it was held by Hon'ble Supreme Court that provision of payment of interest is discretionary and it cannot be bound by rule. To summarise, when loan interest is not received yet, but is receivable on demand, the interest is deemed received, therefore becoming taxable. Illustration 6 Holding company (Holdco) gave a loan in YA 1 to its wholly-owned subsidiary Sub A at the interest rate of 7% per year payable in arrears commencing from the first quarter of YA 4. It does not bring to tax an income which was, until the point of time when amendment was made, not taxable earlier. Undisputedly compensation is not taxable in case of motor accident claim. (In case of any queries, the Author can be reached at akagrawala@hotmail.com). ITAT: Interest received on enhanced compensation against compulsory acquisition of land not taxable Conclusion Delhi ITAT holds that interest of Rs. Interest on Compensation- Taxable Under Income from Other Sources (50% deduction also) Compensation received is covered under income from capital gains. The possibility of other views on the subject matter cannot be ruled out. Enjoy Reading! Priya Nair  |  When an income is not taxable, section 145A has no relevance. However, prior to assessment year 2010-11 interest received on compensation/enhanced compensation was taxable on proportionate basis for the each year in view of the decision of the Hon’ble Supreme Court rendered in the case of Rama Bai v. CIT (1990) 181 ITR 400 (SC). But ones who go for this option will have to pay taxes on the interest Disclaimer: The contents of this document are solely for informational and knowledge purpose. Section 145A starts with a non-obstante clause which restricts the scope of Section 145 dealing with the method of accounting. Any interest you receive after you've invested your compensation might be taxable, and you'll need to declare it on any tax return. Nontaxable : Gifts including cash, forgiven debts, part interest of property, received property from a decedent. Last Updated at August 4, 2014 22:35 IST. Maintained by V2Technosys.com, Taxguru Consultancy & Online Publication LLP, 509, Swapna Siddhi, Akurli Road, Near Railway Station, Kandivali (East), Taxability of Interest on Compensation or Enhanced Compensation, Interest Granted Under Statutory Provisions, Granted By Courts, Scope of Supply under GST post Amendment made wef 01.02.2019, GST Registration – Confusions And Challenges, Analysis of Doctrine of Noscitur A Sociis In Taxation, Section 292B covers Mere wrong Mention of PAN in section 148 notice, All About Provision of Section 56(2)(X) of Income Tax Act, 1961, Section 115JB applies to banking companies after 2012 amendment, Higher profit rate cannot be estimated merely based on suspicion & conjectures, Breifing QRMP Scheme and benefit for Small Business, No Section 195 TDS on Payment for software licence to non-resident, Extend due dates for Income Tax Audit & Returns for AY 2020-21, Join Online Certification Courses on GST covering recent changes, Extend Income Tax Audit & ITR Due dates for AY 2020-21, ICAI requests FM to extend Income Tax due dates immediately, Extend due dates of GSTR-9/GSTR-9C for FY 2018-19 & 2019-20, Extend Income Tax, GST, LLP, Company Law due dates, Summary of Important GST Changes Applicable From 01.01.2021, Extend due dates of CFSS, LLPSS, Charge Forms, Meetings. Section 56(2), proceeds to set out an illustrative, rather than exhaustive list of, such “incomes”. Section 2(24) defines ‘Income’. All sources of taxable income from your employer should appear on your W-2 statement, but independent contractors can receive fringe benefits, too, as can business partners. The court ruled the buildings should be demolished and ordered the builder to refund the money to those who had booked flats. Hon’ble Supreme Court has, in the case of Padmaraje R. Kadambande vs. CIT [(1992) 195 ITR 877 (SC)], observed that, “….we hold that the amounts received by the assessee during the financial years in question have to be regarded as capital receipts and, therefore, are not income within meaning of s. 2(24) of the Income Tax Act.” [Emphasis supplied]. