INCOME TAX OFFICER v. GOVINDBHAI MAMAIYA & ORS
[Citation -2005-LL-1222-3]

Citation 2005-LL-1222-3
Appellant Name INCOME TAX OFFICER
Respondent Name GOVINDBHAI MAMAIYA & ORS.
Court ITAT
Relevant Act Income-tax
Date of Order 22/12/2005
Assessment Year 1991-92 TO 1999-2000
Judgment View Judgment
Keyword Tags delayed payment of compensation • cash system of accounting • reassessment proceedings • land acquisition officer • additional compensation • delivery of possession • year of actual payment • acquired by government • compulsory acquisition • proportionate interest • enhanced compensation • status of individual • hindu succession act • payment of interest • higher compensation • individual capacity • written agreement • reason to believe • state government • accrued interest • interest accrued • land development • notional income
Bot Summary: With respect to accrual of interest income in different years to which such interest income pertains, the CIT(A) observed that the interest received in October/November, 1998 was brought to tax by the AO on receipt basis in the year in which it has been actually received by the assessee and accordingly entire interest income of Rs. 55,48,561 was taxed in the asst. Proportionate interest income of Rs. 4,58,715 is also not liable to be included in the income of earlier years, i.e., 1991-92 to 1999-2000 to which such interest pertains. Had the CIT(A) made some efforts the prejudice caused to the Revenue with respect to interest income of Rs. 55.48 lakhs could have been avoided and the Department could be saved from issuing the refund order along with interest in respect of the TDS by Government while disbursing the amount of interest to the assessee. Now, we come to the contention of the assessee with regard to taxing of interest income in the respective years to which such interest income actually pertains rather than taxing the entire interest income in the year of receipt. In view of the plethora of decisions of Hon ble Supreme Court and High Courts as discussed above, directly on the issue under consideration, we are inclined to agree with the learned Authorised Representative, Shri J.C. Ranpura that the CIT(A) was not justified legally and factually in declining the assessee s claim for spread over of interest income in the years to which such interest income pertains, i.e., from the year of acquisition till the year of compensation. In view of the above discussion, we hold that the CIT(A) was not at all justified in allowing interest income to go out of tax net during the year of receipt as well as relevant years to which such interest income actually pertains. We direct the AO to tax 1/3rd of interest income in the hands of each brothers in their individual capacity rather than taxing the same in the status of AOP and allow spread over of such interest income from the year of dispossession of land, i.e., asst.


R.C. Sharma, A.M.: These are appeals filed by Department and cross-objections by assessee against order of CIT(A)-I, Rajkot, dt. 30th Aug., 2004 for asst. yr. 1999-2000, and dt. 31st Aug., 2004 for asst. yrs. 1991-92 to 1998- 99, in matter of orders passed by AO under s. 143(3) r/w s. 147. following ground has been raised by Department in ITA No. 850/Rjt/2004 for asst. yr. 1999-2000: "The learned CIT(A) has erred in law and on facts in deleting interest income of Rs. 55,48,561 received from State Government in respect of land acquisition." following common ground of appeal has been raised by Department in eight appeals (ITA Nos. 842 to 849/Rjt/2004) for asst. yrs. 1991- 92 to 1998-99: "The learned CIT(A) has erred in law and on facts in deleting interest income of Rs. 4,58,715 for each asst. yrs. 1991-92 to 1998-99 which has accrued on delayed payment of compensation received from State Government in respect of land acquisition." following two common grounds have been taken by assessee on record in all nine cross-objections (CO Nos. 72 to 80/Rjt/2004): "(i) learned CIT(A) erred on facts as also in law in holding that proceedings initiated by issue of notice under s. 148 were legal. It may kindly be held that notice issued under s. 148 was illegal and invalid and assessment made on basis of such illegal and invalid notice is void ab initio and may kindly be quashed. (ii) learned CIT(A) erred on facts and in law in holding that assessment made in status of AOP was justified and correct. It may kindly be held that assessment made in status of AOP was not justified." In asst. yr. 1999-2000 cross-objection of assessee was: "The learned CIT(A) erred on facts and in law in holding that interest received as result of Court decision is taxable in year in which Court decision is received irrespective of period for which interest is allowed. It may kindly be held that interest income is taxable proportionately year to year." Rival contentions have been heard and records perused. brief facts of case are that assessees in this case are three brothers namely, S/Shri Govindbhai, Devayatbhai and Menandbhai. Father of three brothers, namely, Mamaiyabhai, in whose name assessments were made, owned agricultural land at village Dadva in Gondal Taluka admeasuring 75 acres and 4 guntas. He died on 3rd March, 1971. On death of Mamaiyabhai on 3rd March, 1971, land admeasuring 17 acres and 11 guntas was transferred in names of his successors viz., Menandbhai, Devayatbhai, Govindbhai, Sumalbai, Jivubai, etc. Copy of entry in revenue record was also filed and placed before lower authorities. Smt. Jivubai and Smt. Sumalbai relinquished their respective rights in land admeasuring 17 acres and 11 guntas and thereafter, said land belonged to three brothers who are assessees in present appeals, viz., S/Shri Govindbhai, Menandbhai and Devayatbhai. Part of said land was acquired by Government for Ishwaria Irrigation Scheme. Initially, Land Acquisition Officer (LAO) awarded compensation of Rs. 4,23,457. assessees filed suit for additional compensation in Court of Extra Asstt. Judge, Gondal in Land Ref. Case No. 77 of 1988. case was decided on 7th Oct., 1997. According to order additional award of Rs. 24,62,687 was granted. award was mainly towards cost of eucalyptus trees amounting to Rs. 23,15,550, which were claimed to be standing on acquired land. It was also ordered by Judge that interest at rate of 9 per cent for first year and at 15 per cent thereafter upto date of payment of additional award be granted to assessees. Hon ble Gujarat High Court by order dt. 7th Sept., 1998 confirmed additional award granted to assessee. aggregate amount of about Rs. 80.78 lakhs (including additional compensation, solatium and interest) was accordingly paid in