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 department
  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 ways
  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?
  Interest awarded under s.28 of the Land Acquisition Act, 1894 is part of the amount of compensation; interest under s.34 is not, because it is only compensation for delay in paying a sum already determined. The additional amount under s.23(1A) and the solatium under s.23(2) are likewise part of enhanced compensation, and the whole of it — including s.28 interest — is taxed under s.45(5) in the year of receipt, even where the claimant has withdrawn it against security while the Revenue's or the State's appeal is pending.
• CIT v Hindustan Housing and Land Development Trust Ltd Supreme CourtHelps taxpayer
  An arbitrator enhanced the compensation for my land, the State has appealed against the whole of it, and I have taken the money out of court against a security bond. Has that enhanced amount accrued to me?
  Not while the whole of it is in dispute. The Supreme Court held that the extra compensation awarded by the arbitrator had not accrued in the year of the award, because the State Government's appeal put the entire amount in issue and the dispute was real and substantial - a point the Court underlined by the fact that the assessee could only withdraw the deposit on a security bond to refund it if the appeal succeeded. The right to compensation of that kind is inchoate until the amount is finally determined; there is no liability in praesenti, and so no enforceable right to any particular amount, and nothing accrues. The line the Court drew is between a case where the right to receive payment is itself in dispute and a case where the right is admitted and only quantification is left.
• 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.
• Mahender Pal Narang v Central Board of Direct Taxes High CourtHelps departmentHigh Courts differ
  For a year after 2010, is the interest I received under s.28 of the Land Acquisition Act still capital gains following Ghanshyam, or has s.56(2)(viii) changed that?
  The Punjab and Haryana High Court held that the insertion of s.56(2)(viii) and s.57(iv) has changed the position, and that interest received on compensation or enhanced compensation is to be treated as income from other sources and not under the head capital gains. It said in terms that Ghanshyam does not come to the rescue of a claimant seeking to have s.28 interest treated as compensation, and it expressly recorded its disagreement with the Gujarat High Court in Movaliya Bhikhubhai Balabhai.
• Ranjeet Singh v ITO, Ward-1(1), Bathinda ITATHelps taxpayer
  My land was taken under the National Highways Act, the award was announced in 2014 but the money reached me in 2015. The Assessing Officer says s.96 of the RFCTLARR Act does not apply. Is he right?
  The Tribunal held he was not, and deleted the addition. Where the award under s.3G of the National Highways Act, 1956 had been announced before 31 December 2014 but the compensation had not actually been paid by that date, the compensation falls to be paid in accordance with the First Schedule to the RFCTLARR Act, 2013, and is exempt under s.96 of that Act read with CBDT Circular No. 36/2016 dated 25 October 2016.

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.