ORDER
R.C. Sharma, Accountant Member
1. These are the appeals filed by the Department and COs by the assessee against the order of the CIT(A)-I, Rajkot, dated 30-8-2004 for the assessment year 1999-2000, and dated 31-8-04 for the assessment years 1991-92 to 1998-99, in the matter of orders passed by the Assessing Officer under Section 143(3), read with Section 147.
2. The following ground has been raised by the Department in the ITA No. 850/Rjt./04 for the assessment year 1999-2000:
The ld. CIT(A) has erred in law and on facts in deleting Interest Income of Rs. 55,48,561 received from the State Government in respect of Land acquisition.
3. The following common grounds of appeal has been raised by the Department in eight appeals (ITA Nos: 842 to 849/Rjt./04) for assessment years 1991-92 to 1998-99.
The ld. CIT(A) has erred in law and on facts in deleting Interest Income of Rs. 4,58,715 for each assessment years 1991-92 to 1998-99 which has accrued on delayed payment of compensation received from the State Government in respect of land acquisition.
4. The following two common grounds have been taken by the assessee on record in all the nine cross-objections (CO Nos. 72 to 80/RJI./04).
(i) The ld. CIT(A) erred on facts as also in law in holding that proceedings initiated by issue of notice under Section 148 were legal. It may kindly be held that notice issued under Section 148 was illegal and invalid and assessment made on the basis of such illegal and invalid notice is void ab initio and may kindly be quashed.
(ii) The ld. CIT(A) erred on facts and in law on holding that assessment made in the status of AOP was justified and correct. It may kindly be held that assessment made in status of AOP was not justified.
5. In the assessment year 1999-2000 the cross-objection of the assessee was:
The learned CTT(A) erred on facts and in law in holding that interest received as a result of court decision is taxable in the year in which court decision is received irrespective of the period for which the interest is allowed. It may kindly be held that interest income is taxable proportionately year to year.
6. Rival contentions have been heard and records perused. The brief facts of the case are that the assessees in this case are three brothers namely S/Shri Govindbhai, Devayatbhai and Menandbhai. Father of the three brothers, namely Mamaiyabhai, in whose name the assessments were made, owned agricultural land at village Dadva in Gondal Taluka admeasuring 75 acres and 4 guntas. He died on 3-3-1971.
7. On the death of Mamaiyabhai on 3-3-1971, land admeasuring 17 acres and 11 gunthas was transferred in the names of his successors viz., Menandbhai, Devayatbhai, Govindbhai, Sumalbai, Jivubai etc. Copy of entry in revenue record were also filed and placed before the lower authorities. Smt. Jivubai and Smt. Sumalben relinquished their respective rights in land admeasuring 17 acres and 11 gunthas and thereafter, the said land belonged to three brothers who are assessees in the present appeals, viz. S/Shri Govindbhai, Menandbhai and Devayatbhai. Part of the said land was acquired by Government for Ishwaria Irrigation Scheme. Initially, the Land Acquisition Officer awarded compensation of Rs. 4,23,457. The assessees filed a suit for additional compensation in the Court of Extra Assistance Judge, Gondal in Land Reference Case No. 77/88. The case was decided on 7-10-1997. According to the order additional award of Rs. 2 4,62,687 was granted. The award was mainly towards the cost of Eucalyptus trees amounting to Rs. 23,15,550, which were claimed to be standing on the acquired land. It was also ordered by the Judge that interest at the rate of 9 per cent for the first year and at 15 per cent thereafter up to the date of payment of additional award be granted to the assessees. The Hon’ble Gujarat High Court by order dated 7-9-1998 confirmed the additional award granted to the assessee. The aggregate amount of about Rs 80.78 lakhs (including additional compensation, solatium & interest) was accordingly paid in Oct./Nov., 98. The interest from 21-5-1986 to 17-11-1998 was worked out at Rs. 55,48,561. At the time of disbursement of this interest amount, the XEn deducted the TDS at the rate of 10 per cent.
8. Return of income for assessment year 1999-2000 was filed in the name of three brothers as above on 8-6-2000 declaring the total income of Rs. 17,080 in the status of ‘individual’. Since the interest as received by the assessee in lump sum as a result of court order, the Assessing Officer was of the opinion that the income to the extent of interest assessable in their hand for assessment year 1999-2000 had escaped assessment. He therefore, issued notice under Section 148 for the assessment year 1999-2000 on 25-5-2001 after recording the reasons. Simultaneously notices under Section 148 for assessment years 1991-92 to 1999-2000 were also issued as the interest was pertaining to different years. The basis of issue of notice under Sections 148 was that the assessee earned interest of Rs. 55,48,561 on the amount of award in case of acquisition of land by the Government for Ishwaria Irrigation Scheme. In response to this the returns for all years were filed on 8-6-2001. In these returns the income was worked out on the same basis as in the original return for assessment year 1999-2000 in which refund was claimed, the assessee distributed the interest over a period of 13 years and worked out the average interest per year Rs. 4,26,812. The Assessing Officer has made the assessment in the status of AOP assessing the entire income from interest of Rs. 55,48,561 in the assessment year 1999-2000 and also taxed year-wise income of Rs. 4,58,715 each in assessment years 1991-92 to 1998-99 on protective basis.
