Commissioner Of Income Tax vs Laxman Swaroop Goel High Court of Punjab and Haryana

Adarsh Kumar Goel, J.—This appeal has been preferred u/s 260A of Income Tax Act, 1961 (hereinafter referred to as ''the Act'') proposing following substantial questions of law arising out of order dt. 18th June, 2009 of the income tax Appellate Tribunal, Delhi Bench ''G'', New Delhi (hereinafter referred to as ''the Tribunal'') passed in ITA No. 1442/Del/2009 in respect of asst. yr. 2005-06:

(i) Whether, on the facts and in the circumstances of the case, the learned Tribunal was right in law in conforming the order of the learned CIT(A) in holding that the interest on enhanced compensation was not taxable in the hands of the Assessee, Shri Laxman Swaroop Goel as the interest on enhanced compensation had not attained finality as the matter was under dispute before the Hon''ble High Court which finally decided the issue on 17th Nov., 2007, therefore, the interest was not chargeable to tax in the year of receipt i.e., 2004-05 relevant to the asst. yr. 2005-06 disregarding the fact interest on enhanced compensation would be taxed in the year of receipt as the entire controversy on the year of taxability of enhanced compensation and interest therein has now come to rest with the judgment of Hon''ble Supreme Court in the case of Commissioner of Income Tax, Faridabad Vs. Ghanshyam (HUF), wherein the Hon''ble apex Court has held that the year in which enhanced compensation is received is the year of taxability and the interest u/s 28 of the Land Acquisition Act, 1894 on enhanced compensation is a part of enhanced compensation, therefore, the interest u/s 28 of the Land Acquisition Act on enhanced compensation will also be taxable in the year of receipt ?

(ii) Whether, on the facts and in the circumstances of the case, the learned Tribunal was right in law in confirming the order of the learned CIT(A) in deleting the addition of Rs. 22,72,663 made by the AO on account of interest received on enhanced compensation by Assessee''s minor children u/s 64(1A) of the Income Tax Act, 1961 disregarding the fact that the interest received by the minor children of the Assessee is taxable in the hands of the Assessee and has to be necessarily included in computing the total income of the father of the beneficiary/Assessee, as the very purpose and object of Section 64(1A) is only to see that evasion of payment of tax is avoided and it is immaterial whether the amount is released with or without security/on attaining majority ?

The Assessee is the father of the children who are owners of the land, inherited by them from their maternal grandfather. Enhanced compensation and interest thereon were received on acquisition of the said land. The income received by way of interest was assessed as capital gain in the hands of the father of the minor children u/s 64(1A) of the Act. The CIT(A) upheld the plea of the Assessee that amount received had not attained finality and income of the minor children from inherited property could not be clubbed in the hands of the father. The above view has been affirmed by the Tribunal. It was observed:

I have carefully considered the contentions of the learned Authorised Representative and perused the order of assessment. I completely concur with him that the AO has erred both on facts and law in assessing the interest on enhanced compensation and the other receipt of Rs. 47,354 and Rs. 14,000 by his minor children in the hands of the Appellant. I have examined all the documents regarding the award granted to the minor children, and it is also found that the issue was finally settled by the jurisdictional High Court on 17th Nov., 2007, and the AO has passed order u/s 143(3) on 16th Nov., 2007. Thus in view of jurisdictional High Court''s decisions in the case of Prem Singh (HUF), Chandi Ram & Bhoop Singh Dagar and Ors., the AO''s action in taxing the entire interest on enhanced compensation during the year is erroneous. Further, even so, the AO''s action u/s 64(1A) of the Income Tax Act is illegal on facts hence the award was clearly given as per Form 30 on the condition therein which reads as under:

Applicants being minors and their amount of enhanced compensation be deposited in the shape of FDR till they attain majority.'' Therefore, in the context of the facts in the order of the Addl. District Judge, the position of the Appellant is like a custodian/trustee in this case since the income was not immediately available to the minors, who are entitled to receive the same only upon attaining majority. As such income whatsoever cannot be clubbed in the hands of the parents. Therefore, the provisions of Section 64(1A) are inapplicable on the facts of the case, as pleaded by the learned Authorised Representative in points (i) and (ii) in para 5, in view of the judgment of Madras High Court in Commissioner of Income Tax Vs. K.J. Ramaswamy, . Further, connection must be proximate before an income can come within the ambit of Section 64, it must be proved to have arisen directly or indirectly from a transfer of assets by the Assessee, in view of the apex Court''s decision in Commissioner of Income Tax, West Bengal, Calcutta Vs. Prem Bhai Parekh and Others, . None of such facts exists here and hence Section 64(1A) is incorrectly adhered to by the AO. Rather on the available facts of the case, the provisions of Section 64(2) are invokable at the most, as the three minor children own the agricultural property as the separate property as individuals. However, since other conditions, like transferring it directly or indirectly, etc., are not satisfied, even the provisions of Section 64(2) are inapplicable. Hence from all points of view, the addition of Rs. 22,72,663 stands cancelled.

We have heard learned Counsel for the parties.

Learned Counsel for the Appellant submits that taxability of capital gain on acquisition of property is now governed by judgment in Commissioner of Income Tax, Faridabad Vs. Ghanshyam (HUF), . The amount is to be taxed in the year of receipt. It was further submitted that the Tribunal failed to apply the provisions of Section 64(1A) of the. Act properly and wrongly relied upon the judgment of Commissioner of Income Tax Vs. K.J. Ramaswamy, which was not on interpretation of Section 64(1A) but on unamended provisions of Section 64. After the amendment, income of the minor, unless it falls in exception provided therein, is taxable in the hands of the parents. The validity of the said provision was upheld by the Patna High Court in SYED ASKARI HADI ALI AUGUSTINE IMAM AND OTHERS Vs. UNION OF INDIA AND OTHERS which was followed by Karnataka High Court in K.V. Kupparaju''s case (supra). K.V. Kuppa Raju and Others Vs. Government of India and Others, The Karnataka High Court in the said judgment referred to the background of legislation and held that the amendment was made as a measure against tax avoidance in the light of recommendations of an Expert Committee, Section 64(1A) of the Act has been inserted in the Finance Act, 1992 w.e.f. 1st April, 1993 which reads as under:

(1A) In computing the total income of any individual, there shall be included all such income as arises or accrues to his minor child not being a minor child suffering from any disability of the nature specified in Section 80U:

Provided that nothing contained in this Sub-section shall apply in respect of such income as arises or accrues to the minor child on account of any-

(a) manual work done by him; or

(b) activity involving application of his skill, talent or specialised knowledge and experience.

Explanation: For the purposes of this Sub-section, the income of the minor child shall be included,-

(a) where the marriage of his parents subsists, in the income of that parent whose total income (excluding the income includible under this Sub-section) is greater; or

(b) where the marriage of his parents does not subsist, in the income of that parent who maintains the minor child in the previous year,

and where any such income is once included in the total income of either parent, any such income arising in any succeeding year shall not be included in the total income of the other parent, unless the AO is satisfied, after giving that parent an opportunity of being heard, that it is necessary so to do.

Learned Counsel for the Assessee has neither been able to show how judgment of the Hon''ble Supreme Court in Ghanshyam''s case (supra) can be distinguished nor he has been able to give any reason for excluding the applicability of Section 64(1A). In these circumstances, view taken by the Tribunal cannot be sustained. Accordingly, the questions raised by the Revenue are answered in its favour.

Accordingly, the appeal is allowed.