Delhi High Court

Ravi Shanker vs Joint Cit on 25 May, 2004

Equivalent citations: (2004) 90 TTJ Del 340

ORDER

S.C. TIWARI, A.M.

These 8 appeals have been filed by the assessed on 26-9-2000, against the order of the learned Commissioner (Appeals)-I, Meerut, dated 27-7-2000, in the case of the assessed in relation to assessment order under section 143(3) read with section 148 for assessment years 1987-88 to 1994-95. These appeals relate to the interest received by the assessed on delayed payment of compensation to the assessed for acquisition of its agricultural lands. Facts of the case leading to these appeals briefly are that original assessments under section 143(3)/143(l) were completed in the case of the assessed for assessment years 1987-88 to 1994-95 in regular course. Subsequently, according to the learned assessing officer, during the course of assessment proceedings for assessment year 1995-96 it was noticed that the assessed had received enhanced compensation amounting to Rs. 35,29,710 in respect of assessed's lands situated at Nangla Battu, Meerut. Besides, the assessed had also received interest amounting to Rs. 37,72,921 for the period 21-8-1986 to 28-2-1994. The assessing officer thereafter issued notices under section 148 to bring to tax the interest received by the assessed on accrual basis. The assessed replied by his letter dated 27-9-1999, that he had included the entire amount of interest and compensation in the return of income for assessment year 1995-96. The assessment for assessment year 1995-96 had already been completed including the amount of enhanced compensation as also interest. He therefore, objected to the assessments under section 147 for assessment year 1987-88 to 1994-95. The assessing officer, however, turned down the contentions of the assessed relying upon the judgment of the Hon'ble Supreme Court in the case of Smt. Rama Bai & Ors. v. CIT (1990) 181 ITR 400 (SC). He completed the assessment orders for the assessment years 1987-88 to 1994-95 after adding to the income originally assessed, the amount of accrued interest on enhanced compensation as worked out by him.

2. During the proceedings before the Commissioner (Appeals) the assessed argued that enhanced compensation of Rs. 35,29,710 and interest thereon of Rs. 37,72,921 had been received by the assessed in assessment year 1995-96 and the assessed had shown the entire amount in assessment year 1995-96 on receipt basis. The assessment for assessment year 1995-96 had been completed after including these amounts in the total income on protective basis. The assessed argued that in this view of the matter there was no escapement of income and, therefore, proceedings under section 147 could not be initiated. The assessed also argued that there was no omission or failure on his part to fully and truly disclose all material facts necessary for completion of assessment. The learned Commissioner (Appeals) relied upon amended provisions of section 147 with effect from 1-4-1989, and held that proceedings under section 147 were rightly taken. He further held that merely because the entire income had been assessed in assessment year 1995-96 on actual receipt basis, the assessments in various years on accrual basis could not be prevented. The assessment for assessment year 1995-96 was on protective basis only. There was no dispute that the interest pertained to different assessment years from 1987-88 to 1995-96 if charged on accrual basis. He, therefore, dismissed the assessed's appeals for an the years. Still aggrieved, the assessed is in appeal before us.

3. In the appeals before us, the assessed has disputed reopening of assessment under section 147 on the ground that the entire amount of interest on enhanced compensation was shown in the return of income for assessment year 1995-96 on receipt basis and, therefore, there was no escapement of any income chargeable to tax. The assessments in various years on accrual basis amounted to change of opinion and, therefore, proceedings under section 147 were bad in law. The assessed also objected to levy of interest under Income Tax Act in the assessment orders under section 147 for all these assessment years.

4. During the course of hearing before us, the learned authorised representative of the assessed has also filed the following additional ground of appeal :

"That there was no income exigible to tax, since the determination of compensation is still subjudice and not final yet."

5. In support of the additional ground abovementioned, the learned counsel for the assessed placed reliance on the judgment of the jurisdictional High Court reported in CIT v. Laxman Das & Anr. (2000) 246 ITR 622 (All). In support of the contention that the entire amount of interest had been rightly included by the assessed in the assessment year 1995-96, the assessed has placed reliance on the judgments in CIT v. T.N.X. Govindarajulu Chetty (1987) 165 ITR 231 (SC); CIT v. O.T Rahman (1989) 180 ITR 183 (Gau), CIT v. H.H. Maharaja Yashwant Rao Pawar (1981) 127 ITR 650 (MP); CIT v. D. V. Rama Rao (1991) 188 ITR 208 (Ori) and the decision of Tribunal Delhi 'A' Bench, dated 23-2-2004, in ITA Nos. 1693 & 1978/Del/1996 (reported as Babu Ram v. Income Tax Officer (2004) 90 TTJ (Del) 332.-Ed.)

6. The learned Departmental Representative argued that it was now well-settled that interest on compensation for delayed payments has to be assessed in all the assessment years on accrual basis. The same cannot be assessed in a single year of receipt. In support of these contentions, the learned Departmental Representative placed reliance on the judgments reported in (1990) 181 ITR 400 (SC) (supra) and Bikram Singh & Ors. v. Land Acquisition Collector & Ors. (1997) 224 ITR 551 (SC). As to the additional ground taken by the assessed, learned Departmental Representative argued that only a part of enhanced compensation had been disputed in the Government's appeal and, therefore, the entire amount of interest was not in dispute.