9. By the impugned order, the CIT(A) deleted the interest income received by the assessee on additional compensation and held that interest income of Rs. 55.48 lakhs was not liable to be taxed during the assessment year 1999-2000, during which, the interest was actually received. He further held that interest was also not liable to be taxed during the assessment years 1991-92 to 1999-2000 on the plea that prior to the receipt of interest during the assessment year 1999-2000 no interest can be said to accrue for the earlier years on the amount not paid by Government to the assessee as the compensation itself was in dispute because of appeal filed by the Government to Supreme Court against the orders of High Court. The CIT(A) held that interest can be said to accrue only when the right to receive the principal arises. The CIT(A) further held thereafter that there was no evidence to show that property was converted into HUF property and that the Assessing Officer did not find any evidence of property belonging to HUF as claimed in the return. As per the CIT(A), since property was not physically divided, the entire land was owned jointly by them. As the proceedings for acquisition were initiated in their joint names and award for the acquired land was also received by the three brothers jointly, the correct status of the assessee is AOP and not individual as claimed by the assessee.
10. 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 Assessing Officer 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 assessment year 1999-2000. The CIT(A) observed that additional compensation is granted by the court in case of land acquisition and interest on excess amount is allowed under Section 28 of Land Acquisition Act from the date of dispossession of land to the date of payment. Further appeal to the Supreme Court was filed by the Government against the order of the High Court. As per the CIT(A), only when the District Court passes the order, right to receive additional compensation gets crystallized or said to arise. In view of the above discussion, the CIT(A) came to the conclusion that it will be fallacious to say that right to receive additional compensation was already vested in the 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 the Government files appeal to the Supreme Court against High Court orders. It will remain only contingent right even after the District Court and the High Court orders, till the appeal filed by the Government is subjudice before the Supreme Court. For this purpose, he relied on the judgment of the Hon’ble Supreme Court in the case of CIT v. Hindustan Housing & Land Development Trust . On the basis of this judgment of the Hon’ble Supreme Court, the 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 the matter is subjudice. Comparing the facts of the instant case with the case of Hon’ble Supreme Court in the case of Hindustan Housing & Land Development Trust’s case (supra) the CIT(A) stated that where such receipts are disputed, the same cannot be brought to tax. As the amount ordered to be paid by the High Court, in the instant case, was subject to further appeal to Hon’ble Supreme Court, interest accrued and paid cannot be brought into tax net. As per the CIT(A), if an attempt is made to tax interest on accrual and receipt basis on the amount of compensation claimed, the 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 the question of accrual of interest thereon. He, therefore, held that the action of the Assessing Officer is highly unjustified as he is stated to be taxing notional income. After discussing the various decisions of the High Court and the Supreme Court, the CIT(A) concluded as under:
(i) The amount of interest accrued and received amounting to Rs. 55.48 lakhs was not taxable during the assessment year 1999-2000 when it was actually received by the assessee.
(ii) 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.
(iii) The status of the assessee is AOP and not an individual.
11. Aggrieved by the above order of the CIT(A) both the revenue and the assessee have come in appeal before us. The revenue is aggrieved by the action of the CIT(A) for not taxing the interest income during the year of accrual and receipt in the assessment year 1999-2000. The revenue is also aggrieved by the action of the CIT(A) for directing the Assessing Officer not to include interest income in the income of the assessee for the assessment years 1991-92 to 1999-2000.
12. On the other hand, the assessee is aggrieved by the action of the CIT(A) for not treating its status as individual and also for not allowing interest to be spread over the respective years to which such interest pertains i.e., from the year of dispossession till the year of actual payment, and for holding the reassessment as valid.
13. It was vehemently argued by the learned Departmental Representative Mr. D.R. Adhia that the CIT(A) was factually and legally unjustified in allowing the assessee to go free without offering the interest income which was actually received by them in respect of land acquired by the Government. He further submitted that interest income was not only due and accrued in favour of the assessee but it was actually received by them without any condition. Therefore, there was no cogent reason for excluding interest income from the tax net only on the plea that an appeal has been filed against the order of the High Court. The learned DR further submitted that the CIT(A) has also grossly erred in directing the Assessing Officer to exclude such interest income from the tax net even during the assessment years 1991-92 to 1999-2000.
