PRANAV SARAN,NEW DELHI vs. ACIT CIRCLE-32(1), NEW DELHI

PER AMIT SHUKLA, JM

The aforesaid appeal has been filed by the assessee against the

impugned order dated 18.03.2021, passed by the ld. National Faceless

Appeal Centre (NFAC), Delhi for the quantum of assessment passed

under section 143(3) of the Income-tax Act, 1961 (for short ‘the Act’)

for the Assessment Year 2016-17.

2 ITA No.499/Del./2021 2. In the grounds of appeal, the assessee has raised following

grounds :-

“1. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. AO in not allowing the benefit of exemption claimed by the assessee u/s 10(37) on the compulsory acquisition of agricultural land under the Land Acquisition Act and more so when all the conditions have been complied with by the assessee and further erred in exercising his jurisdiction u/s 251(2) in treating the subject agricultural land as 'Capital Asset' U/S 45(5) and that too by recording incorrect facts and findings and without appreciating the facts and circumstances of the case and in violation of principles of natural justice and without considering the submission filed by the assessee and without providing the entire adverse material available on record. 2. That in any case and in any view of the matter, action of Ld. CIT(A) in confirming the action of Ld. AO in not allowing the benefit of exemption claimed by the assessee u/s 10(37) on the compulsory acquisition of agricultural land under the Land Acquisition Act and more so when all the conditions have been complied with by the assessee and further erred in exercising his jurisdiction u/s 251 (2) in treating the subject agricultural land as 'capital asset' u/s 45(5), is bad in law and against the facts and circumstances of the case. 4. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in holding as under:- (a) That the land in question is a 'Capital Asset', whose acquisition by state Government is a transfer of capital asset wherein the principal compensation received by the appellant is chargeable to under the head 'Capital Gains' u/s 45 of Income Tax Act, 1961. (b) That interest on enhanced compensation is to be treated as 'Income from Other Sources' u/s 56 of Income Tax Act, 1961. 4. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in treating the interest on enhanced compensation as interest simpliciter whereas such interest is to be treated as part of compensation itself in view

3 ITA No.499/Del./2021 of authoritative judicial decisions and being part of compensation, ought to qualify for exemption u/s 10(37) of Income Tax Act, 1961.”

of income at Rs.3,34,10,040/- on 03.08.2016. Later on, return was

revised at Rs.1,70,83,650/- which was filed on 23.03.2018. The case

of the assessee was selected for limited scrutiny under CASS on the

following grounds :-

“Sale consideration of property reported by the assessee in schedule CG of ITR is less than the compensation on acquisition of immovable property reported by transferee of property in TDS return (for TDS u/s 194L and 194LA).”

compensation u/s 28 under the Land Acquisition Act, 1894, of

Rs.3,31,93,013/-. Later on, in the revised return, the assessee has

claimed 50% deduction u/s 57 of the Act on the said interest. The AO

accepted the interest income at Rs.1,70,83,650/- as shown in revised

return. However, during the course of assessment proceedings, the

assessee had raised a claim by way of letter that even the balance

amount of 50%, i.e., Rs.1,70,83,650/- itself was not taxable as

enhanced interest was awarded u/s 28 of the Land Acquisition Act

and, therefore, such interest income partakes the nature of

compensation as held by Hon’ble Supreme Court in the case of UOI

& Ors. Vs. Hari Singh reported in 302 CTR 458 (SC) and CIT vs.

4 ITA No.499/Del./2021 Ghanshyam (HUF) (2009) 315 ITR 1. According to the assessee,

since the land was agricultural land being used for agricultural

operations in for last many years of acquisition and, therefore, such

agricultural land which was acquired by the Government and thus

compensation received from the Government is exempt u/s 10(37) of

the Act. The AO however did not accept this claim.