7. We have carefully considered the rival submissions. There is no manner of doubt after the judgment of Hon'ble Supreme Court in the case of Rama Bai & Ors. v. CIT (supra) that interest on enhanced compensation ordered by a court accrues from the date when possession of land was taken and such interest accrues from year to year. However, in the income-tax assessment proceedings, there are two basis of assessments viz., accrual basis and receipt basis, which are commonly known as mercantile system and cash system. The difference between these two systems has been elaborately explained in the judgment of the Hon'ble Supreme Court in the case of CIT v. Chunilal v. Mehta & Sons (P) Ltd. (1971) 82 ITR 54 (SC). In the case of the assessed before us, the assessed has offered for assessment the entire interest received on the basis of date of receipt in assessment year 1996-96. In the assessment for that year, the entire interest income has been included in the total income albeit protectively. During the course of hearing before us, the learned authorised representative of the assessed stated that there was no dispute or objection from the assessed for the assessment of entire interest on receipt basis in the assessment year 1995-96. As a matter of fact before the Commissioner (Appeals), as well as in the grounds of appeal before us, the assessed has objected to reopening of assessment under section 147 on the ground that the entire amount was assessable in assessment year 1995-96. We, therefore, find that the question before us is not as to when the interest accrues. There was a raising controversy in this respect and diversity of opinion amongst various High Courts, which has been resolved by the judgment of Hon'ble Supreme Court in the case of Smt. Rama Bai & Ors. (supra). The question before us in these appeals is whether in a case where an assessed who opts for assessment on receipt basis of interest awarded on enhanced compensation can be forced to be assessed on accrual basis year after year. We do not find that the judgments of Hon'ble Supreme Court relied upon by the learned Departmental Representative are to such effect. In the case of Smt. Rama Bai (supra), the Hon'ble Supreme Court has followed the earlier judgment of the Apex Court in the case of Govindarajulu Chetty v. CIT (supra). In that judgment the Hon'ble Supreme Court observed as under :

"We have considered the matter carefully and we think that having regard to the circumstances of the case, including the fact that the mercantile system of accounting was the basis on which the interest income accrued, the High Court was right in answering the question in favor of the assessed. "

8. In the judgment in the case of Smt. Rama Bai & Ors. (supra), the Supreme Court has pronounced that interest on enhanced compensation accrues year after year from the date of dispossession of land. There is no authority in that judgment to that effect that the assessment of interest on compensation should in every case be made on accrual basis only even if the assessed opts for receipt basis for assessment. Another judgment relied upon by the learned Departmental Representative is in the case of Bikram Singh & Ors. v. Land Acquisilion Collector & Ors. (supra). In that case, the Hon'ble Supreme Court has held that the assesseds were entitled to spread over the income for the period for which payment came to be made. From the expression "entitled to" it cannot be read "required to".

9. The fact that these judgments of Hon'ble Supreme Court apply to a case where the assessed opts to be assessed on accrual basis only is also the view taken in the erudite treatise of Income-Tax Law by Chaturvedi & Pithisaria at p. 526 of their 5th edition. According to the learned authors, in the case of Smt. Rama Bai & Ors. (supra), "the Supreme Court has ruled that interest payable under section 28 cannot, in the case of an assessed following mercantile/system of accounting, be taken to have accrued on the date of the order of the court granting enhanced compensation, but has to be taken as having accrued year after year from the date of delivery of possession till the date of such order" (emphasis, italicised in print, supplied).

10. It is seen that in this case the interest income has to be assessed as business income by virtue of the provisions of section 28(ii). Even otherwise, the interest income not being assessable under the head 'capital gains' would fall to be assessed under the head 'income from other sources'. Provisions of section 145 confer on the assessed an option either to be assessed on accrual basis or receipt basis insofar as business income or income from other sources is concerned. During the course of hearing before us, the learned Departmental Representative argued that this option is available where the assessed maintains regular books of account. However, if the spirit of the provisions of section 145 is enforced, it would be that the assessed should be allowed in respect of interest on enhanced compensation an option to be either assessed in the year of receipt or on accrual basis year after year. Be that as it may, from the fact that the assessed has not maintained regular books of account, it does not follow that the assessed should be assessed on accrual basis only. The legal position could be contrary that where books of accounts are not kept, it should be assumed that the assessed is following cash system of accounting. Reference in this respect is invited to the judgments in N.R. Sirker v. CIT (1978) 111 ITR 281 (Gau) and (1989) 180 ITR 183 (Gau) (supra). Reference is also invited to the judgment reported in (1991) 188 ITR 208 (Ori) (supra). We find Tribunal, Delhi 'A' Bench, has also taken the same view in its order dated 23-2-2004, in ITA No. 1693/Del/1996 in the case of Babu Ram (supra). We, therefore, hold that the assessed has rightly been assessed for the entire amount of enhanced compensation and interest in the assessment year 1995-96 and for that reason we allow these appeals filed by the assessed and delete the assessments of these amounts in the assessment years 1987-88 to 1994-95.