14. On the other hand, the learned Senior Authorized Representative Mr. J.C. Ranpura, CA, strongly objected the action of the CIT(A) for not allowing the spread over of interest income among the 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 the year of receipt but the same should be spread over the years falling between the year of dispossession till the year of actual payment. He submitted that interest is paid on the outstanding compensation not actually paid to the assessee and is also calculated by the disbursing authority from the year of dispossession of land till the year of actual payment. He, therefore, submitted thereafter the CIT(A) was not at all justified in declining the 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 the CIT(A) was also not justified in treating the status of the assessee as AOP, whereas in the present case, there is no person like AOP. As per the learned Authorised Representative, in the present case, these three brothers became joint owners of the agricultural land which was left behind by their late father. Thus, there was no mutual intention to acquire land by the three brothers nor was there any intention to sell it off to earn profit and it was under compulsion that the Government acquired the land for public purpose. Therefore, there was no AOP in existence at all. The assessment made by the Assessing Officer and confirmed by the CIT(A) in the status of AOP, therefore, requires to be annulled and cancelled.
15. We have considered the rival contentions, carefully gone through the orders of the authorities below and also deliberated upon the case-laws discussed by the lower authorities in their respective orders as well as cited by the learned DR and the learned AR at Bar during the course of hearing before us. We have also gone through the detailed paper book filed by the learned AR. From the record, we find that the three brothers acquired land from their father (Shri Mamaiyabhai) on inheritance. The land in respect of which compensation and interest is granted originally belonged to Shri Mamaiyabhai and on his death the said land was inherited by:
(i) Menandbhai
(ii) Devyabhai
(iii) Govindbhai,
(iv) Sumalbai and
(v) Jivubai
16. Subsequently, Sumalbai and Jivubai relinquished their rights in the said land and three persons mentioned at (i), (ii) and (iii) above became the co-owners of land with equal share. All events are duly recorded in the revenue records and the same were placed before the lower authorities. Late Mamaiyabhai died on 3-3-1971 without leaving behind any Will. Therefore, Hindu Succession Act, 1956 was applicable to the properties left by him. under Section 8 of the Hindu Succession Act, 1956, the property of a male Hindu dying intestate shall devolve firstly upon the heirs, being the relatives specified in class-I of this Schedule. The schedule (Class-1) contains details of relatives, which first include son, daughter, widow, mother etc. Under Rule 4, under Section 10, widow, surviving sons and daughters get equal shares. However, the department has taxed the interest awarded to these three brothers in the hands of AOP. In the present case, there is no person like AOP. The issue as to what constitutes AOP came up for consideration before the Hon’ble Supreme Court in the case of CIT v. Indira Balkrishna wherein it was observed that:
An association of persons is one in which two or more persons join in a common purpose or common action, and as the words occur in a section, which imposes a tax on income, the association must be one the object of which is to produce income, profits or gains.
The above decision is referred to and relied on by the various High Courts such as Hon’ble Punjab & Haryana High Court in the case of CIT v. Hari Prasad and Hon’ble Delhi High Court in the case of CIT v. S.A.E. Head Office Monthly Paid Employees Welfare Trust [2004] 271 ITR 159 : 141 Taxman 364.
17. As may be seen from the definition of the AOP, it has to be more than one member who joins hands with an intention to earn profit or produce an income. Volition on the part of members of association is an essential ingredient. There must be common purpose to venture and produce income on the part of persons so venturing into the business with the intention of making profit and gains from such business. In the present case, these three brothers became joint owners of the agricultural land which was left behind by their late father. Thus, there was no mutual intention to acquire the land by three brothers nor was there any intention to sell it of to earn profit. It was under compulsion that the Government acquired the land for public purpose. Had the three brothers purchased the land from market for sale or doing any agricultural activity thereon jointly, there can be said to have an AOP of three brothers? There is nothing like it and the 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. The land was acquired by the Government under compulsion from the brothers. It is not the case of revenue that three brothers joined hands to sell/transfer the land to Government so as to treat the compensation and interest received by the three brothers in the status of AOP.
18. In view of the factual and legal position, all the three brothers i.e., Govindbhai, Devayatbhai and Menandbhai had equal shares in land left behind by their father as also in land acquired by the Government and also in compensation and interest received. Therefore, each of the three brothers was having 1/3rd share over the interest and should have been taxed individually on 1/3rd of interest income. The Assessing Officer was thus not unjustified in assessing the entire income in the hands of AOP which did not existed at all and the CIT(A) was also not justified in confirming the Assessing Officer’s action. The compensation/ interest was granted/allowed jointly to three brothers by authorities as the land under consideration was in their joint names in the 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 the Income-tax Act, each who earned or to whom income accrued is liable to tax. For an income to be assessed in the hands of an AOP, it must be derived from a process in which the AOP has some control facilitating contribution to its members for earning the income, profits or gains for which it is formed. The compulsory acquisition of land by Government is not contingent on the skill or enterprise of the individual brothers. Thus there was no scope for the individual brothers to control/monitor over the acquisition process of land by the Government consequent to which the compensation and interest was awarded to the brothers. Admittedly, there was no written agreement amongst the brothers to form an AOP to surrender the 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 the primary and essential ingredients of an AOP outlined by the Apex Court it is crystal clear that for an income to be assessed in the hands of an AOP, it must be derived from a process in which the AOP has some control facilitating contribution of its members for earning the income, profits or gains, for which it is formed. Logically, keeping in view the entire process of compulsory acquisition of land by Government and awarding of compensation and interest by the Court of Law, there was no scope for the individual brothers to exercise any control or monitor the process of Government or the process of Court of Law. Taking into account all the facts and circumstances of the case in its entirety, it cannot be said that three brothers who became owners of land on the death of their father, had formed an AOP.
