COMMISSIONER OF INCOME-TAX, FARIDABAD versus GHANSHYAM (HUF)

Citation: [2009] 10 S.C.R. 1025 · Decided: 16-07-2009 · Supreme Court of India · Bench: S.H. KAPADIA · Disposal: Appeal(s) allowed

Judgment (excerpt)

[2009] 10 S.C.R. 1025 
COMMISSIONER OF INCOME-TAX, FARIDABAD 
v. 
GHANSHYAM (HUF) 
(Civil Appeal No. 4401 of 2009) 
JULY 16, 2009 
[S.H. KAPADIA AND AFTAB ALAM, JJ.) 
Income Tax Act, 1961: 
A 
B 
Sections 2(47), 45, 155 ~ Compensation towards land c 
acquisition - Enhanced compensation and interest thereon 
awarded by the Reference Court - Disputed in appeal -
Included in assessment by the Assessing Officer - CIT 
(Appeals) holding that it did not accrue to the assessee since 
the entire amount was in dispute in first appeal - Tribunal 
0 
upheld the order of CIT (Appeals) - High Court held that when 
the State is in appeal against the enhanced compensation 
and interest thereon the receipt of additional compensation 
and interest thereon was not taxable - On appeal, Held: The 
year in which enhanced compensation is received is the year E 
of taxability - Even in cases where appeal is pending, and 
the assessee is permitted to withdraw the amount against 
security or otherwise, the receipt of such amounts is liable to 
be taxed under Section 45(5) - Land Acquisition Act, 1894 -
Sections 23(1), 23(1A), 23(2), 28, 34. 
· 
F 
Assessee filed its return of income for the 
assessment year 1999-2000 in which he did not offer the 
amount of enhanced compensation and the interest 
received thereon from Haryana Urban Development 
Authority (HUDA) towards acquisition of assessee's 
G 
lands during the previous year relevant to the 
assessment year, on the plea that the amount of 
enhanced compensation received had not accrued to the 
assessee during the year of receipt as the entire amount 
1025 
·H 
1026 
SUPREME COURT REPORTS (2009] 10 S.C.R. 
A was in dispute in appeal before the High Court which 
appeal stood filed by the State against the order of the 
Reference Court granting enhanced compensation. The 
amount was received by the assessee in terms of the 
interim order of the High Court against the assessee's 
B furnishing security to the satisfaction of the executing 
court. According to the assessee, the interest received on 
enhanced compensation during the previous year was 
also not chargeable to tax on the same plea. 
The A.O. did not accept the contentions of the 
C assessee on the ground that in terms of Section 45(5) of 
the Income-tax Act, 1961 enacted w.e.f. 1.4.88, the amount 
by which compensation or consideration stood 
enhanced or further enhanced by the Court, is deemed 
income chargeable under the head "Capital Gains" of the 
D previous year in which the said amount came to be 
received. On appeal, CIT (A) came to the conclusion that 
since the enhanced compensation received was in 
dispute in the pending First Appeal, both the enhanced 
compensation as well as the interest thereon had not 
E accrued to the assessee during the year of receipt as the 
entire amount was in dispute in First Appeal and that the 
assessee had received the said amount only against 
security furnished to the satisfaction of the executing 
court. 
F 
Aggrieved by the decision of the CIT(A), the 
Department moved Income-tax Appellate Tribunal (ITAT) 
which its order upheld the order of the CIT(A) and 
dismissed the appeal of the Department. Aggrieved by 
G the decision of the Tribunal the matter was carried in 
appeal to the High Court under Section 260A of the 1961 
Act. The High Court held that the case is squarely covered 
by the judgment of the Supreme Court in the case of 
Hindustan Housing. According to the High Court, when the 
State is in appeal against the order of enhanced 
H 
1 • 
' 
l .. 
COMMISSIONER OF INCOME-TAX, FARIDABAD v. 1027 
GHANSHYAM (HUF) 
compensation and interest thereon the receipt of A 
~·~ 
additional compensation and interest thereon was not 
taxable as income as the said two items were disputed 
by the Government in appeal. Hence th~ appeal by the 
Department. 
Allowing the appeals, the Court 
B 
HELD: 1. Under Section 45(1) of the Incomes tax Act, 
1961, profits or gains arising from the transfer of a capital 
asset effected in the previous year is taken to be the 
income of the previous year in which the transfer took C 
place and such profits are chargeable to tax under the 
head "Capital Gains". However, it was noticed that in 
cases where capital gains accrued or arose by way of 
compulsory acquisition, the additional compensation 
stood awarded in several stages by different appellate 
D 
authorities which necessitated rectification of the original 
assessment at each stage. To provide for rect

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