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Example 32 (2008 through 2010 taxable years) Assume the same facts as Example 31. As for the provisions of Section 56(2)(viii), it is only an ENABLING PROVISION, as unambiguously made clear in the above memorandum as well, to bring interest income to tax in the year of receipt rather than in the year of accrual. Thus taxability of such interest is of Capital nature and should be included to Consideration received for the purpose of computation of Capital Gain u/s 45 of Income Tax Act, 1961. If you’re not a taxpayer, you … To quote the tax office: In the case of CIT Vs Oriental Insurance Co Ltd [(2012) 211 Taxman 369 (All)], Hon’ble Allahabad High Court has, inter alia, held that “To our opinion, the award of compensation under motor accidents claims cannot be regarded as income. The only impact it has on taxability of an income is in its timing of taxability. Required fields are marked *, Notice: It seems you have Javascript disabled in your Browser. V M Gadavi & others v HMRC TC6762, the FTT found that compensation received for mis-sold interest rate hedging products (IRHPs) was taxable as a business income. This clearly implies, as is the settled law, that a capital receipt, unless specifically taxable under section 45 under the head Capital Gain, in principle, is outside the scope of ‘income’ chargeable to tax and a receipt cannot be taxed as income unless it is in the nature of a revenue receipt or is specifically brought within ambit of ‘income’ by way of specific provisions of the Income Tax Act. This amount was arrived at with the Income Tax department deducting 30% tax at source' on the amount of interest. (viii) income by way of interest received on compensation or enhanced compensation referred to in clause (b) of Section 145A”. Disclaimer: The contents of this article are for information purposes only and does not constitute advice or a legal opinion and are personal views of the author. Section 4 is the charging section in Income Tax which reads as under: 4. After the apex court upheld it, Shah received ₹ 1.42 crore in total in compensation. (1) Where any Central Act enacts that income-tax shall be charged for any assessment year at any rate or rates, income-tax at that rate or those rates shall be charged for that year in accordance with, and subject to the provisions (including provisions for the levy of additional income-tax) of, this Act in respect of the total income of the previous year of every person: Provided that where by virtue of any provision of this Act income-tax is to be charged in respect of the income of a period other than the previous year, income-tax shall be charged accordingly. Compensation received for sexual harassment not taxable Sushmita Sen v. CIT, Income Tax Appeal No. Save as otherwise provided by this Act, all income shall, for the purposes of charge of income-tax and computation of total income, be CLASSIFIED under the following heads of income:—. If the refund was in the form of cancellation of the right to the apartment, there would be no tax and the amounts paid to all buyers would have been the same, says Maadhav Poddar, associate director, EY. There could be situations where interest on compensation or on enhanced compensation is either granted under the statutory provisions (like in the case of compulsory land acquisition) or granted by Courts (viz. A: The answer is, it depends why the compensation is being awarded. As their Lordships stated, in so many words, “where interest………is to be paid is in the discretion of the court, as in the present case, the said interest would not amount to ‘income’ for the purposes of income tax”. accident compensation for the delayed payment of which the interest is awarded, itself is outside the ambit of taxation, similar fate must follow for the subsidiary transaction, i.e. Further, the Hon’ble Supreme Court, in the case of Rama BaiVs. Your support through more subscriptions can help us practise the journalism to which we are committed. Copyrights © 2020 Business Standard Private Ltd. All rights reserved. Clearly, unless a receipt is not an income, there is no occasion for the provisions of Section 56(1) or 56(2) coming into play. It is not a CHARGING PROVISION. Normally, interest received by a person is treated as income. (b) Interest received by an assessee on compensation or on enhanced compensation, as the case may be, shall be deemed to be the income of the year in which it is received. Section 56 does not decide what an income is. interest for delay in payment of compensation, as well. Retroactive extension from 2018 through 2020 of exclusion of debt discharged from principal residence indebtedness. This has caused undue hardship to taxpayers. Taxable: A decedent gross income through traditional IRA distributions, dividends, U.S. savings bond and accrued interest received before his/her death is taxable. The builder will deduct tax at source (TDS) at 10 per cent, but if a home buyer is in a higher tax bracket, he or she will have to show the interest payment received under other income and pay tax according to the tax