19. We had carefully perused the entire material placed on record and find that none of materials suggest consensus ad idem between the brothers for formation of any AOP for earning any profit. Therefore, we are persuaded to hold that the conclusion of CIT(A) for treating status of three individual brothers as AOP, is devoid of any merit.
20. The Apex Court in the case of CWT v. Chander Sen , has held that in view of Section 4 of the Hindu Succession Act, 1956, income from the asset acquired by a son from his father can be assessed as income of the son individually and under Section 8 of the Hindu Succession Act, 1956, the property of the father devolves on his son in the individual capacity and not as karta of Hindu undivided family.
21. Even if the assessee has filed return with the wrong status and subsequently claims to correct the same, the department had to correct the same as per law. What should be the approach of department in case of assessee under a misconception fails to claim any benefit etc., in the return of income the jurisdictional High Court in the case of S.R. Koshti v. CIT observed as under:
A word of caution. The authorities under the Act are under an obligation to act in accordance with law. Tax can be collected only as provided under the Act. If an assessee, under a mistake, misconception or on not being properly instructed, is over-assessed, the authorities under the Act are required to assist him and ensure that only legitimate taxes due are collected. this Court, in an unreported decision in the case of Vinay Chandulal Satia v. N.O. Parekh, CIT Special Civil Application No. 622 of 1981, rendered on August 20, 1981, has laid down the approach that the authorities must adopt in such matters in the following terms:
The Supreme Court has observed in numerous decisions, including Ramlal v. Rewa Coalfields Ltd. ; State of West Bengal v. Administrator, Howrah Municipality , and Babhutmal Raichand Oswal v. Laxmibal R. Tarte , that the State authorities should not rise technical pleas if the citizens have a lawful right and the lawful right is being denied to them merely on technical grounds. The State authorities cannot adopt the attitude which private litigants might adopt’.
In view of the above, we are inclined to agree with the learned Senior AR Shri J.C. Ranpura that the CIT(A) was legally and factually not justified in treating the status as AOP. We, therefore, reverse the finding of the CIT(A) and direct the Assessing Officer to frame the assessment in respect of all the three brothers in their individual capacities in respect of 1/3rd interest income received by each of them.
22. Now let us examine the taxable event for enhanced compensation and interest thereon, paid by Government in respect of compulsory acquisition of land by Government as per provisions of Income-tax Act, 1961 vis-a-vis as per procedure of the Land Acquisition Act, 1894. The land acquisition proceedings begin with issue by Land Acquisition Officer (normally Collector) a public Notification under Section 4 of the Land Acquisition Act, 1894 (LA Act) proposing to acquire some particular land for public purpose. As per this, objections of land holders are invited under Section 5A of the said Act. Thereafter the Collector conducts summary enquiry and submits his report/recommendations to the Government. After considering the report, the Government issues declaration under Section 6 of the LA Act to the effect that the specified land is needed for public purpose. The Notification for acquisition of land is issued under Section 9 of the LA Act by Collector inviting claims of compensation by all interested in such land. After conducting the necessary enquiry into the claims, the Collectors make under Section 11 an 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 the award, may file objections to the Collector about any matter of award (order) and require that the matter be referred for determination of court. The competent court will then conduct the proceedings and having regard to Sections 23 and 24 of Land Acquisition Act, determine the amount of fair compensation payable to the applicants. As per Section 25 the amount of compensation awarded by court cannot be less than the amount awarded by collector under Section 11. Therefore, the court effectively grants additional compensation. Interest on the excess amount is allowed under Section 28 of Land Acquisition Act from the date of dispossession of land to the date of payment. When the possession is taken by the Land Acquisition Officer, he became liable to pay interest until the amount awarded by him was paid and the assessee acquires a right to recover it from him and when enhanced compensation is awarded and the same is actually received by the land-holder without any condition, the same will be liable to capital gain as per provisions of Section 45(5)(&) of the Income-tax Act in the year of actual receipt of compensation. Interest awarded and paid under Section 28 of the Land Acquisition Act is liable to be included in the income of the respective years falling in between the year of dispossession of land to the year of actual payment. Even though such interest is paid in lump sum, the same is liable to be spread over to the years to which such interest pertains, on the unpaid amount of compensation and cannot be included in entirety in the year of actual payment.
