Whether when assessee receives interest on additional compensation in lieu of his land acquired by the State after Supreme Court decision, interest is to be charged retrospectively - NO: HC

THE issue before the Bench is - Whether when the assessee receives interest on additional compensation in lieu of his land acquired by the State after the Supreme Court decision, interest is to be charged retrospectively. And the answer goes in favour of the assessee.

Facts of the case

The assessee, an individual, is primarily an agriculturist. His land was acquired by the Government and he got compensation under Section 23 of the Land Acquisition Act, which comprised of three components - compensation. Apart from compensation, the assessee also received interest on additional compensation and solatium. The assessee had declared the amount of compensation and solatium under VDIS, 1997, but interest on additional compensation received under Section 23 (1A) was not declared by the assessee for the purpose of tax.

The Punjab and Haryana High Court vide its judgment dated 17.8.2000 in the case of Union of India Vs. Birbal & Ors, Civil Revision No. 1598 of 1999 had held that interest would also be payable on additional amount determined under Section 23 (1A) of the Land Acquisition Act. The Apex Court had confirmed the same in the case of Sundar Vs. Union of India dated 19th September, 2001. Resultantly, the assessee received the interest on the amount of additional compensation, which was spread over during the assessment year under consideration. On 20th November, 2003 the A.O. had issued a notice under Section 148 of the Act. Being aggrieved, the assessee filed a writ petition before Allahabad High Court, which was dismissed vide order dated 31st August, 2004. On 11th October, 2004 the assessee filed returns of income declaring an income of Rs. 6,53,760/- being taxable income in each of the six years the tax was paid under Section 140A of the I.T. Act, 1961. Now, the only dispute remained regarding the chargeability of the interest under Section 234A, 234B, 234C for the assessment year under consideration. The A.O. had charged the interest. In appeals, the C.I.T. (A) as well as the Tribunal had confirmed the order of the A.O. by dismissing the appeals filed by the assessee.

On appeal, the counsel for the assessee submitted that charging of interest was mandatory, but it cannot be charged retrospectively. It can be charged only from the date when the income accrued or was received and the interest will have to be paid in the same financial year when the income was received. Section 234B provided for levy of the interest for default in payment of tax on the appointed dates of payment. The tax was payable on different dates and through different modes. The specific date of payment of tax were adhered but it cannot be said that the Government was deprived of tax on those dates. Interest was chargeable under Section 234A, 234B, 234C, in order to compensate the working for such deprivation. In the instant case, the payment was received after the judgment of the Supreme Court, which upheld the award pertaining to the interest vide its order dated 19th September, 2001, so it was taxable in the year of the receipt and not in the year when the land was acquired. Lastly, he prayed to set aside the impugned order.

On the other hand, the Standing Counsel for the Department justified the impugned order and submitted that charging of the interest was mandatory.

Having heard the counsels, the Bench held that,

++ we have heard both the parties at length and gone through the material available on record;

++ no doubt the charging of the interest is mandatory. In the case of assessee, the accessibility of the income has not been disputed. Thus, the assessee is liable to pay the advance tax and on delay/failure, interest is chargeable. In the instant case, the assessee has received compensation and interest thereupon only after the judgment of the Supreme Court in the year 2001. Only due to judicial pronouncement, the assessee has become entitled to receive the additional compensation and interest thereupon. The interest can be charged only on the income. No interest can be charged on notional interest. In the Case of CIT Vs. ICD, Syndicate, 285 ITR 310 Karnataka, it was held that no interest can be charged when there is no real income. In the instant case, the interest would be charged in the year when the real income was received by the assessee and certainly, not during the year when the land was acquired;

++ thus, the interest will have to be charged only on the interest earned on additional compensation which was received after the year 2001. So, the interest will have to be charged in the year. When income was earned as per the ratio laid down in the case of Ghanshyam, it cannot be charged retrospectively when there was no receipt in the hands of assessee. Needless to mention that no law is applicable retrospectively unless specified in the statute;

++ interest is compensatory in nature as per the ratio laid down in the case of CIT Vs. Pranoy Roy (2008-TIOL-180-SC-IT). Interest on advance tax is also compensatory in nature as per the ratio laid down in the case of CIT Vs. Insilco Ltd. (2010-TIOL-167-HC-DEL-IT).

++ in view of the above we set aside all the impugned orders passed by the lower authorities including the Tribunal and directed the A.O. to charge the interest under Section 234A, 234B, 234C of the Act, as per the law in the assessment year when the interest earned on the additional compensation was actually received.

++ hence, the answer to the substantial questions of law is in favour of the assessee and against the Department.