October/November, 1998. interest from 21st May, 1986 to 17th Nov., 1998 was worked out at Rs. 55,48,561. At time of disbursement of this interest amount, XEn deducted TDS at rate of 10 per cent. Return of income for asst. yr. 1999-2000 was filed in name of three brothers as above on 8th June, 2000 declaring total income of Rs. 17,080 in status of individual . Since interest received by assessee in lump sum as result of Court order, AO was of opinion that income to extent of interest assessable in their hands for asst. yr. 1999-2000 had escaped assessment. He, therefore, issued notice under s. 148 for asst. yr. 1999- 2000 on 25th May, 2001 after recording reasons. Simultaneously notices under s. 148 for asst. yrs. 1991-92 to 1999-2000 were also issued as interest was pertaining to different years. basis of issue of notice under s. 148 was that assessee earned interest of Rs. 55,48,561 on amount of award in case of acquisition of land by Government for Ishwaria Irrigation Scheme. In response to this returns for all years were filed on 8th June, 2001. In these returns income was worked out on same basis as in original return for asst. yr. 1999-2000 in which refund was claimed, assessee distributed interest over period of 13 years and worked out average interest per year at Rs. 4,26,812. AO has made assessment in status of AOP assessing entire income from interest of Rs. 55,48,561 in asst. yr. 1999- 2000 and also taxed year-wise income of Rs. 4,58,715 each in asst. yrs. 1991- 92 to 1998-99 on protective basis. By impugned order, CIT(A) deleted interest income received by assessee on additional compensation and held that interest income of Rs. 55.48 lakhs was not liable to be taxed during asst. yr. 1999-2000, during which, interest was actually received. He further held that interest was also not liable to be taxed during asst. yrs. 1991-92 to 1999-2000, on plea that prior to receipt of interest during asst. yr. 1999-2000, no interest can be said to accrue for earlier years on amount not paid by Government to assessee as compensation itself was in dispute because of appeal filed by Government to Supreme Court against orders of High Court. CIT(A) held that interest can be said to accrue only when right to receive principal arises. CIT(A) further held thereafter that there was no evidence to show that property was converted into HUF property and that AO did not find show that property was converted into HUF property and that AO did not find any evidence of property belonging to HUF as claimed in return. As per CIT(A), since property was not physically divided, entire land was owned jointly by them. As proceedings for acquisition were initiated in their joint names and award for acquired land was also received by three brothers jointly, correct status of assessee is AOP and not individual as claimed by assessee. With respect to accrual of interest income in different years to which such interest income pertains, CIT(A) observed that interest received in October/November, 1998 was brought to tax by AO on receipt basis in year in which it has been actually received by assessee and accordingly entire interest income of Rs. 55,48,561 was taxed in asst. yr. 1999-2000. CIT(A) observed that additional compensation is granted by Court in case of land acquisition and interest on excess amount is allowed under s. 28 of Land Acquisition Act from date of dispossession of land to date of payment. Further appeal to Supreme Court was filed by Government against order of High Court. As per CIT(A), only when District Court passes order, right to receive additional compensation gets crystallized or said to arise. In view of above discussion, CIT(A) came to conclusion that it will be fallacious to say that right to receive additional compensation was already vested in land-holder and only its quantification or valuation was pending. Not only this, even right to receive additional compensation as per Court order is not vested or absolute if Government files appeal to Supreme Court against High Court orders. It will remain only contingent right even after District Court and High Court orders, till appeal filed by Government is sub judice before Supreme Court. For this purpose, he relied on judgment of Hon ble Supreme Court in case of CIT vs. Hindustan Housing & Land Development Trust Ltd. (1986) 58 CTR (SC) 179: (1986) 161 ITR 524 (SC). On basis of this judgment of Hon ble Supreme Court, CIT(A) stated that if any right is in dispute before High Court, it does not give any absolute right to parties to dispute till matter is sub judice. Comparing facts of instant case with case of Hon ble Supreme Court in case of Hindustan Housing & Land Development Trust (supra) CIT(A) stated that where such receipts are disputed, same cannot be brought to tax. As amount ordered to be paid by High Court, in instant case, was subject to further appeal to Hon ble Supreme Court, interest accrued and paid cannot be brought into tax net. As per CIT(A), if attempt is made to tax interest on accrual and receipt basis on amount of compensation claimed, assessee takes shelter behind Hon ble Supreme Court s decision in Hindustan Housing & Land Development Trust s case (supra) to say that even right to receive additional compensation has not accrued to him, so where is question of accrual of interest thereon. He, therefore, held that action of AO is highly unjustified as he is stated to be taxing notional income. After discussing various decisions of High Court and Supreme Court, CIT(A) concluded as under: (i) amount of interest accrued and received amounting to Rs. 55.48 lakhs was not taxable during asst. yr. 1999-2000 when it was actually received by assessee. (ii) Proportionate interest income of Rs. 4,58,715 is also not liable to be included in income of earlier years, i.e., 1991-92 to 1999-2000 to which such interest pertains. (iii) status of assessee is AOP and not individual. Aggrieved by above order of CIT(A) both Revenue and assessee have come in appeal before us. Revenue is aggrieved by action of CIT(A) for not taxing interest income during year of accrual and receipt in asst. yr. 1999-2000. Revenue is also aggrieved by action of CIT(A) for directing AO not to include interest income in income of assessee for asst. yrs. 1991-92 to 1999-2000. On other hand, assessee is aggrieved by action of CIT(A) for not treating its status as individual and also for not allowing interest to be spread over respective years to which such interest pertains i.e., from year of dispossession till year of actual payment, and for holding reassessment as valid. It was vehemently argued by learned Departmental Representative, Mr. D.R. Adhia that