23. Right to receive additional compensation arose to the asses-see as soon as the court of Extra Assistant Judge, Gondal vide its order dated 7-10-1997 has awarded the additional compensation. The court also ordered for payment of interest up to the date of payment of additional award. Hon’ble Gujarat High Court vide its order dated 7-9-1998 confirmed the additional award and interest granted by the lower court. The additional award along with interest was also paid to the assessee in October/November 1998 without any condition of furnishing any security bond etc. Thus in the previous year 1998-99 relevant to assessment year 1999-2000 the assessee received the actual payment of additional award along with interest due on such outstanding amount from the year of dispossession of land till the year of actual payment. Thus income both from additional compensation and interest thereon was received by the assessee in the assessment year 1999-2000.
24. Now, it is crystal clear from the above factual position that right to receive additional award arose in the previous year 1997-98 relevant to assessment year 1998-99, whereas actual payment of award was received by the assessee in the previous year 1998-99 relevant to assessment year 1999-2000. Earlier compensation for compulsory acquisition of land was taxable in the year of acquisition so that every time whenever additional compensation was received the original assessment required revision. In order to avoid repetitive revision and to avoid contingency, Sub-section (5) was introduced in Section 45 by Finance Act, 1987 with effect from 1-4-1988 making such receipt liable to tax in the year of actual receipt. Thus, as per Clause (b) of Sub-section (5) of Section 45 the income arising from additional award due to court order is deemed to be income chargeable under head ‘capital gains’ of the previous year in which such amount is actually received by the assessee. As per clear mandate of Section 45(5)(b), there is no dispute for bringing the additional compensation in the net of tax in the year of receipt i.e., assessment year 1999-2000. As the additional compensation was actually paid to the assessee without any condition of refunding the same back on happening of any event, we do not find any merit in the findings recorded by CIT(A) that the right to receive the additional compensation itself did not arise to the assessee. Therefore, there was no question of bringing the interest received on such additional compensation in the tax net. We fail to understand as to when the position of law is crystal clear for taxability of additional award as per provisions of Section 45(5)(b), which is in the nature of capital receipt, where is the problem in bringing to tax net the interest income received by the assessee on such enhanced compensation, which is undisputedly revenue in nature.
25. The CIT(A) had given the 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. The interest income was not only accrued and arose but was also actually received unconditionally by the assessee. Thus there was no material on record for giving the finding that interest income received by the 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 an 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 the income which is received in advance prior to its accrual and may be required to be repaid if the assessee does not get right of its accrual subsequently. Thus the CIT(A) was not justified in alleging the Assessing Officer that he has wrongly taxed the notional income/contingent income/advance income.
26. There was no material on record to suggest that the very foundation of the claim made by the assessee was in serious jeopardy insofar as the claim made by the assessee in respect of enhanced compensation and interest thereon was accepted by the Lower Court and further affirmed by the High Court and both the amounts were actually paid to the assessee without any condition or qualification of whatsoever the nature may be. An appeal was filed to the Supreme Court in which only quantification of award amount was disputed. The dispute of Government was with reference to amount of compensation payable in respect of Eucalyptus trees which was paid at the rate of Rs. 120 per tree. The Government was of the view that amount of Rs. 120 per tree was higher.
27. With regard to taxing interest income, we are of the view that income is liable to be taxed under the Income-tax Act on the basis of its accruing or arising to the assessee, or on the basis of its receipt by the assessee, during the relevant previous year. The words “accrue”, “arise’ and “is received” are not synonymous.
28. The expression “is received” conveys a clear and definite meaning. The words ‘accrue or arise’ depend upon the rights of the assessee to secure the income though the actual receipt of the income may not be there. Ordinarily, the income is said to have accrued to a person when he has acquired a right to the income. He must have acquired an enforceable right in regard to that income, though actual quantification and receipt may follow in due course. A mere claim to income without an enforceable right thereto cannot, therefore, be regarded as an accrued income for the purpose of the Income-tax Act. Likewise, a mere claim to a profit or to a liability is itself not sufficient to make the profit to be accrued or the liability to be incurred for taxing purposes. It goes without saying that the mere claim of the assessee for higher compensation cannot be the basis for determining the interest accrued for taxing purpose. It is only when such a claim for higher compensation is adjudicated by the court and followed by an undisputed enforceable decree that it can be the basis for calculating the interest “accrued” within the scope of Section 5(1)(b) of the Income-tax Act. The contention that the interest accrued on the compensation finally determined should at least be brought to tax in the relevant year in which it is awarded or received by the assessee and it should not be spread over the years from the date of taking possession up to the date of payment, is not sustainable. When once the interest is awarded, it is payable to the assessee like any other interest on debt. Such an interest does not accrue from the date of the decree of the court. It falls to be calculated and paid from the date of dispossession till payment. It is payable in each successive year and is liable to be assessed in that year itself. The assessment of that accrued interest cannot be postponed till it is actually paid to the assessee. The Income-tax Act does not confer upon the Income-tax Officer the power to assess an income accrued in one year as the income of an earlier or subsequent year. The attribution of the whole of the interest to the year of receipt is not, therefore, possible.
