Percival Joseph Pereira Vs ITO (ITAT Mumbai)
Income Tax Appellate Tribunal (ITAT) Mumbai, in the case of Percival Joseph Pereira Vs. ITO, has clarified the taxability of enhanced compensation received by assessees through interim court orders in compulsory acquisition cases. The Tribunal’s ruling, pronounced on May 19, 2025, emphasizes the applicability of the proviso to Section 45(5)(b) of the Income Tax Act, 1961, particularly after its amendment in 2014.
The core of the dispute revolved around the year in which enhanced compensation, received by the assessee subject to conditions and a pending appeal, should be brought to tax. The assessing officer and the Commissioner of Income Tax (Appeals) had held that the compensation was taxable in the year of receipt. However, the assessee argued that due to the interim nature of the order and the ongoing appeal, the taxability should be deferred until a final order is issued.
The ITAT, after reviewing the arguments and relevant legal provisions, sided with the assessee. The Tribunal’s decision hinged on a detailed interpretation of Section 45(5) of the Income Tax Act, which deals with capital gains arising from compulsory acquisition of capital assets.
Understanding Section 45(5)
Section 45(5) outlines how capital gains are taxed in cases of compulsory acquisition.