CIT(A) was factually and legally unjustified in allowing assessee to go free without offering interest income which was actually received by them in respect of land acquired by Government. He further submitted that interest income was not only due and accrued in favour of assessee but it was actually received by them without any condition. Therefore, there was no cogent reason for excluding interest income from tax net only on plea that appeal has been filed against order of High Court. learned Departmental Representative further submitted that CIT(A) has also grossly erred in directing AO to exclude such interest income from tax net even during asst. yrs. 1991-92 to 1999-2000. On other hand, learned senior Authorized Representative Mr. J.C. Ranpura, chartered accountant, kly objected action of CIT(A) for not allowing spread over of interest income among years to which such interest actually pertains. He cited various judgments of High Court and Supreme Court in support of proposition that interest income received on unpaid amount of enhanced compensation even though received in lump sum in one year, is not liable to be included entirely in year of receipt but same should be spread over years falling between year of dispossession till year of actual payment. He submitted that interest is paid on outstanding compensation not actually paid to assessee and is also calculated by disbursing authority from year of dispossession of land till year of actual payment. He, therefore, submitted thereafter CIT(A) was not at all justified in declining assessee s claim for spread over of such interest income, by disregarding verdict of Hon ble Supreme Court in number of cases cited before him. He further submitted that CIT(A) was also not justified in treating status of assessee as AOP, whereas in present case, there is no person like AOP. As per learned Authorised Representative, in present case, these three brothers became joint owners of agricultural land which was left behind by their late father. Thus, there was no mutual intention to acquire land by three brothers nor was there any intention to sell it off to earn profit and it was under compulsion that Government acquired land for public purpose. Therefore, there was no AOP in existence at all. assessment made by AO and confirmed by CIT(A) in status of AOP, therefore, requires to be annulled and cancelled. We have considered rival contentions, carefully gone through orders of authorities below and also deliberated upon case laws discussed by lower authorities in their respective orders as well as cited by learned Departmental Representative and learned Authorised Representative at Bar during course of hearing before us. We have also gone through detailed paper book filed by learned Authorised Representative. From record, we find that three brothers acquired land from their father (Shri Mamaiyabhai) on inheritance. land in respect of which compensation and interest is granted originally belonged to Shri Mamaiyabhai and on his death said land was inherited by: (i) Menandbhai, (ii) Devayatbhai, (iii) Govindbhai, (iv) Sumalbai, and (v) Jivubai. Subsequently, Sumalbai and Jivubai relinquished their rights in said land and three persons mentioned at (i), (ii) and (iii) above became co- owners of land with equal share. All events are duly recorded in revenue records and same were placed before lower authorities. Late Mamaiyabhai died on 3rd March, 1971 without leaving behind any Will. Therefore, Hindu Succession Act, 1956 was applicable to properties left by him. Under s. 8 of Hindu Succession Act, 1956, property of male Hindu dying intestate shall devolve firstly upon heirs, being relatives specified in class-I of this Schedule. Schedule (Class-1) contains details of relatives, which first include son, daughter, widow, mother, etc. Under r. 4, under s. 10, w i d o w , surviving sons and daughters get equal shares. However, Department has taxed interest awarded to these three brothers in hands of AOP. In present case, there is no person like AOP. issue as to what constitutes AOP came up for consideration before Hon ble Supreme Court in constitutes AOP came up for consideration before Hon ble Supreme Court in case of CIT vs. Indira Balkrishna (1960) 39 ITR 546 (SC) wherein it was observed that: "An AOP is one in which two or more persons join in common purpose or common action, and as words occur in section, which imposes tax on income, association must be one object of which is to produce income, profits or gains." above decision is referred to and relied on by various High Courts such as Hon ble Punjab & Haryana High Court in case of CIT vs. Hari Prashad & Ors. (1990) 90 CTR (P&H) 83: (1989) 178 ITR 591 (P&H) and Hon ble Delhi High Court in case of CIT vs. S.A.E. Head Office Monthly Paid Employees Welfare Trust (2004) 192 CTR (Del) 70: (2004) 271 ITR 159 (Del). As may be seen from definition of AOP, it has to be more than one member who joins hands with intention to earn profit or produce income. Volition on part of members of association is essential ingredient. There must be common purpose to venture and produce income on part of persons so venturing into business with intention of making profits and gains from such business. In present case, these three brothers became joint owners of agricultural land which was left behind by their late father. Thus, there was no mutual intention to acquire land by three brothers nor was there any intention to sell it off to earn profit. It was under compulsion that Government acquired land for public purpose. Had three brothers purchased land from market for sale or doing any agricultural activity thereon jointly, there can be said to have AOP of three brothers? There is nothing like it and land was passed on to them as legal heirs on death of their father under Hindu Succession Act. Therefore, there was no AOP in existence at all. land was acquired by Government under compulsion from brothers. It is not case of Revenue that three brothers joined hands to sell/transfer land to Government so as to treat compensation and interest received by three brothers in status of AOP. In view of factual and legal position, all three brothers, i.e., Govindbhai, Devayatbhai and Menandbhai had equal shares in land left behind b y their father as also in land acquired by Government and also in compensation and interest received. Therefore, each of three brothers was having 1/3rd share over interest and should have been taxed individually on 1/3rd of interest income. AO was thus not unjustified in assessing entire income in hands of AOP which did not existed at all and CIT(A) was also n o t justified in confirming