29. Let us now examine the reasoning given by the CIT(A) for reaching the conclusion that interest income even though actually received by the assessee on outstanding amount of compensation was not taxable during the year of actual receipt nor in the earlier years to which such interest pertains. In the instant case, there is no dispute about the fact that additional compensation and interest was awarded to the assessee by the Lower Court and which was confirmed by the High Court in the financial year 1998-99. There is also no dispute that interest income is always revenue in nature. There is also no dispute to the fact that assessee got not only absolute right to receive the interest but also received the interest unconditionally during the financial year 1998-99 relevant to assessment year 1999-2000 under consideration. The amount was also actually paid to the assessee without any condition of furnishing any security bond etc., so to make the assessee liable to refund the money on happening of any contingency whatsoever. The disbursing authority has also deducted tax at source in respect of interest income paid to the assessee.
30. As an appeal was filed against the order of the High Court, the CIT(A), by relying on the ratio laid down in the case of Hindus tan Housing & Land Development Trust(supra) held that interest on additional compensation cannot be said to accrue unless the right to compensation itself accrues. He held that there is no question of any interest being accrued before the decision of the Gondal Court in this case on 7-10-1997 when right to compensation accrued. Since right to receive interest arose in financial year 1997-98, the entire interest was assessable in the assessment year 1998-99 but due to the fact that appeal was filed before the High Court the right remained contingent and got decided by the High Court on 7-9-1998 falling in the financial year 1998-99 relevant to assessment year 1999-2000. As the Government has filed further appeal, the CIT(A) held that the amount of interest actually received by the assessee is merely a kind of advance held by them subject to final decision of the Supreme Court.
31. Now let us examine the ratio laid down by Hon’ble Supreme Court in the case 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 a question of merely quantifying the amount to be received and cases.
(b) where right to receive payment is admitted and quantification only of the amount payable is left to be determined in accordance with the settled or accepted principles.
32. In this case, the award for land compensation was made by the Arbitrator on 29-7-1955 enhancing the amount of compensation payable to the assessee. The entire amount was in dispute in the appeal filed by the State Government to the High Court. The Hon’ble Supreme Court observed that dispute was regarded by the High Court as real and substantial because the assessee was not permitted to withdraw the sum deposited by the State Government on 25-4-1956 without furnishing security bond for refunding the amount in the event of appeal being allowed. Under these circumstances, the Hon’ble Supreme Court observed that there was no absolute right to receive the amount at that stage. If the appeal was allowed in its entirety, right to payment of enhanced compensation would have fallen altogether. The very foundation of the claim made by the assessee was in serious jeopardy and nothing would be due if the appeal was decided against the assessee. Thus, the Hon’ble Supreme Court held that assessee’s case falls under the first category wherein right to receive the payment itself was in dispute and not merely quantification of amount of compensation.
33. However, the facts and circumstances of the case before us are entirely different, which comes under the second category of cases as discussed above by the Hon’ble Supreme Court. In the instant case not only enhanced compensation but interest was awarded by the Lower Court and further confirmed by the High Court. The said amount of additional compensation along with interest was duly paid by Government and received by the assessee without any condition of furnishing any security bond for refunding amount in event appeal being filed and allowed against order of the High Court. Thus, we find that the CIT(A) was totally misconceived and has not applied the correct proposition categorically and very clearly laid down by the Hon’ble Supreme Court wherein clear distinction was made between cases where right to receive payment itself is in dispute and it is not a question of merely quantifying the amount to be received and the cases where right to receive payment is admitted and only quantification of the amount payable is left to be determined in accordance with the settled or accepted principles.
34. Hon’ble Supreme Court in the case of CIT v. Sun Engg. Works (P.) Ltd. observed as follows:
It is neither desirable nor permissible to pick out a word or a sentence from the judgment of the Supreme Court divorced from the context of the question under consideration and treat it to be the complete law declared by the court. The judgment must be read as a whole and the observations from the judgment have to be considered in the light of the questions which were before the court. A decision of the Supreme Court takes its colour from the questions involved in the case in which it is rendered and, while applying the decision to a later case, courts must carefully try to ascertain the true principle laid down by the decision.
35. Even though the above case law was referred to by the CIT(A) in his order while discussing the proposition laid down by various courts to the facts and circumstances of the instant case, but it appears that while applying the proposition laid down by the Hon’ble Supreme Court in the case of Hindustan Housing & Land Development Trust (supra), the CIT(A) had brushed aside the categorical distinction made by Hon’ble Supreme Court with regard to the nature of right ie., right to receive payment or quantification of payment, disputed by the party in higher forum, and he picked out the portion which suited him most. We do not appreciate this practice of CIT(A) and, therefore, inclined to revert his findings and conclusion in the matter of non-taxing the interest income of Rs. 55.48 lakhs insofar as there was no dispute for the right to receive the compensation, the dispute was only with regard to its quantification.
