the decision of Hon’ble Jurisdictional High Court of Bombay in the case of Rupesh Rashmikant Shah (supra), we hold the interest received u/s. 28 of the Land Acquisition Act would not fall within the ambit of the expression interest as envisaged u/s. 145A(b) of the Act, further, hold that the amendment by way of substitution of section 145A by Finance (No. 2) Act, 2009 w.e.f. 01-04-2010 and amendment by way of insertion of clause (iii) in section 56(2) by Finance Act, 2009 would have no applicability to the facts of the present case and in view of the same the order of CIT(A) in confirming the order of AO is not justified. Thus, ground Nos. 1 and 2 raised by the assessee are allowed.

22. In view of our decision in ground Nos. 1 and 2, issues raised in ground Nos. 3 to 6 becomes academic requires no adjudication.

23. In the result, the appeal of assessee is allowed.

Order pronounced in the open court on 08t^h February, 2023.