AO s action. compensation/interest was granted/allowed jointly to three brothers by authorities as land under consideration was in their joint names in revenue records and proceedings were taken jointly. Only because cheques were issued in joint names, status of concerned persons cannot be taken as AOP. Under IT Act, each who earned or to whom income accrued is liable to tax. For income to be assessed in hands of AOP, it must be derived from process in which AOP has some control facilitating contribution to its members for earning income, profits or gains for which it is formed. compulsory acquisition of land by Government is not contingent on skill or enterprise of individual brothers. Thus, there was no scope for individual brothers to control/monitor over acquisition process of land by Government consequent to which compensation and interest was awarded to brothers. Admittedly, there was no written agreement amongst brothers to form AOP to surrender land in favour of Government or to fight for compensation or additional compensation or interest thereon. No tangible evidence is available to establish any such intention. Keeping in view primary and essential ingredients of AOP outlined by apex Court it is crystal clear that for income to be assessed in hands of AOP, it must be derived from process in which AOP has some control facilitating contribution of its members for earning income, profits or gains, for which it is formed. Logically, keeping in view entire process of compulsory acquisition of land by Government and awarding of compensation and interest by Court of Law, there was no scope for individual brothers to exercise any control or monitor process of Government or process of Court of Law. Taking into account all facts and circumstances of case in its entirety, it cannot be said that three brothers who became owners of land on death of their father, had formed AOP. We had carefully perused entire material placed on record and find that none of materials suggests consensus ad idem between brothers for formation of any AOP for earning any profit. Therefore, we are persuaded to hold that conclusion of CIT(A) for treating status of three individual brothers as AOP, is devoid of any merit. apex Court in case of CWT vs. Chander Sen (1986) 58 CTR (SC) 119: (1986) 161 ITR 370 (SC), has held that in view of s. 4 of Hindu Succession Act, 1956, income from asset acquired by son from his father can be assessed as income of son individually and under s. 8 of Hindu Succession Act, 1956, property of father devolves on his son in individual capacity and not as Karta of HUF. Even if assessee has filed return with wrong status and subsequently claims to correct same, Department had to correct same as per law. What should be approach of Department in case assessee under misconception fails to claim any benefit, etc., in return of income, jurisdictional High Court in case of S.R. Koshti vs. CIT (2005) 193 CTR (Guj) 518: (2005) 276 ITR 165 (Guj) observed as under: "A word of caution. authorities under Act are under obligation to act in accordance with law. Tax can be collected only as provided under Act. If assessee, under mistake, misconception or on not being properly instructed, is over-assessed, authorities under Act are required to assist him and ensure that only legitimate taxes due are collected. This Court, in unreported decision in case of Vinay Chandulal Satia vs. N.O. Parekh, CIT, Special Civil Appln. No. 622 of 1981, rendered on 20th Aug., 1981, has laid down approach that authorities must adopt in such matters in following terms: Supreme Court has observed in numerous decisions, including Ramlal vs. Rewa Coalfields Ltd. AIR 1962 SC 361; State of West Bengal vs. Administrator, Howrah Municipality AIR 1972 SC 749, and Babhutmal Raichand Oswal vs. Laxmibal R. Tarte AIR 1975 SC 1297, that State authorities should not arise technical pleas if citizens have lawful right and lawful right is being denied to them merely on technical grounds. State authorities cannot adopt attitude which private litigants might adopt ." In view of above, we are inclined to agree with learned senior Authorised Representative Shri J.C. Ranpura that CIT(A) was legally and factually not justified in treating status as AOP. We, therefore, reverse finding of CIT(A) and direct AO to frame assessment in respect of all three brothers in their individual capacities in respect of 1/3rd interest income received by each of them. Now let us examine taxable event for enhanced compensation and interest thereon, paid by Government in respect of compulsory acquisition of land by Government as per provisions of IT Act, 1961 vis-a-vis as per procedure of Land Acquisition Act, 1894. land acquisition proceedings begin with issue by LAO (normally Collector) public notification under s. 4 of Land Acquisition Act, 1894 proposing to acquire some particular land for public purpose. As per this, objections of landholders are invited under s. 5A of said Act. Thereafter Collector conducts summary enquiry and submits his report/recommendations to Government. After considering report, Government issues declaration under s. 6 of Land Acquisition Act to effect that specified land is needed for public purpose. notification for acquisition of land is issued under s. 9 of Land Acquisition Act by Collector inviting claims of compensation by all interested in such land. After conducting necessary enquiry into claims, Collectors make under s. 11 award (order) of area of land, amount of compensation and its apportionment among all persons interested in land. Any interested person who does not accept award, may file objections to Collector about any matter of award (order) and require that matter be referred for determination of Court. competent Court will then conduct proceedings and having regard to ss. 23 and 24 of Land Acquisition Act, determine amount of fair compensation payable to applicants. As per s. 25 amount of compensation awarded by Court cannot be less than amount awarded by Collector under s. 11. Therefore, Court effectively grants additional compensation. Interest on excess amount is allowed under s. 28 of Land Acquisition Act from date of dispossession of land to date of payment. When possession is taken by LAO, he became liable to pay interest until amount awarded by him was paid and became liable to pay interest until amount awarded by him was paid and assessee acquires right to recover it from him and when enhanced compensation is awarded and same is actually received by landholder without any condition, same will be liable to capital gain as per provisions of s. 45(5)(b) of IT Act in year of actual receipt of