IN THE ITAT,
Mrs. Catherine Thomas
v.
Deputy Commissioner of Income-tax, Central Circle, Calicut
N. Barathvaja Sankar, Accountant Member
And Riyaz S. Padvekar, Judicial Member
IT Appeal Nos. 325, 326 and 328 to 330 (Coch.) of 2005
[Assessment Years 1987-88, 1988-89
And 1990-91, 1991 to 92 and 1992-93]
February 22, 2007
I Section 45 of the Income-tax Act, 1961 - Capital gains - Year in which assessable - Assessment year 1992-93 - Whether as per provisions of sub-section 5 of section 45, where assessee’s immovable property is compulsorily acquired by Government under any law and compensation awarded for such transfer is enhanced by any Court, such enhanced compensation is to be taxed in year of receipt, irrespective of fact that such enhanced compensation was received by assessee on furnishing bank guarantee or on any other condition - Held, yes
II Section
56, read with section 5, of the Income-tax Act, 1961 - Income from other
sources - Year in which assessable - Assessment years 1987-88, 1988-89, 1990-91
to 1992-93 - Whether interest on enhanced compensation for compulsory
acquisition of assessee’s immovable property would be taxed on accrual basis
from date of delivery of possession of
property and such interest cannot be assessed in one lump sum in year in which
final order is made.
II Section
143, read with section 132, of the Income-tax Act, 1961 - Assessment-Additions
to income - Assessment years 1987-88 and 1988-89 - Whether merely on basis of admission and
statement of assessee recorded during course of search conducted in year 1995,
addition could be made to income of assessee for assessments years 1987-88 and
1988-89, when no incriminating document or material relating to said assessment
years was found in course of search - Held, no
The State Government had acquired the assessee’s immovable property under the Land Acquisition Act on 10-7-1986 and on the same date, the Tehsildar passed the award fixing the compensation. The assessee filed petition for enhancement of compensation before the sub-court and by judgment dated 22-10-1990, the sub-court enhanced the compensation by Rs. 17,53,887-50. The sub-court also awarded interest till payment of said sum. The State Government challenged the judgment of the sub-court before the High Court, in the year 1991, and deposited the amount of enhanced compensation with interest, in the sub-court. The assessee also filed petition before the sub-court, for getting the enhanced compensation. In September, 1991, the Sub-Court released the amount deposited by the State Government to the assessee on the production of the bank guarantee. The assessee deposited the said amount in the bank for obtaining the bank guarantee.
The Assessing Officer assessed the said enhanced compensation as a capital gain in the assessment year 1992-93 and worked out the interest on the enhanced compensation on the accrual basis and brought to tax in the assessment years 1987-88 to 1992-93 as income under the head ‘income from other sources’. The assessee challenged the order of the Assessing Officer contending that, the release of the said sum by the court on bank guarantee did not constitute a receipt of the assessee as the money had not come under the assessee’s control then, and the receipt could at best be said to have occurred when the bank guarantee expired i.e. 19-9-1994 i.e. in the assessment year 1995-96. The assessee also contended that it was not an unfettered right of the assessee to get the interest as the subject matter was in further appeal to the High Court and, hence, the Assessing Officer went wrong in bringing to tax the interest of enhanced compensation without considering the pendency of the appeal before the High Court.
The Commissioner(Appeals), however, confirmed the order of the Assessing Officer.
On second appeal:
Sub-section (5) in section 45 was inserted by the Finance Act, 1987 to
provide for taxation of the additional compensation in the year of receipt
instead of the year of transfer of the said capital asset. It is further provided
that the additional compensation will be deemed to be the income in the hands
of the recipient even if the actual recipient happens to be a person different
from the original transferor. For this purpose, the cost of acquisition in the
hands of the recipient of the additional compensation is provided to be nil.
Moreover, the compensation awarded in the first instance would continue to be
chargeable as income under the head ‘Capital gain’ in the previous year in
which the transfer took place. [
In the instant case, the enhanced compensation was paid to the assessee
in September, 1991. Therefore, the Assessing Officer, on receipt basis, had
rightly brought to tax the capital gain on the said enhanced compensation in
the assessment year 1992-93. Further the principles laid down by the Special
Bench of the Delhi Tribunal in the case of Dy. CIT v. Padam Prakash (HUF)
[2007] 288 ITR (AT) 1/104 ITD1 were squarely applicable to the facts of the
instant case. Therefore, the Assessing Officer had rightly brought to tax the
amount of enhanced compensation in the assessment year 1992-93. [
As regards interest on the enhanced compensation, in the case of
Hindustan Housing and Land Development Trust Ltd. (supra) the principles of
taxability of interest on the enhanced compensation have been settled that
interest on the enhanced compensation should be taxed on accrual basis from the
date of delivery of the possession of land and such interest cannot be assessed
to income-tax in one lumpsum in the year in which the order is made. [
Therefore, the Assessing Officer had rightly brought to tax the interest
on the enhanced compensation on accrual basis.
[
However, the correct working of
the interest needed reconsideration by the Assessing Officer. Therefore, that
issue was to be restored to the file of the Assessing Officer to examine the
year-wise working of the interest on the enhanced compensation brought to tax
after considering the order of sub-court granting interest to the assessee. [
FACTS
II
There was a search action against the assessee under section 132 in 1995. The Assessing Officer, on the basis of statement of the assessee recorded under section 132(4), made an addition of Rs. 1.80 lakhs on account of household expenses to the income of the assessee for the assessment year1987-88. The assessee objected the addition stating that all the explanations given in section 132(4) statement were in the year 1995 and assessing the alleged income for all seven years prior to said statement was illogical and baseless.
On appeal, the Commissioner (Appeals) held that there was no basis for working out the amount of Rs.1,80,000, the estimate was only on pure assumption and it was not based on material relating to assessment year concerned. The Commissioner (Appeals) therefore, restricted the addition to Rs. 1 lakh.
On second appeal:
Merely on the basis of the admission and statement of the assessee recorded during the course of search under section 132(4) addition could not be made. When the Commissioner (Appeals) himself had come to the conclusion that the said estimation was only on the assumption and the Assessing Officer had not given any reason for quantifying the amount of Rs. 1,80,000 and the Commissioner (Appeals) had also sustained Rs. 1 lakh without giving any reason and that was also on assumption and it was not the case of the Assessing Officer that any incriminating document or material was found during the course of search, there was no justification to upheld the addition sustained by the Commissioner (Appeals).
Therefore, the impugned addition of Rs. One lakh was not justified and
was to be deleted. [
Decision in Dy. CIT v. Padam Prakash (HUF) [2007] 288 ITR
(AT) 1/104 ITD 1 (Delhi)(SB) [Para 7.6] ; CIT v. Hindustan Housing
and Land Development Trust Ltd. [1986] 161 ITR 524/27 Taxman 450A(SC) -
followed. [