CWP No. 17971 of 2019 [1] IN HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH CWP No. 17971 of 2019 Date of decision: February 19, 2020 Mahender Pal Narang Petitioner v. Central Board of Direct Taxes, New Delhi and others Respondents CORAM: HON'BLE MR. JUSTICE AJAY TEWARI HON'BLE MR. JUSTICE AVNEESH JHINGAN Present: Mr. Pankaj Jain, Senior Advocate with Mr. Divya Suri and Mr. Sachin Bhardwaj, Advocates for petitioner. Mr. Sandeep Goyal, Senior Standing Counsel for respondents. AVNEESH JHINGAN, J. Aggrieved of order dated 30.1.2019 dismissing revision under Section 264 of Income Tax Act, 1961 (for short, 'the 1961 Act'), present petition is filed. issue involved in narrow circumference is whether after insertion of Sections 56(2)(viii) and 57(iv) of Act w.e.f. 1.4.2010, can assessee claim that interest received under Section 28 of Land Acquisition Act, 1894 (for short, 'the 1894 Act') will part take character of compensation and would fall under head Capital gains and not Income from other sources? 1 of 9 Downloaded on - 26-02-2020 15:10:07 CWP No. 17971 of 2019 [2] relevant facts are that land of petitioner was acquired in assessment years 2007-08 and 2008-09. enhanced compensation was received on 21.3.2016. petitioner filed income tax return for assessment year 2016-17 treating interest received under Section 28 of 1894 Act as income from other sources and claimed deduction for 50% as per Section 57(iv) of 1961 Act. return was processed under Section 143(1) of 1961 Act. application under Section 264 of 1961 Act was made claiming that by mistake petitioner treated interest income as income from other sources whereas same is part of enhanced compensation. revisional authority rejected application on 30.1.219. relevant provisions are quoted below: Section 10(37) of 1961 Act Incomes are not included in total income. 10. (37) in case of assessee, being individual or Hindu undivided family, any income chargeable under head Capital gains arising from transfer of agricultural land, where- (i) such land is situate in any area referred to in item (a) or item (b) of sub-clause (iii) of clause (14) of section 2; (ii) such land, during period of two years immediately preceding date of transfer, was being used for agricultural purposes by such Hindu undivided family or individual or parent of his; (iii) such transfer is by way of compulsory acquisition under 2 of 9 Downloaded on - 26-02-2020 15:10:09 CWP No. 17971 of 2019 [3] any law, or transfer consideration for which is determined or approved by Central Government or Reserve Bank of India; (iv) such income has arisen from compensation or consideration for such transfer received by such assessee on or after 1st day of April, 2004. Section 56(2)(viii) (inserted by Finance (No.2) Act 2009 w.e.f. 1.4.2010. Income from other sources. 56(2) In particular, and without prejudice to generality of provisions of sub-section (1), following incomes, shall be chargeable to income-tax under head Income from other sources, namely:- (viii) income by way of interest received on compensation or on enhanced compensation referred to in clause (b) of Section 145A. Section 57(iv) of 1961 Act Deductions. 57. income chargeable under head Income from other sources shall be computed after making following deductions, namely:- (iv) in case of income of nature referred to in clause (viii) of sub-section (2) of Section 56, deduction of sum equal to fifty per cent of such income and no deduction shall be allowed under any other clause of this section. 3 of 9 Downloaded on - 26-02-2020 15:10:09 CWP No. 17971 of 2019 [4] Section 145A(b) (inserted by Finance (No. 2) Act 2009 w.e.f. 1.4.2010. Method of accounting in certain cases. 145A. Notwithstanding anything to contrary contained in section 145,- (b) interest received by assessee on compensation or on enhanced compensation, as case may be, shall be deemed to be income of year in which it is received. Section 10 deals with incomes not to be included in total income. Sub-section (37) to Section 10 provides for deduction from capital gain arising from transfer of agricultural land. Sub-clause (iii) deals with transfer by way of compulsory acquisition. Sub-clause (iv) deals with income arising from compensation or consideration for transfer. Section 56(2)(viii) provides that interest received on compensation or enhanced compensation referred to in clause (b) of Section 145A would be chargeable under income from other sources. Section 57 provides for deduction of income chargeable under head Income from other sources and clause (iv) provides that for income referred to in clause (viii) of sub-section (2) of section 56, there would be deduction of fifty per cent. Section 145 provides for accounting method. Clause (b) of Section 145A provides that interest received on compensation or enhanced compensation shall be deemed to be income for year in which it is received. Learned counsel for petitioner argued that there is no amendment in Section 10(37) of 1961 Act and by insertion of Sections 56(2)(viii) and 57(iv), nature of interest under Section 28 of 1894 4 of 9 Downloaded on - 26-02-2020 15:10:09 CWP No. 17971 of 2019 [5] Act will remain that of compensation. To fortify submission, he relies upon decision of Supreme Court in Commissioner of Income-tax v. Ghanshyam (HUF), (2009) 315 ITR 1. contention is that as per decision of Apex Court, interest under Section 28 of 1894 Act is not compensatory for delay but would be treated akin to compensation. He buttresses his contention by relying upon Central Board of Direct Taxes Circular No. 5 of 2010 to contend that amendment brought in 2010 was to remove hardships created by decision of Supreme Court in Rama Bai v. Commissioner of Income Tax, (1990) 181 ITR 400. Reliance is placed upon decision of Gujarat High Court in Movaliya Bhikhubhai Balabhai v. Income Tax Officer (TDS) (2016) 388 ITR 343. Before dealing with contentions, relevant portion of circular is quoted below: 46. Rationalizing provisions of taxation of interest received on delayed compensation or on enhanced compensation. 