compensation. Interest awarded and paid under s. 28 of Land Acquisition Act is liable to be included in income of respective years falling in between year of dispossession of land to year of actual payment. Even though such interest is paid in lump sum, same is liable to be spread over to years to which such interest pertains, on unpaid amount of compensation and cannot be included in entirety in year of actual payment. Right to receive additional compensation arose to assessee as soon as Court of Extra Asstt. Judge, Gondal vide its order dt. 7th Oct., 1997 has awarded additional compensation. Court also ordered for payment of interest upto date of payment of additional award. Hon ble Gujarat High Court vide its order dt. 7th Sept., 1998 confirmed additional award and interest granted by lower Court. additional award along with interest was also paid to assessee in October/November, 1998 without any condition of furnishing any security bond, etc. Thus, in previous year 1998-99 relevant to asst. yr. 1999-2000 assessee received actual payment of additional award along with interest due on such outstanding amount from year of dispossession of land till year of actual payment. Thus, income both from additional compensation and interest thereon was received by assessee in asst. yr. 1999-2000. Now, it is crystal clear from above factual position that right to receive additional award arose in previous year 1997-98 relevant to asst. yr. 1998- 99, whereas actual payment of award was received by assessee in previous year 1998-99 relevant to asst. yr. 1999-2000. Earlier compensation for compulsory acquisition of land was taxable in year of acquisition so that every time whenever additional compensation was received original assessment required revision. In order to avoid repetitive revision and to avoid contingency, sub-s. (5) was introduced in s. 45 by Finance Act, 1987 w.e.f. 1st April, 1988 making such receipt liable to tax in year of actual receipt. Thus, as per cl. (b) of sub-s. (5) of s. 45 income arising from additional award due to Court order is deemed to be income chargeable under head Capital gains of previous year in which such amount is actually received by assessee. As per clear mandate of s. 45(5)(b), there is no dispute for bringing additional compensation in net of tax in year of receipt, i.e., asst. yr. 1999-2000. As additional compensation was actually paid to assessee without any condition of refunding same back on happening of any event, we do not find any merit in findings recorded by CIT(A) that right to receive additional compensation itself did not arise to assessee, therefore, there was no question of bringing interest received on such additional compensation in tax net. We fail to understand as to when position of law is crystal clear for taxability of additional award as per provisions of s. 45(5)(b), which is in nature of capital receipt, where is problem in bringing to tax net interest income received by assessee on such enhanced compensation, which is undisputedly revenue in nature. CIT(A) had given nomenclature of contingent income , notional income and advance income for allowing such interest income to go out of tax net, but all these are factually incorrect. interest income not only accrued and arose but was also actually received unconditionally by assessee. Thus, there was no material on record for giving finding that interest income received by assessee was contingent income or notional income or advance income. As per our considered view, income can be said to be contingent when its accrual or receipt is contingent on happening of any unforeseen event. After income is actually accrued and received unconditionally, it cannot be said to be contingent income. Similarly, notional income is one which is not real but is treated so due to book entry. Advance income is income which is received in advance prior to its accrual and may be required to be repaid if assessee does not get right of its accrual subsequently. Thus, CIT(A) was not justified in alleging AO that he has wrongly taxed notional income/contingent income/advance income. There was no material on record to suggest that very foundation of claim made by assessee was in serious jeopardy insofar as claim made by assessee in respect of enhanced compensation and interest thereon was by assessee in respect of enhanced compensation and interest thereon was accepted by lower Court and further affirmed by High Court and both amounts were actually paid to assessee without any condition or qualification of whatsoever nature may be. appeal was filed to Supreme Court in which only quantification of award amount was disputed. dispute of Government was with reference to amount of compensation payable in respect of eucalyptus trees which was paid at rate of Rs. 120 per tree. Government was of view that amount of Rs. 120 per tree was higher. With regard to taxing interest income, we are of view that income is liable to be taxed under IT Act on basis of its accruing or arising to assessee, or on basis of its receipt by assessee, during relevant previous year. words "accrue", "arise" and "is received" are not synonymous. expression "is received" conveys clear and definite meaning. words accrue or arise depend upon rights of assessee to secure income though actual receipt of income may not be there. Ordinarily, income is said to have accrued to person when he has acquired right to income. He must have acquired enforceable right in regard to that income, though actual quantification and receipt may follow in due course. mere claim to income without enforceable right thereto cannot, therefore, be regarded as accrued income for purpose of IT Act. Likewise, mere claim to profit or to liability is itself not sufficient to make profit to be accrued or liability to be incurred for taxing purposes. It goes without saying that mere claim of assessee for higher compensation cannot be basis for determining interest accrued for taxing purpose. It is only when such claim for higher compensation is adjudicated by Court and followed by undisputed enforceable decree that it can be basis for calculating interest "accrued" within scope of s. 5(1)(b) of IT Act. contention that interest accrued on compensation finally determined should at least be brought to tax in relevant year in which it is awarded or received by assessee and it should not be spread over years from date of taking possession upto date of payment, is not sustainable. When once interest is awarded, it is payable to assessee like any other interest on debt. Such interest does not accrue from date of decree of Court. It falls to be calculated and paid from date