Interest on Compulsory acquisition of land & its plea of its spreading over different years

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Interest on Compulsory acquisition of land & its plea of its spreading over different years

 

There was an interesting issue before the Madras HC with regard to the taxation of Interest on Compensation from compulsory acquisition of land. In such a case, one of the grounds of the assessee is that the interest pertains to different years and the amount is received in just one year.
Here is one case with a similar issue. Though the case is decided in favour of revenue, the observation & ratio could  be relevant in various other cases where assessee could substantiate the lower tax impact due to spread over in different years.
The short overview of the case is as under:
MADRAS HIGH COURT
D.A.K. CHINNARAJ NAIDU VERSUS THE COMMISSIONER OF INCOME TAX, MADURAI, ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-I, VIRUDHUNAGAR.
W.P.(MD)No.21513 of 2017 And WMP(MD) No.17793 of 2017
Short Overview of the case:
Interest income on amount received on compulsory acquisition of land for constructing a house
Compensation received by the land acquisition officer
Main contention of the petitioner is that the accrued interest received by him has to be spread over from the date of acquisition and the petitioner’s request was not considered
Petitioner herein had used the amount received on compulsory acquisition of land for constructing a house and the said claim was supported by a valuation report and held that the Assessing Authority has to give necessary relief to the petitioner on that score
Primary contention urged the petitioner is that the interest portion received by the petitioner following his land acquisition should be spread over from the year of acquisition till the year of payment

HC held as under:

1. We have to necessarily sustain the contention of the petitioner’s counsel that even though a sum of ₹ 45,00,000/- was received as interest in the year 2006 for the assessment year 2007-2008, still it cannot be taxed as a single receipt and that the said amount should be spread over from the year of acquisition.
2. We called upon the counsel on either side to file a memo of calculation to demonstrate if by such spreading over, whether the petitioner would be liable to pay any tax at all.
3. The learned Standing Counsel appearing for the respondents filed a statement, which prima facie indicates that the petitioner would definitely have to pay a substantial sum by way of tax.
4. If only the petitioner is able to demonstrate that the petitioner’s tax dues will be zero, if the interest amount is spread over from the year of acquisition till the date of payment, this Court can consider granting relief to the petitioner.
5. The petitioner’s counsel would contend that it is for the respondent to issue notice of assessment.
6. I cannot countenance such a contention. We would be justified in ordering a refund, only if the petitioner can demonstrate that he is not at all liable to pay any sum towards tax for the amount of compensation received by him. As already admitted by the petitioner’s counsel, the petitioner received a sum of ₹ 58,00,000/- out of the said amount, ₹ 45,00,000/- alone represented the interest portion.
7. The Standing Counsel has demonstrated that spreading over the interest portion over several years would still attract liability more than what was deducted at source. Since, the petitioner had not demonstrated that the petitioner is not liable to pay any tax, I am not inclined to interfere with the impugned order. The Writ Petition is dismissed.

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