|CORAM:||D. Y. Chandrachud J, R. K. Agrawal J|
|CATCH WORDS:||capital gains, enhanced compensation, land acquisition, year of taxability|
|DATE:||September 12, 2017 (Date of pronouncement)|
|DATE:||September 27, 2017 (Date of publication)|
|FILE:||Click here to download the file in pdf format|
|S. 45(5): Enhanced compensation and interest thereon under an interim order passed by the High Court in pending appeals relating to land acquisition matter are liable to be assessed for income tax in the year in which it has been received|
(i) The scheme of Section 45 (5) of the 1961 Act was inserted w.e.f. 1-4-1988 as an overriding provision. As stated above, compensation under the LA Act, 1894, arises and is payable in multiple stages which does not happen in cases of transfers by sale, etc. Hence, the legislature had to step in and say that as and when the assessee claimant is in receipt of enhanced compensation it shall be treated as “deemed income” and taxed on receipt basis. Our above understanding is supported by insertion of clause (c) in Section 45 (5) w.e.f. 1-4-2004 and Section 155(16) which refers to a situation of a subsequent reduction by the Court, tribunal or other authority and recomputation/amendment of the assessment order.
(ii) Section 45(5) read as a whole [including 3 clause (c)] not only deals with reworking as urged on behalf of the asseess but also with the change in the full value of the consideration (computation) and since the enhanced compensation/consideration (including interest under Section 28 of the 1894 Act) becomes payable/paid under the 1894 Act at different stages, the receipt of such enhanced compensation/consideration is to be taxed in the year of receipt subject to adjustment, if any, under Section 155 (16) of the 1961 Act, later on. Hence, the year in which enhanced compensation is received is the year of taxability. Consequently, even in cases where pending appeal, the Court/tribunal/authority before which appeal is pending, permits the claimant to withdraw against security or otherwise the enhanced compensation (which is in dispute) the same is liable to be taxed under Section 45(5) of the 1961 Act. This is the scheme of Section 45(5) and Section 155 (16) of the 1961 Act. We may clarify that even before the insertion of Section 45(5)(c) and Section 155(16) w.e.f. 1-4-2004, the receipt of enhanced compensation under Section 45(5)(b) was taxable in the year of receipt which is only reinforced by insertion of clause (c) because the right to receive payment under the 1894 Act is not in doubt.
(iii) It is important to note that compensation, including enhanced compensation/consideration under the 1894 Act, is based on the full value of property as on the date of notification under Section 4 of that Act. When the court/tribunal directs payment of enhanced 4 compensation under Section 23(I-A), or Section 23(2) or under Section 28 of the 1894 Act it is on the basis that award of the Collector or the Court, under reference, has not compensated the owner for the full value of the property as on date of notification.
Commissioner of Income Tax, Faridabad v. Ghanshyam (HUF) (2009) 315 ITR 1 (SC) followed