K.S. Jhaveri, J.
1. The revenue has filed these appeals u/s.260A of the Income Tax Act, 1961 (for short, the Act) being aggrieved by and dissatisfied with the order dated 31.01.2006 passed by the Income Tax Appellate Tribunal, Rajkot (for short, the Tribunal) in I.T.A. No. 1260/Rjt/2005 and allied matters.
1.1 This court vide order dated 13.12.2007 admitted the appeals for consideration of following substantial questions of law;
"(i) Whether on the facts and in the circumstances of the case the Appellate Tribunal was right in holding that the alleged amount of compensation cannot be brought within the meaning of income u/s 45(5) of the Income, Tax Act, 1961?
(ii) Whether on the facts and in the circumstances of the case, the Appellate Tribunal was justified in holding that the taxability of interest can be considered only after the additional compensation becomes final and the litigation in this regard comes to a conclusion?"
2. Mr. P.G. Desai, learned advocate appearing for the revenue submitted that the Tribunal while considering the case of the assessee's has relied upon the decision of the Apex Court in the case of CIT v. Hindustan Housing and Land Development Trust Ltd. [1986] 161 ITR 524/27 Taxman 450A and decision of the Karnataka High Court in the case of Chief CIT v. Smt. Shantavva [2004] 267 ITR 67/136 Taxman 678. He submitted that the Apex Court thereafter, in the case of chief CIT v. Ghanshyam (HUF) [2009] 315 ITR 1 has considered the decision in the case of Hindustan Housing and Land Development Trust Ltd (supra) and distinguished the same. The Apex Court in the case of Ghanshyam (HUF) (supra) has observed as under:
"It is to answer the above questions that we have analysed the provisions of Sections 23, 23(1A), 23(2), 28 and 34 of the 1894 Act. As discussed hereinabove, Section 23(1A) provides for additional amount. It takes care of increase in the value at the rate of 12 % per annum. Similarly, under Section 23(2) of the 1894 Act there is a provision for solatium which also represents part of enhanced compensation. Similarly, Section 28 empowers the court in its discretion to award interest on the excess amount of compensation over and above what is awarded by the Collector. It includes additional amount under Section 23(1A) and solatium under Section 23(2) of the said 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. It depends upon the claim, unlike interest under Section 34 which depends on undue delay in making the award. It is true that "interest" is not compensation. It is equally true that Section 45(5) of the 1961 Act 2 7 refers to compensation. But as discussed hereinabove, we have to go by the provisions of the 1894 Act which awards "interest" both as an accretion in the value of the lands acquired and interest for undue delay. 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. So also additional amount under Section 23(1A) and solatium under Section 23(2) of the 1961 Act forms part of enhanced compensation under Section 45(5)(b) of the 1961 Act. In fact, what we have stated hereinabove is reinforced by the newly inserted clause (c) in Section 45(5) by the Finance Act, 2003 w.e.f. 1.4.2004. This newly added clause envisages a situation where in the assessment for any year,
the capital gain arising from the transfer of a capital asset is computed by taking the
compensation or consideration referred to in clause (a) of section 45(5) or, as the case may be
enhanced compensation or consideration referred to in clause (b) of section 45(5), and subsequently such compensation or consideration is reduced by any court, Tribunal or other authority.
34. In such a situation, such assessed capital gain of that year shall be recomputed by taking the compensation or consideration as so reduced by such court, Tribunal or other authority to be the full value of the consideration. For giving effect to such recomputation, the provisions of the newly inserted (w.e.f. 1.4.2004) section 155(16) by the Finance Act, 2003 (32 of 2003), have been enacted.
35. It was urged on behalf of the assessee that Section 45(5)(b) of the 1961 Act deals only with re-working, its object is not to convert the amount of enhanced compensation into deemed income on receipt. We find no merit in this argument. The scheme of Section 45(5) of the 1961 Act was inserted w.e.f. 1.4.88 as an overriding provision. As stated above, compensation under the L.A. 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. 1.4.04 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(5) read as a whole (including clause "c") not only deals with re-working as urged on behalf of the assessee 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 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. 1.4.04, 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. 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 date of notification under Section 4 of that Act. When the Court/Tribunal directs payment of enhanced compensation under Section 23(1A), or Section 23(2) or under Section 28 of the 1894 Act it is on the basis that award of Collector or the Court, under reference, has not compensated the owner for the full value of the property as on date of notification."
3. Mr. T.P. Hemani, learned advocate appearing on behalf of the assessee's submitted that considering the decision of the Apex Court in the case of Ghanshyam (HUF) (supra), this Court may remand the matter to the Tribunal for reconsideration of the questions in light of the said decision.
4. We have heard learned counsel for the parties and have perused the records of the case. Considering the decision of the Apex Court in the case of Ghanshyam (HUF) (supra) wherein the Apex Court has distinguished its earlier decision in the case of Hindustan Housing and Land Development Trust Ltd (supra) which has been relied upon by the Tribunal in the impugned order, we are of the opinion that these matters are required to be remanded to the Tribunal for reconsideration.
5. In the premises aforesaid, these matters are remanded to the Tribunal, which shall consider the issues afresh in light of the provisions of law laid down by the Apex Court referred hereinabove and shall render appropriate decision, after considering the contentions raised by both the sides. The Tribunal shall record finding of facts and give reasons while deciding the questions raised before it. The Tribunal shall decide the issue afresh being uninfluenced by the observations made by the Tribunal, CIT(A) as also by this Court. We have not entered into the merits of the matter.
6. Some of the assessee's have paid tax pursuant to the order passed by the Tribunal/CIT(A) and therefore while computing the tax liability of the assessee/s the amount of tax already paid shall be taken into consideration and given set off so as to avoid duplication of tax liability.
7. Since the matters are remanded, we do not answer the questions raised hereinabove. The impugned order passed by the Tribunal is hereby quashed and set aside. With the above observations, the appeals are allowed.