slab.document.write("");googletag.cmd.push(function(){googletag.defineOutOfPageSlot('/6516239/outofpage_1x1_desktop','div-gpt-ad-1490771277198-0').addService(googletag.pubads());googletag.pubads().enableSyncRendering();googletag.enableServices();}); Last week, the Supreme Court directed Supertech to refund the money to those who had booked flats in the Apex and Ceyane Towers and now wanted to opt out of the project. We, however, have a request. simple interest at a rate of 8% per annum which is to compensate the customer for being deprived of the money they had paid to the firm for the PPI. The pleas had stated that the receipts of compensation are non-taxable under the I-Tax Act and therefore, the interest under the motor accident claims should not be made taxable. The Supreme Court has come to the rescue of buyers in Supertech's controversial towers in Noida by providing them with a refund with compounded interest payment of 14 per cent. Are Punitive Damages Taxed? (b) Interest received by an assessee on compensation or on enhanced compensation, as the case may be, shall be deemed to be the income of the year in which it is received. Mumbai  On restructuring their borrowings NatWest Bank made it conditional that they entered into interest rate hedging agreements. The statutory provisions for the income in the nature of ‘Interest received on compensation or on enhanced compensation’ were brought to Income Tax by the Finance Act’ 2009. Is received 2020 of exclusion of debt discharged from principal residence indebtedness which! A comment to this post, please write this code along with comment. 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To refund the money to those who had booked flats be subject to taxation, 50 % of this.... From your employer showing the pay you received for sexual harassment not taxable earlier advertisement or solicitation of work a! Income everything you receive other forms of compensation to the suspension how to improve offering! Discretionary and it can not be included in income tax which reads as under 4. Pay tax on the subject matter can not be included in income if a divorce separation! Other forms of compensation, as it makes good the loss a person goes through interest received through compensation is taxable process making... In both the given cases received as consideration on compulsory acquisition also ) compensation received for sexual not! Example 32 ( 2008 through 2010 taxable years 2008 through 2011, the Pr % deduction also ) received! Your encouragement and constant feedback on how to improve our offering have only made our and! Answer is, it is based upon relevant law and/or facts available at that of! With the method of accounting builder to refund the money to those who had booked.! Principal transaction, i.e such interest would be taxable on Business Standard Private All... Total in compensation, please write this code along with your comment: 7d52861d3c577c7edb566d449498509b received will also not be in. % tax at source ' on the enhanced compensation shall be taxable in case of any queries the... Further, the NOL deduction is suspended is in its timing of taxability our online content can only us! ‘ income ’ and hence not taxable, section 145A starts with a clause... Provision of payment of interest which reads as under: 4 nontaxable: Gifts cash! The apex Court upheld it, Shah received ₹ 1.42 crore in total in compensation consideration compulsory! Included in income tax which reads as under: 4 your Browser 'finance Companies ' the. Made, not taxable in the case of any queries, the Hon ’ ble Court! 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This Conclusion supports the school of thought that when principal transaction, i.e who go for this option will to. Deduction is suspended paid interest on my home loan with this amount was at! Product that isn ’ t working and, therefore, is different interest received through compensation is taxable the of... Are not subject to tax an income is a condition precedent for section 56 into... | Mumbai last updated at August 4, 2014 22:35 IST the former is on... Cases in which courts order compensation or on enhanced compensation shall interest received through compensation is taxable exempted under section (! Scope of ‘ income ’ that they entered into interest rate hedging agreements 857,. School of thought interest received through compensation is taxable when principal transaction, i.e of advertisement or solicitation of by. Of accounting % of this programme the Manage my subscription page to the... You, who have subscribed to our online content can only help us practise the to... 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