Commissioner of Income-tax, Rajkot v. Govindbhai Mamaiya
[Citation -2014-LL-0904-23]

Citation 2014-LL-0904-23
Appellant Name Commissioner of Income-tax, Rajkot
Respondent Name Govindbhai Mamaiya
Court SUPREME COURT
Relevant Act Income-tax
Date of Order 04/09/2014
Judgment View Judgment
Keyword Tags interest on accrual basis • additional compensation • year of actual payment • enhanced compensation • state government • land acquisition • interest earned • interest income • house property • mitakshara law • receipt basis • status of aop • excess amount • solatium
Bot Summary: As the words occurred in a section which imposed a tax on income, the association must be one the object of which was to produce income, profits or gains. The Court clarified that whereas compensation given to the assessee of the land acquired would be 'income', the enhanced compensation/consideration becomes income by virtue of Section 45(5)(b) of the Income Tax Act. Section 28 of the 1894 Act applies only in respect of the excess amount determined by the court after reference under Section 18 of the 1894 Act. Interest under Section 28 unlike interest under Section 34 is an accretion to the value, hence it is a part of enhanced compensation or consideration which is not the case with interest under Section 34 of the 1894 Act. Our above understanding is supported by insertion of clause 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. Section 45 read as a whole including clause not only deals with reworking as urged on behalf of the assessee but also with the change in the full value of the consideration and since the enhanced compensation/consideration 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. We may Page 8 9 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 because the right to receive payment under the 1894 Act is not in doubt.


Non-Reportable IN SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO(S). 8103/2009 COMMR.OF INCOME TAX,RAJKOT Appellant(s) VERSUS GOVINDBHAI MAMAIYA Respondent(s) WITH CIVIL APPEAL No. 8104/2009 CIVIL APPEAL No. 8105/2009 CIVIL APPEAL No. 8106/2009 CIVIL APPEAL No. 8107/2009 CIVIL APPEAL No. 8108/2009 CIVIL APPEAL No. 8109/2009 CIVIL APPEAL No. 8110/2009 JUDGMENT A.K. SIKRI, J. question of law that arises for consideration in all these appeals which are filed by Commissioner of Income Tax, Rajkot (hereinafter referred to as 'Revenue') is common. respondents in all these appeals are also common. three respondents (hereinafter referred to as 'assessee') are brothers. issue raised is identical in all these appeals which pertains to different assessment years and that is reason that there are eight appeals before us. For sake of convenience, we will refer to facts emerging from records of Civil appeal No.8103 of 2009. Page 1 2 2. respondents are three brothers. Their father died leaving land admeasuring 17 acres and 11 gunthas to three brothers and two other persons who relinquished their rights in favour of three brothers. part of this bequeathed land was acquired by State Government and compensation was paid for it. On appeal, compensation amount was enhanced and additional compensation alongwith interest was awarded. 3. respondents filed their return of income for each assessment years claiming status of 'individual'. Two questions arose for consideration before Assessing Officer. One was as to whether these three brothers could file separate returns claiming status of 'individual' or they were to be treated as 'Association of Persons' (AoP). Second question was regarding taxability of interest on enhanced compensation and this interest which was received in particular year was to be assessed in year of receipt or it could be spread over period of time. 4. Without going into detail as to how this question traversed and decided by one forum to other, suffice it is to state that Assessing Officer had passed assessment order by treating their status as that of AoP. Assessing Officer had also refused to spread interest income over years and treated it as taxable in year of receipt. Ultimately, High Court has decided that these persons are to be given status of 'individual' and assessed accordingly and not as AoP and that Page 2 3 interest income is to be spread over from year of dispossession of land, that is assessment year 1987-88 till year of actual payment which was received in assessment year 1999-2000 applying principles of accrual of income. It is in this backdrop that Revenue has approached this Court challenging decision of High Court. 5. Insofar as treatment of respondents giving status of 'individual' and assessing on that basis is concerned, issue is no more res integra. Learned counsel for Revenue candidly and fairly conceded that this aspect stands conclusively determined by various judgments. It would be suffice to refer to judgment of this Court in Meera and Company, Ludhiana vs. Commissioner of Income Tax, Punjab, J & K and Chandigarh, Patiala reported in (1997) 4 SCC 677. After taking note of some previous judgments on this issue, Court summed up legal position in paras 19 and 20 which are reproduced below:: 19. In case of CIT v. Indira Balkrishna, AIR 1960 SC 1172, this Court held that "association of persons" meant association in which two or more persons joined in common purpose or common action. As words occurred in section which imposed tax on income, association must be one object of which was to produce income, profits or gains. In that case, co-widows of Hindu governed by Mitakshara law inherited his estate which consisted of immovable properties, shares, money lying in deposit and share in registered firm. Appellate Tribunal found that they had not exercised their right to separate enjoyment and that Page 3 4 except for jointly receiving dividends from shares and interest from deposits, they had done no act which had helped to produce income. This Court held that co-widows succeeded as co-heirs to estate of deceased husband. It was held that since widows had equal share in income from immovable properties, Section 9(3) of Indian Income Tax Act, 1922 will apply. So far as other incomes were concerned, it was held: "Coming back to facts found by Tribunal, there is no finding that three widows have combined in joint enterprise to produce income. only finding is that they have not exercised their right to separate enjoyment, and except for receiving dividends and interest jointly, it has been found that they have done no act which has helped to produce income in respect of shares and deposits. On these findings it cannot be held that three widows had status of association of persons within meaning of section 3 of Indian Income Tax Act." 20. meaning of "an association of persons" was also examined by this Court in case of G. Murugesan & Brothers v. CIT, (1973) 4 SCC 211. It was held in that case that association of persons could be formed only when two or more individuals voluntarily combined together for certain purposes. Volition on part of members of association was essential ingredient. It was further held that even minor could join "an association of persons" if his lawful guardian gave his consent. income in that case arose under two heads - house property and dividends from shares. question before this Court was whether dividend income should be assessed in hand of association of persons Page 4 5 or individuals. One Sinnamani Nadar executed settlement deed in favour of his four grandsons. property covered by settlement deed comprised of house property which had been let out and some shares. donees were to enjoy income of these properties during their lifetime. Thereafter, properties were to devolve on their children. In that case, it was pointed out that Income Tax return was filed in status of association of persons prior to assessment year 1959-60 to 1962-63, returns were submitted as individuals specifically stating that donees were not functioning as association of persons. 