46.1 existing provisions of Income Tax Act provide that income chargeable under head Profits and gains of business or profession or Income from other sources , shall be computed in accordance with either cash or mercantile system of accounting regularly employed by assessee. Further, Hon'ble Supreme Court in case of Rama Bai vs. CIT (181 ITR 400) has held that arrears of interest computed on delayed or enhanced compensation shall be taxable on accrual basis. This has caused undue hardship to taxpayers. 5 of 9 Downloaded on - 26-02-2020 15:10:09 CWP No. 17971 of 2019 [6] 46.2 With view to mitigate hardship, section 145A is amended to provide that interest received by assessee on compensation or enhanced compensation shall be deemed to be his income for year in which it was received, irrespective of method of accounting followed by assessee. 46.3 Further, clause (viii) is inserted in sub-section (2) of section 56 so as to provide that income by way of interest received on compensation or on enhanced compensation referred to in clause (b) of section 145A shall be assessed as income from other sources in year in which it is received. 46.4 Applicability- This amendment has been made applicable with effect from 1st April, 2010, and will accordingly apply in relation to assessment year 2010-11 and subsequent assessment years. Section 45 of 1961 Act deals with capital gains. By Finance Act, 1987, sub-section (5) was inserted in Section 45 and as per its clause (b), enhanced compensation shall be chargeable under head Capital gains of previous year in which amount is received by assessee. This issue came up before Apex Court in Ghanshyam's case (supra). Considering Sections 45(5) and 155(16) of 1961 Act, it was held that enhanced compensation received under 1894 Act may be received in multiple stages but same is to be treated as deemed income at time when it is received and is to be taxed on receipt basis. It was further held, fact that enhanced compensation is in dispute and withdrawal is 6 of 9 Downloaded on - 26-02-2020 15:10:09 CWP No. 17971 of 2019 [7] conditional will not make difference. While dealing with said issue, it was held that interest on enhanced value of land forms part of compensation and is exigible to tax in year of receipt whereas interest on delayed payment of enhanced compensation is income in different nature. scheme with regard to chargeability of interest received on compensation and enhanced compensation has undergone sea change with insertion of Sections 56(2)(viii) and 57(iv) of 1961 Act. Section 56 deals with income from other sources and specific provision has been inserted by way of sub-section 2(viii), whereby interest received on compensation or enhanced compensation, as referred to in clause (b) to Section 145A has been included under head 'Income from other sources'. In clause (iv) to Section 57, deduction of fifty per cent is provided on interest received on compensation or enhanced compensation. In view of amendments, decision of Apex Court in Ghanshyam's case (supra) does not come to rescue of petitioner to claim that interest received under Section 28 of 1894 Act is to be treated as compensation and to be dealt with under Capital gains. fact that there is no amendment carried out under Section 10(37) of 1961 Act will not change position. Section 10 deals with deductions and sub- section (37) thereof deals with capital gains arising from transfer of agricultural land, it no where provides as to what is to be included under head Capital gains . argument raised is not well founded. Learned counsel has relied on Circular No. 5 of 2010 by merely reading clause 46.1. said clause talks about undue hardship being caused as arrears of interest being taxable on accrual basis. Clause 7 of 9 Downloaded on - 26-02-2020 15:10:09 CWP No. 17971 of 2019 [8] 46.2 states that Section 145A is amended to overcome difficulty, by deeming income for year in which it is received. Clause 46.3 has been ignored in which Section 56(2)(viii) is dealt with that interest on compensation or on enhanced compensation referred to in clause (b) of Section 145A shall be assessed as income from other sources . Gujarat High Court in Movaliya Bhikhubhai Balabhai's case (supra) while dealing with deduction of tax at source relying upon Circular No. 5 of 2010 held that amendment to provisions of 1961 Act by Finance Act, 2010 Act was not in connection with decision of Supreme Court in Ghanshyam's case (supra) but to mitigate hardship caused by decision of Supreme Court in Rama Bai's case (supra). It was held that interest under Section 28 of 1894 Act continues to part take character of compensation and will not fall within ambit of expression interest . In view of discussion above, we with utmost respect are not in agreement with view taken by Gujarat High Court. There is another aspect, i.e. language of Sections 56(2)(viii) and 57(iv) of 1961 Act is plain, simple and unambiguous. There is no scope of taking outside aid for giving interpretation to newly inserted sub-sections and clauses. Supreme Court in M/s I.T.C. Ltd. v. Commissioner of Central Excise, New Delhi and another, 2004(7) SCC 591 held as under: 23. These decisions exemplify general rule of statutory construction that words have to be construed strictly according to their ordinary and natural meaning, particularly when statute is fiscal one irrespective of object with which provision was introduced. Of course if there is ambiguity in statutory language, reference may be made to 8 of 9 Downloaded on - 26-02-2020 15:10:09 CWP No. 17971 of 2019 [9] legislative intent to resolve ambiguity. But if statutory language is unambiguous then that must be given effect to. legislature is deemed to intend and mean what it says. need for interpretation arises only when words used in statute are, on their own terms ambivalent and do not manifest intention of legislature. In view of above, it is held that interest received on compensation or enhanced compensation is to be treated as income from other sources and not under head Capital gains. writ petition is dismissed. (AVNEESH JHINGAN) (AJAY TEWARI) JUDGE JUDGE February 19, 2020 mk Whether speaking/reasoned: Yes/No Whether reportable: Yes/No 9 of 9 Downloaded on - 26-02-2020 15:10:09 Mahender Pal Narang v. Central Board of Direct Taxes, New Delhi And Other