of dispossession till payment. It is payable in each successive year and is liable to be assessed in that year itself. assessment of that accrued interest cannot be postponed till it is actually paid to assessee. IT Act does not confer upon ITO power to assess income accrued in one year as income of earlier or subsequent year. attribution of whole of interest to year of receipt is not, therefore, possible. Let us now examine reasoning given by CIT(A) for reaching conclusion that interest income even though actually received by assessee o n outstanding amount of compensation was not taxable during year of actual receipt nor in earlier years to which such interest pertains. In instant case, there is no dispute about fact that additional compensation and interest was awarded to assessee by lower Court and which was confirmed by High Court in financial year 1998-99. There is also no dispute that interest income is always revenue in nature. There is also no dispute to fact that assessee got not only absolute right to receive interest but also received interest unconditionally during financial year 1998-99 relevant to asst. yr. 1999-2000 under consideration. amount was also actually paid to assessee without any condition of furnishing any security bond, etc., so as to make assessee liable to refund money on happening of any contingency whatsoever. disbursing authority has also deducted tax at source in respect of interest income paid to assessee. As appeal was filed against order of High Court, CIT(A), by relying on ratio laid down in case of Hindustan Housing & Land Development Trust (supra) held that interest on additional compensation cannot be said to accrue unless right to compensation itself accrues. He held that there is no question of any interest being accrued before decision of Gondal Court in this case on 7th Oct., 1997 when right to compensation accrued. Since right to receive interest arose in financial year 1997-98, entire interest was assessable in asst. yr. 1998-99 but due to fact that appeal was filed before High Court right remained contingent and got decided by High Court on 7th Sept., 1998 falling in financial year 1998-99 relevant to asst. yr. 1999-2000. As Government has filed further appeal, CIT(A) held that 1999-2000. As Government has filed further appeal, CIT(A) held that amount of interest actually received by assessee is merely kind of advance held by them subject to final decision of Supreme Court. Now let us examine ratio laid down by Hon ble Supreme Court in c s e of Hindustan Housing & Land Development Trust (supra). Hon ble Supreme Court had categorically observed that in case of compensation being awarded for acquisition of land, there is clear distinction between cases (a) where right to receive payment itself is in dispute and it is not question of merely quantifying amount to be received and cases. (b) where right to receive payment is admitted and quantification only of amount payable is left to be determined in accordance with settled or accepted principles. In this case, award for land compensation was made by arbitrator o n 29th July, 1955 enhancing amount of compensation payable to assessee. entire amount was in dispute in appeal filed by State Government to High Court. Hon ble Supreme Court observed that dispute was regarded by High Court as real and substantial because assessee was not permitted to withdraw sum deposited by State Government on 25th April, 1956 without furnishing security bond for refunding amount in event of appeal being allowed. Under these circumstances, Hon ble Supreme Court observed that there was no absolute right to receive amount at that stage. If appeal was allowed in its entirety, right to payment of enhanced compensation would have fallen altogether. very foundation of claim made by assessee was in serious jeopardy and nothing would be due if appeal was decided against assessee. Thus, Hon ble Supreme Court held that assessee s case falls under first category wherein right to receive payment itself was in dispute and not merely quantification of amount of compensation. However, facts and circumstances of case before us are entirely different, which comes under second category of cases as discussed above b y Hon ble Supreme Court. In instant case not only enhanced compensation but interest was awarded by lower Court and further confirmed by High Court. said amount of additional compensation along with interest was duly paid by Government and received by assessee without any condition of furnishing any security bond for refunding amount in event of appeal being filed and allowed against order of High Court. Thus, we find that CIT(A) was totally misconceived and has not applied correct proposition categorically and very clearly laid down by Hon ble Supreme Court wherein clear distinction was made between cases where right to receive payment itself is in dispute and it is not question of merely quantifying amount to be received and cases where right to receive payment is admitted and only quantification of amount payable is left to be determined in accordance with settled or accepted principles. Hon ble Supreme Court in case of CIT vs. Sun Engineering Works (P) Ltd. (1992) 107 CTR (SC) 209: (1992) 198 ITR 297 (SC) observed as follows: "It is neither desirable nor permissible to pick out word or sentence from judgment of Supreme Court divorced from context of question under consideration and treat it to be complete law declared by Court. judgment must be read as whole and observations from judgment have to be considered in light of questions which were before Court. decision of Supreme Court takes its colour from questions involved in case in which it is rendered and, while applying decision to later case, Courts must carefully try to ascertain true principle laid down by decision." Even though above case law was referred to by CIT(A) in his order while discussing proposition laid down by various Courts to facts and circumstances of instant case, but it appears that while applying proposition laid down by Hon ble Supreme Court in case of Hindustan Housing & Land Development Trust (supra), CIT(A) had brushed aside categorical distinction made by Hon ble Supreme Court with regard to nature of right, i.e., right to receive payment or quantification of payment, disputed by party in higher forum, and he picked out portion which suited him most. We do not appreciate this practice of CIT(A) and, therefore, inclined to revert his findings and conclusion in matter of non-taxing interest income of Rs. 55.48 lakhs insofar as there was no dispute for right to receive compensation, dispute was only with regard to its