36. We have also carefully gone through the documents placed in the record with regard to filing of further appeal to the Hon’ble Supreme Court, by the Government against the order of the High Court wherein we find that the Government was only disputing the quantification of compensation and not the right of the assessee to receive the compensation. In the further appeal filed, the dispute was with regard to rate of trees for which compensation was to be awarded to the assessee. Right of the assessee to receive compensation for the trees acquired by the Government grown on the assessee’s land was not at all disputed and it was only the rate of tree at Rs. 120 per tree which was stated to be high. From the record, we find that the Hon’ble Supreme Court vide its order dated 25-8-2004 had dismissed the Government appeal by observing that the amount of compensation per tree fixed at the rate of Rs. 120 was based on concurrent findings on appreciation of evidence and no interference was required.
37. It is pertinent to mention here that if the CIT(A) had taken little pain in seeing the grounds of further appeal filed by the Government he could have easily come to know that it was only quantification of award which was disputed and not the right of assessee to receive the award itself. It is also not the case of CIT(A) that payment was released to the assessee only on furnishing security bond and in case Government appeal allowed the security bond will be forfeited and assessee was liable to refund the additional compensation and interest thereon back to the Land Acquisition Authority. Thus, the finding recorded by the CIT(A) to the effect that interest income was contingent is devoid of any merit.
38. From the record we also found that order of Hon’ble Supreme Court dismissing the appeal of Government was dated 25-8-2004 whereas the order of CIT(A) was passed on 31-8-2004 i.e., after the date of order of Hon’ble Supreme Court. 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 tax deducted at source by Government while disbursing the amount of interest to the assessee.
39. In view of the above, we are inclined to agree with the learned DR Shri Adhia that the CIT(A) was legally and factually not justified in allowing to go out of scope of income, as defined in Section 5 the interest income of Rs. 55.48 lakhs which was not only accrued and due to the assessee but was also received by the assessee unconditionally during the assessment year 1999-2000. We would like to place on record our mark of appreciation for learned Departmental Representative Mr. D.R. Adhia, for putting entire factual and legal position before the Bench in very dedicated manner, so as to assist the Bench in reaching to the correct conclusion.
40. 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. Interest on enhanced compensation is payable under Sections 28 and 34 of the Land Acquisition Act and enhanced compensation awarded on reference under Section 18 of the 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 the date of 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 of lands till the date of such order. Thus, interest on enhanced compensation awarded under Land Acquisition Act accrues year after year and not on the date of granting enhanced compensation as held by the Hon’ble Supreme Court in the case of Rama Bai v. CIT .
41. Furthermore, the Hon’ble Supreme Court in the case of CIT v. T.N.K. Govindarajulu Chetty have held that interest on compensation, for compulsory acquisition of land should be spread over the respective years in which it could be deemed to have accrued and hence assessable in the respective assessment years.
42. The Allahabad High Court in the case of Ashwani Dhingra v. Chief CIT had observed that it is well-settled that the amount of interest paid on the enhanced amount of compensation accrues every year and is taxable in the year in which it has accrued and no adverse inference can be drawn from the fact that the returns for earlier assessment years were not filed.
43. Furthermore, Hon’ble Supreme Court in the case of K.S. Krishna Rao v. CIT held that interest on enhanced compensation accrues year after year right from the date of delivery of possession till the date of order of the court on time basis. The same cannot be taxed all in lump sum on the date on which the court passes orders for enhanced compensation. Thus only proportionate interest was assessable in the 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.
44. The Hon’ble Supreme Court in the case of Bikram Singh v. LAO observed that interest received as income on the delayed payment of compensation determined under Section 28 or 31 of the Land Acquisition Act is a taxable event. Therefore, it is a revenue receipt exigible to tax under Section 4. The assessee is entitled to spread over such interest income for the period for which payment came to be made so as to compute income for assessing tax for the relevant accounting years.
45. In view of the plethora of decisions of Hon’ble Supreme Court and High Court as discussed above, directly on the issue under consideration, we are inclined to agree with the learned AR 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.
46. 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 are also inclined to reverse the order of the CIT(A) treating the status of the assessee as AOP in place of individual. We, therefore, direct the Assessing Officer 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., assessment year 1987-88 till the year of actual payment i.e., assessment year 1999-2000.
