Section 45(5)

Section 45(5) — the law in short

What the courts have decided on section 45(5), in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• CIT v Chet Ram (HUF) Supreme CourtHelps departmentValidity unconfirmed
  I withdrew enhanced land acquisition compensation under an interim High Court order while the appeal is still pending. Is it taxable now?
  Yes. The Supreme Court held that assessees who received enhanced compensation and interest on it under an interim order of the High Court in pending land acquisition appeals are liable to tax on those amounts in the year of receipt. It followed its earlier decision in CIT, Faridabad v Ghanshyam (HUF), where it had held that section 45(5) treats enhanced compensation as deemed income taxed on receipt, so that even where the court permits withdrawal against security pending appeal the amount is taxable. The orders of the High Court and the Tribunal were set aside and the Revenue's appeals allowed, parties bearing their own costs.
• CIT v Govindbhai Mamaiya Supreme CourtCuts both waysValidity unconfirmed
  The court enhanced the compensation for my acquired land and awarded interest running back many years — can I spread that interest over those years, and are my brothers and I an AoP because we inherited the land together?
  No to the spreading, yes to being taxed as individuals. The Supreme Court held on 4 September 2014 that interest awarded under section 28 of the Land Acquisition Act 1894 is an accretion to the value of the land, so it forms part of the enhanced compensation under section 45(5)(b) and is taxable in the year it is received, not spread over the years from dispossession. Interest under section 34, which compensates undue delay in making the award, stands differently. On status, three brothers who inherit land by operation of law and receive compensation on compulsory acquisition form no association of persons, because volition to produce income is absent.
• CIT v Ghanshyam (HUF) Supreme CourtHelps department
  The court enhanced my acquisition compensation with interest. Which year is it taxed, and is the interest capital?
  Enhanced compensation is charged as capital gains under s.45(5)(b) in the year of receipt. Interest awarded by the court under s.28 of the Land Acquisition Act is an accretion to the value of the land and takes the character of compensation; interest under s.34, being purely for delay in paying what was already awarded, does not.
• PCIT v Inderjit Singh Sodhi (HUF) — interest on compensation and enhanced compensation is income from other sources after the 2010 amendment High CourtHelps departmentHigh Courts differ
  My client received interest on enhanced compensation for compulsorily acquired land. Ghanshyam says it is part of compensation. Does that still hold?
  Not in the Delhi High Court. It held that on a conjoint reading of s.56(2)(viii) and s.145B, interest received on compensation or on enhanced compensation is chargeable under the head 'income from other sources', and that the conclusions drawn from CIT v Ghanshyam (HUF), decided in 2009, are unsustainable because the position as it exists today came into being only in 2010. The Tribunal was held to have erred in following Ghanshyam and ignoring the changes made by the Finance (No.2) Act 2009 with effect from 1 April 2010.

Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.