6. In present case, admitted facts are that property in question which was acquired by Government, came to respondents on inheritance from their father i.e. by operation of law. Furthermore, even income which is earned in form of interest is not because of any business venture of three assessees but it is result of act of Government in compulsorily acquiring said land. In these circumstances, case is squarely covered by ratio of judgment laid down in Meera & Company (supra) inasmuch as it is not case where any Association of Persons was formed by volition of parties for purpose of generation of income. This basic test to determine status of AoP is absent in present case. 7. Insofar as second question is concerned, that is also covered by another judgment of this Court in Commissioner of Income Tax, Faridabad vs. Ghanshyam (HUF) reported in (2009) 8 SCC 412, Page 5 6 albeit, in favour of Revenue. In that case, court drew distinction between interest earned under Section 28 of Land Acquisition Act and interest which is under Section 34 of said Act. Court clarified that whereas compensation given to assessee of land acquired would be 'income', enhanced compensation/consideration becomes income by virtue of Section 45(5)(b) of Income Tax Act. question was whether it will cover interest and if so, what would be year of taxability. position in this respect is explained in paras 49 and 50 of judgment which make following reading: 49. As discussed hereinabove, Section 23(1-A) provides for additional amount. It takes care of increase in value at rate of 12% per annum. Similarly, under Section 23(2) of 1894 Act there is provision for solatium which also represents part of enhanced compensation. Similarly, Section 28 empowers court in its discretion to award interest on excess amount of compensation over and above what is awarded by Collector. It includes additional amount under Section 23(1-A) and solatium under Section 23(2) of said Act. Section 28 of 1894 Act applies only in respect of excess amount determined by court after reference under Section 18 of 1894 Act. It depends upon claim, unlike interest under section 34 which depends on undue delay in making award. 50. It is true that interest is not compensation. It is equally true that Section 45(5) of 1961 Act refers to compensation. But as discussed hereinabove, Page 6 7 we have to go by provisions of 1894 Act which awards interest both as accretion in value of lands acquired and interest for undue delay. Interest under Section 28 unlike interest under Section 34 is accretion to value, hence it is part of enhanced compensation or consideration which is not case with interest under Section 34 of 1894 Act. So also additional amount under Section 23 (1-A) and solatium under Section 23(2) of 1961 Act forms part of enhanced compensation under Section 45(5)(b) of 1961 Act. 8. It is clear from above that whereas interest under Section 34 is not treated as part of income subject to tax, interest earned under Section 28, which is on enhanced compensation, is treated as accretion to value and therefore, part of enhanced compensation or consideration making it exigible to tax. After holding that interest on enhanced compensation under Section 28 of 1894 Act is taxable, Court dealt with other aspect namely, year of tax and answered this question by holding that it has to be tested on receipt basis, which means it would be taxed in year in which it is received. It would mean that converse position i.e. spread over of this interest on accrual basis is not permissible. Here again, we would like to reproduce discussion contained in paras 53 and 54 which gives rational in coming to said conclusion. Paras 53 and 54 read as under: 53. scheme of Section 45(5) of 1961 Act was inserted w.e.f. 1-4-1988 as overriding Page 7 8 provision. As stated above, compensation under L.A.Act, 1894, arises and is payable in multiple stages which does not happen in cases of transfers by sale, etc. Hence, legislature had to step in and say that as and when 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 situation of subsequent reduction by court, tribunal or other authority and recomputation/ amendment of assessment order. 54. Section 45 (5) read as whole [including clause (c)] not only deals with reworking as urged on behalf of assessee but also with change in full value of consideration (computation) and since enhanced compensation/consideration (including interest under Section 28 of 1894 Act) becomes payable/ paid under 1894 Act at different stages, receipt of such enhanced compensation/ consideration is to be taxed in year of receipt subject to adjustment, if any, under Section 155(16) of 1961 Act, later on. Hence, year in which enhanced compensation is received is year of taxability. Consequently, even in cases where pending appeal, court/tribunal/authority before which appeal is pending, permits claimant to withdraw against security or otherwise enhanced compensation (which is in dispute), same is liable to be taxed under Section 45(5) of 1961 Act. This is scheme of Section 45(5) and Section 155(16) of 1961 Act. We may Page 8 9 clarify that even before insertion of Section 45(5)(c) and Section 155(16) w.e.f. 1-4-2004, receipt of enhanced compensation under Section 45(5)(b) was taxable in year of receipt which is only reinforced by insertion of clause (c) because right to receive payment under 1894 Act is not in doubt. 0. In view of above discussion, we allow these appeals in part and set aside that portion of impugned judgment of High Court whereby spread over of interest received under section 28 of 1894 Act, on enhanced income is allowed with direction that it would be taxed in year in which such interest on enhanced compensation was received. ......J. [ J. CHELAMESWAR ] .....J. [ A.K. SIKRI ] NEW DELHI SEPTEMBER 04, 2014 Page 9 Commissioner of Income-tax, Rajkot v. Govindbhai Mamaiya
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