Home › Income-Tax Act › CIT v. Govindbhai Mamaiya (2014) 367 ITR 498/109 DTR 65/271 CTR 31/ (2015) 229 Taxman 138 (SC)

CIT v. Govindbhai Mamaiya (2014) 367 ITR 498/109 DTR 65/271 CTR 31/ (2015) 229 Taxman 138 (SC)

45(5) : Capital gains – Compulsory acquisition of land – Accrual – Enhanced compensation – Interest – Taxable in the year of receipt and not to be spread over – Individual v. Association of Persons [S. 2(31), Land Acquisition Act, 1894, S. 28]

Facts

The assessees, three brothers, inherited agricultural land from their father. This land was acquired by the Government and compensation was awarded to the assessees. During the relevant previous year, compensation was enhanced along with interest in terms of section 28 of the Land Acquisition Act, 1894. The assessees filed their return of income claiming the status of ‘individual’. The ITO passed the assessment order by treating the status of the assessees as that of a   ‘AOP’  and also refused to spread the interest income over the years and treated       it as taxable in the year of receipt. The Commissioner and Tribunal confirmed     the assessment order. The High Court treated assessees were to be assessed as ‘individuals’ and not as an AOP. It further held that the interest was to be spread over from the year of dispossession of land till the year of actual payment.

 

Issue

  • Whether the assessees were to be assessed as ‘individuals’ or as an ‘AOP’?, and
  • Whether the interest has to be taxed in year of receipt and not to be spread over years on accrual basis?

 

View

  • In Meera & Co. CIT [1997] 4 SCC 677, the Supreme Court laid down  the basic test to determine a ‘AOP’:  an  association formed by  volition  of the parties for the purpose of generation of income. In this case, the subject property acquired by the Government, came to the assessees on inheritance from their father, i.e., by operation of law. Even the incomewhich was earned in the form of interest was not because of any business venture of the three assessees but the result of the act of the Government   in compulsorily acquiring the land.
  • In CIT Ghanshyam (HUF) [2009] 8 SCC 412, Interest earned under section 28 of the Land Acquisition Act,which is on enhanced compensation, is treated as a accretion to the value and therefore, part of

 

 

the enhanced compensation/consideration, making it exigible to tax under section 45. In that case, the Court also held the said interest would be taxed in the year in which it is received.

 

Held

  • Following the earlier decision in Meera & , the Supreme Court held that since, in assessee’s case, it was not a case where any ‘Association of persons’ was formed by volition of parties for purpose of generation of income, these persons were to be given status of ‘individual’ and assessed accordingly and not as AOP.
  • Following its earlier decision in Ghanshyam (HUF), the Supreme Court held that the interest received under section 28 of the Land Acquisition Act, 1894, on the enhanced income was to be taxed in the year in which such interest on the enhanced compensation was received and was not     to be spread over the period in question. (AY. 1987-88) (CA Nos. 8103 to 8110 of 2009 dt. 4-9-2014)

  • Editorial: Judgment of Gujarat High Court in ITA No. 8103 of 2009 dt. 16.11.2006 was partly affirmed and partly reversed.

    Also see Movaliya Bhikhubhai Balabhai v. ITO [2016] 388 ITR 343 (Guj)(HC)

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