quantification. We have also carefully gone through documents placed in record with regard to filing of further appeal to Hon ble Supreme Court, by Government against order of High Court wherein we find that Government was only disputing quantification of compensation and not right of assessee to receive compensation. In further appeal filed, dispute was with regard to rate of trees for which compensation was to be awarded to assessee. Right of assessee to receive compensation for trees acquired by Government grown on assessee s land was not at all disputed and it was only rate of tree at Rs. 120 per tree which was stated to be high. From record, we find that Hon ble Supreme Court vide its order dt. 25th Aug., 2004 had dismissed Government appeal by observing that amount of compensation per tree fixed at rate of Rs. 120 was based on concurrent findings on appreciation of evidence and no interference was required. It is pertinent to mention here that if CIT(A) had taken little pain in seeking grounds of further appeal filed by Government he could have easily come to know that it was only quantification of award which was disputed and not right of assessee to receive award itself. It is also not case of CIT(A) that payment was released to assessee only on furnishing security bond and in case Government appeal allowed, security bond will be forfeited and assessee was liable to refund additional compensation and interest thereon back to land acquisition authority. Thus, finding recorded by CIT(A) to effect that interest income was contingent is devoid of any merit. From record we also found that order of Hon ble Supreme Court dismissing appeal of Government was dt. 25th Aug., 2004 whereas order of CIT(A) was passed on 31st Aug., 2004, i.e., after date of order of Hon ble Supreme Court. Had CIT(A) made some efforts prejudice caused to Revenue with respect to interest income of Rs. 55.48 lakhs could have been avoided and Department could be saved from issuing refund order along with interest in respect of TDS by Government while disbursing amount of interest to assessee. In view of above, we are inclined to agree with learned Departmental Representative Shri Adhia that CIT(A) was legally and factually not justified in allowing to go out of scope of income, as defined in s. 5 interest income of Rs. 55.48 lakhs which was not only accrued and due to assessee but was also received by assessee unconditionally during asst. yr. 1999-2000. We would like to place on record our mark of appreciation f o r learned Departmental Representative Mr. D.R. Adhia, for putting entire factual and legal position before Bench in very dedicated manner, so as to assist Bench in reaching to correct conclusion. Now, we come to contention of assessee with regard to taxing of interest income in respective years to which such interest income actually pertains rather than taxing entire interest income in year of receipt. Interest on enhanced compensation is payable under ss. 28 and 34 of Land Acquisition Act and enhanced compensation awarded on reference under s. 18 of said Act or further appeal to High Court and/or Supreme Court. As per our considered view, such interest income cannot be taken to have accrued on date of order of Court granting enhanced compensation but has to be taken s having accrued year after year from date of delivery of possession of lands till date of such order. Thus, interest on enhanced compensation awarded under Land Acquisition Act accrues year after year and not on date o f granting enhanced compensation as held by Hon ble Supreme Court in case of Smt. Rama Bai Etc. vs. CIT (1990) 84 CTR (SC) 164: (1990) 181 ITR 400 (SC). Furthermore, Hon ble Supreme Court in case of CIT vs. T.N.K. Govindarajulu Chetty (1987) 61 CTR (SC) 335: (1987) 165 ITR 231 (SC) have held that interest on compensation, for compulsory acquisition of land should be spread over respective years in which it could be deemed to have accrued and hence assessable in respective assessment years. Allahabad High Court in case of Ashwani Dhingra vs. Chief CIT (2005) 194 CTR (All) 233: (2005) 275 ITR 72 (All) had observed that it is well- settled that amount of interest paid on enhanced amount of compensation accrues every year and is taxable in year in which it has accrued and no adverse inference can be drawn from fact that returns for earlier assessment years were not filed. Furthermore, Hon ble Supreme Court in case of K.S. Krishna Rao vs. CIT (1990) 84 CTR (SC) 144: (1990) 181 ITR 408 (SC) held that interest on enhanced compensation accrues year after year right from date of delivery of possession till date of order of Court on time basis. same cannot be taxed all in lump sum on date on which Court passes orders for enhanced compensation. Thus, only proportionate interest was assessable in relevant assessment year. It was further held that even where assessee was following cash system of accounting, interest income was held to accrue from year to year where interest is received on delayed payment of compensation which is required to be assessed on accrual basis from year to year. Hon ble Supreme Court in case of Bikram Singh vs. Land Acquisition Collector & Ors. (1997) 139 CTR (SC) 475: (1997) 224 ITR 551 (SC) have observed that interest received as income on delayed payment of compensation determined under s. 28 or 31 of Land Acquisition Act is taxable event. Therefore, it is revenue receipt exigible to tax under s. 4. assessee is entitled to spread over such interest income for period for which payment came to be made so as to compute income for assessing tax for relevant accounting years. In view of plethora of decisions of Hon ble Supreme Court and High Courts as discussed above, directly on issue under consideration, we are inclined to agree with learned Authorised Representative, Shri J.C. Ranpura that CIT(A) was not justified legally and factually in declining assessee s claim for spread over of interest income in years to which such interest income pertains, i.e., from year of acquisition till year of compensation. In view of above discussion, we hold that CIT(A) was not at all justified in allowing interest income to go out of tax net during year of receipt as well as relevant years to which such interest income actually pertains. We are also inclined to reverse order of CIT(A) treating status of assessee as AOP in place of individual. We, therefore, direct AO to tax 1/3rd of interest income in hands of each brothers in their individual capacity rather than taxing same in status of AOP and allow spread over of such interest income from year of dispossession of land, i.e., asst. yr. 1987-88 till year of actual