47. Before parting with the matter it is very pertinent to mention that while exercising its wide powers under Section 251, the CIT(A) has to act as quasi judicial officer and has to respect the decisions rendered by the Hon’ble Supreme Court, jurisdictional High Court etc., and also to work within the framework of clear provisions of Income-tax Act while applying a particular provision to the issue under consideration. As per Article 141 of Constitution of India, the decision of Hon’ble Supreme Court is Law of Land which is binding on every one. While deciding an issue the CIT(A) can’t disregard the verdict of Hon’ble Supreme Court which is directly on the issue, and can’t act arbitrarily as per his sweet will. Even the clear provisions of Income-tax Act which governs the issue under consideration has to be dealt with while reversing or upholding the order of Assessing Officer. Even while reversing the order of Assessing Officer if he rely on any document or proposition for coming to a different conclusion, he is supposed to record his clear finding in respect of document relied by him and give justification for arriving at a conclusion different from that of the Assessing Officer. The plenary powers given under Section 251 are to be exercised judiciously and in the interest of justice. The CIT(A) is not having unbridled powers to decide whatever he wants and in the manner he likes by disregarding the verdict of Hon’ble Supreme Court and clear provisions of the Income-tax Act. In the instant case if the CIT(A) wanted to reverse the action of Assessing Officer for bringing into tax net the interest income of Rs. 55.48 lakhs, which was not only accrued and arose to the assessee but was actually received without any condition, on the plea of further appeal having been filed by the Government against the award of compensation and interest thereon, he could do so, but before arriving at the conclusion of excluding this income from the tax net he was required to record his finding with respect to the ground taken by the Government in the appeal which persuaded him to exonerate the assessee from that income. He is supposed to go into the ground taken by the Government in the appeal and record his finding that on the basis of these grounds he was satisfied that the fundamental right of assessee to receive the award of compensation and interest itself was disputed and not merely the quantification of the amount. Just by stating that an appeal has been filed by the Government, he cannot blatently come to the conclusion that assessee’s absolute right of receiving the award was in serious jeopardy. However without recording any of such finding and by clearly disregarding the clear proposition laid down by the Hon’ble Supreme Court, as per our considered view, the CIT(A) was not justified in excluding the interest income of Rs. 55.48 lakhs from the tax net and thereby reversing the order of the Assessing Officer. Even the issue regarding spread over of interest income over the years to which it actually pertains, as decided by the CIT(A), are against the propositions laid down by the Hon’ble Supreme Court in number of cases as discussed hereinabove. Similarly the status of AOP given to assessee was also against the principles laid down by Hon’ble Supreme Court as discussed above. Such arbitrary decisions of the CIT(A) are open to the correction by the higher forum. We are, therefore, inclined to reverse the finding and conclusions of CIT(A) in respect of all the above three issues which are clearly in disregard of the verdict laid down by the Hon’ble Supreme Court and High Court as discussed in detail hereinabove. We thus, uphold the action of Assessing Officer with regard to taxability of interest income of Rs. 55.48 lakhs with the modification that he should tax the interest income in the respective years to which such income actually pertains, and in the hands of three brothers in their individual capacity thereby taxing 1/3rd income in each of the hands. We direct accordingly.
48. In respect of the legal ground taken by the assessee regarding validity of re-opening, it was submitted by the learned AR that in the notice under Section 148 issued on 25-5-2001 no status of the person who was required to file return was mentioned. Hence, the notice without specifying the status was invalid. Secondly, it was submitted that at the time when notice under Section 148 was issued, a valid return already filed by the assessee on 8-6-2000 was on record and assessment could have been made on the basis of said return till 31-3-2002. Therefore, as per learned AR there was no escapement of income under Section 147.
49. We have considered the rival contentions and found from record that notice issued by the Assessing Officer under Section 148 was addressed to the three brothers jointly. In the format of notice under Section 148 there is no place for mentioning status. The name in which the notice is issued automatically implies the status of the said person.
50. As per our considered view we can assume jurisdiction for holding the reassessment invalid only when the notice on the face of it is illegal. We cannot adopt a hyper-technical approach to quash a notice because it does not conform to all the niceties expected by an assessee in such a notice. We have to adopt the broad and pragmatic view in construing such a notice in order to find out whether in substance and effect it is in conformity with or according to the intent and purpose of the Act. An inconsequential technicality must not be allowed to defeat justice. A perusal of the record produced by the learned DR shows that the notice was served on the brothers who have filed the return of income without incorporating the interest income of Rs. 55.48 lakhs.
51. The impugned notice was also valid in view of Section 292B as it conformed to the substance of the Act and wanted to effectuate the purpose of the Act. Further, defects or omissions, if any, in the notice did not cause any prejudice to the assessee and they are inconsequential in nature. No standard form is prescribed for a notice and a notice under Section 148 served on and addressed to three brothers who also well understood it was meant for them is a valid notice.
52. The only requirement for invoking Section 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 Section 148. Both these conditions were satisfied in the instant and hence there was nothing illegal about issue of notice under Section 148. We, therefore, do not find any infirmity in the order of CIT(A) for holding that reassessment proceedings were validly initiated and are inclined to agree with learned DR Mr. D.R. Adhia that the ground raised by the assessee in the CO is devoid of any merit. We, therefore, dismiss this ground of CO.
In the result, the appeals of the revenue and the cross-objections of the assessee are allowed in part in terms indicated hereinabove.