payment, i.e., asst. yr. 1999-2000. Before parting with matter it is very pertinent to mention that while exercising its wide powers under s. 251, CIT(A) has to act as quasi-judicial officer and has to respect decisions rendered by Hon ble Supreme Court, jurisdictional High Court, etc., and also to work within framework of clear provisions of IT Act while applying particular provision to issue under consideration. As per Art. 141 of Constitution of India, decision of Hon ble Supreme Court is law of land which is binding on everyone. While deciding issue CIT(A) cannot disregard verdict of Hon ble Supreme Court which is directly on issue, and cannot act arbitrarily as per his sweet will. Even clear provisions of IT Act which govern issue under consideration have to be dealt with while reversing or upholding order of AO. Even while reversing order of AO if he relies on any document or proposition for coming to different conclusion, he is supposed to record his clear finding in respect of document relied by him and give justification for arriving at conclusion different from that of AO. plenary powers given under s. 251 are to be exercised judiciously and in interest of justice. CIT(A) is not having unbridled powers to decide whatever he wants and in manner he likes by disregarding verdict of Hon ble Supreme Court and clear provisions of IT Act. In instant case if CIT(A) wanted to reverse action of AO for bringing into tax net interest income of Rs. 55.48 lakhs, which was not only accrued and arose to assessee but was actually received without any condition, on plea of further appeal having been filed by Government against award of compensation and interest thereon, he could do so, but before arriving at conclusion of excluding this income from tax net he was required to record his finding with respect to ground taken by Government in appeal which persuaded him to exonerate assessee from that income. He is supposed to go into ground taken by Government in appeal and record his finding that on basis of these grounds he was satisfied that fundamental right of assessee to receive award of compensation and interest itself was disputed and not merely quantification of amount. Just by stating that appeal has been filed by Government, he cannot blatantly come to conclusion that assessee s absolute right of receiving award was in serious jeopardy. However without recording any of such finding and by clearly disregarding clear proposition laid down by Hon ble Supreme Court, as per our considered view, CIT(A) was not justified in excluding interest income of Rs. 55.48 lakhs from tax net and thereby reversing order of AO. Even issue regarding spread over of interest income over years to which it actually pertains, as decided by CIT(A), is against propositions laid down by Hon ble Supreme Court in number of cases as discussed hereinabove. Similarly status of AOP given to assessee was also against principles laid down by Hon ble Supreme Court as discussed above. Such arbitrary decisions of CIT(A) are open to correction by higher forum. We are, therefore, inclined t o reverse findings and conclusions of CIT(A) in respect of all above three issues which are clearly in disregard of verdict laid down by Hon ble Supreme Court and High Court as discussed in detail hereinabove. We thus, uphold action of AO with regard to taxability of interest income of Rs. 55.48 lakhs with modification that he should tax interest income in respective years to which such income actually pertains, and in hands of three brothers in their individual capacity thereby taxing 1/3rd income in each of hands. We direct accordingly. In respect of legal ground taken by assessee regarding validity of reopening, it was submitted by learned Authorised Representative that in notice under s. 148 issued on 25th May, 2001 no status of person who was required to file return was mentioned. Hence, notice without specifying status was invalid. Secondly, it was submitted that at time when notice under s. 148 was issued, valid return already filed by assessee on 8th June, 2000 was on record and assessment could have been made on basis of said return till 31st March, 2002. Therefore, as per learned Authorised Representative there was no escapement of income under s. 147. We have considered rival contentions and found from record that notice issued by AO under s. 148 was addressed to three brothers jointly. In format of notice under s. 148 there is no place for mentioning status. name in which notice is issued automatically implies status of said person. in which notice is issued automatically implies status of said person. As per our considered view we can assume jurisdiction for holding reassessment invalid only when notice on face of it is illegal. We cannot adopt hypertechnical approach to quash notice because it does not conform to all niceties expected by assessee in such notice. We have to adopt broad and pragmatic view in construing such notice in order to find out whether in substance and effect it is in conformity with or according to intent and purpose of Act. inconsequential technicality must not be allowed to defeat justice. perusal of record produced by learned Departmental Representative shows that notice was served on brothers who have filed return of income without incorporating interest income of Rs. 55.48 lakhs. impugned notice was also valid in view of s. 292B as it conformed to t h e substance of Act and wanted to effectuate purpose of Act. Further, defects or omissions, if any, in notice did not cause any prejudice to t h e assessee and they are inconsequential in nature. No standard form is prescribed for notice and notice under s. 148 served on and addressed to three brothers who also well understood it, was meant for them is valid notice. only requirement for invoking s. 147 is that there should be some valid and cogent reason to believe about escapement of income and those reasons should be recorded before issue of notice under s. 148. Both these conditions were satisfied in instant (case) and hence there was nothing illegal about issue of notice under s. 148. We, therefore, do not find any infirmity in order o f CIT(A) for holding that reassessment proceedings were validly initiated and are inclined to agree with learned Departmental Representative, Mr. D.R. Adhia that ground raised by assessee in cross-objection is devoid of any merit. We, therefore, dismiss this ground of cross-objection. In result, appeals of Revenue and cross-objections of assessee are allowed in part in terms indicated hereinabove. *** INCOME TAX OFFICER v. GOVINDBHAI MAMAIYA & ORS.
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