however, instead of dealing with the controversy raised in the grounds

of appeal and was subject matter of appellate proceedings that amount

of interest received on the acquisition of land u/s 28 of the Land

Acquisition Act is exempt, has held that the land itself is not

agricultural and, therefore, there is no question of any exemption u/s

10(37) of the Act. Accordingly, there was an enhancement. One of the

allegations of the first appellate authority is that assessee has not

given any other evidence to show that impugned land was agricultural

land and merely relied upon the RTC. The entire case of the first

appellate authority revolves around the fact that the land, which was

the subject matter of award for compensation, was not used for

agricultural purposes. All the evidences filed before the first appellate

authority to substantiate that it was agricultural land have been

rejected and finally, it was held that the land was not agricultural land

5 ITA No.499/Del./2021 albeit it had commercial value having a strategic location and,

therefore, exemption u/s 10(37) cannot be allowed. The judgments

which was relied upon by the assessee has been distinguished and

many judgements have been quoted by him from his side and finally it

was concluded as under:-

“44. From the above facts and judicial pronouncements the appellant does not fulfill the conditions for claiming exemptions under section 10(37) of the Income tax Act, 1961. The nature and character of land, as seen from various documents submitted by the appellant during the assessment and appellate proceedings acquired by the Haryana Government under compulsory acquisition cannot be called Agricultural Land under the provisions of the Income-tax Act, 1961. In view of the above facts and circumstances the land in question is a ‘Capital Asset’, whose acquisition by State Government is a transfer of capital asset wherein the principle compensation received by the appellant is chargeable under the head Capital Gains under section 45 of the Income-tax Act, 1961. Interest on the enhanced compensation is to be treated as ‘Income from other sources’ under section 56 of the Income-tax Act, 1961. The AO is directed accordingly.”

submitted that insofar as the interest on enhanced compensation u/s

28 of the Land Acquisition Act in respect of agricultural land also

partakes the character of a compensation and, therefore, he is entitled

for compensation u/s 10(37) of the Act. In support, he relied upon

various judgments which are as under :-

6 ITA No.499/Del./2021 (i) ITO vs. Gordhan, ITA No.3996/2018 dated of order 15.01.2019 (Del.); (ii) Smt. Sushma Gupta vs. ITO, ITA No.1823/2016, dated of order 31.01.2019 (Del.);

(iii) ITO vs. Shri Vinayak Hari Palled, ITA No.05/2017 date of order 12.10.2018 (Bang.)

(iv) Jagmal Singh vs. ITO, ITA No.2340/2018 date of order 20.09.2018 (Del.);

(v) ITO vs. Shri Basavaraj M Kundarikannur, ITA Nos.1747 & 1750/2017 dated of order 01.06.2018 (Bang.);

(vi) Shri Yashpal Singh vs. ITO, ITA No.755/2013 date of order 18.03.2014 (Asr);

(vii) Sumesh Kumar vs. ITO, ITA No.5207/2017 date of order 05.03.2020 (Del.);

(viii) Shri Baldev Singh vs. ITO, ITA No.2970/2015 date of order 08.03.2019 (Del.);

(ix) ITO vs. Shri Dhanender Kumar HUF, ITA No.1591/2018 date of order 30.09.2019 (Chd);

(x) Shri Ummed Singh & Ors. vs. ITO, ITA Nos.5774-5777/2016 date of order 30.01.2020 (Del.); and

(xi) Mahesh Kumar Gupta vs. DCIT, ITA No.5986/2016 date of order 16.10.2019 (Del.) Copies of which have been filed in the paper book before us.

concerned, the same cannot be denied insofar as interest on enhanced

compensation received u/s 28 of the Land Acquisition Act. He also

7 ITA No.499/Del./2021 referred to copy of award, as appearing in pages 140 to 146 of the

paper book, passed by Land Acquisition Collector where it has been

categorically mentioned that the award classified the land as “Chahi”

which means irrigated land. The award also mentioned that there were

tubewells and trees and the land was under Kharif crop and farmers

have requested for permission to harvest the crop after ripening or

allowing them due compensation for the same and the Land

Acquisition Collector has allowed the owners for harvesting of the crop.

He also referred to Form ‘D’ issued by Land Acquisition Officer which

is issued in the case of compulsory acquisition of land which itself

goes to show that it was agricultural land only. This Form ‘D’ issued

by LAO has been signed by him and Patwari and Kanungo certifying

that it was an agricultural land. He also referred to copy of jamabandi

at pages 73 to 75 of the paper book which clearly shows that the land

was under self-cultivation and there were tubewells and it was

irrigated land establishing the nature of land as agriculture. He also

pointed out that in the earlier income-tax returns starting from AY

2004-05 onwards; assessee had shown agricultural income from these

land only.

the parameter of agricultural land. In response, the assessee had

8 ITA No.499/Del./2021 submitted the entire evidences showing that land acquired was

agricultural land and for which copy of jamabandi, Form-D, copy of

award, etc. was enclosed. The assessee had also submitted the

girdwari which gives the description of the crops produced in various

years. Hence, Ld. Counsel submitted that ld. NFAC erred on law and

facts in holding that compensation which was awarded on the

acquisition of the land by the Government was not an agricultural

land. In the light of these evidences and record, he submitted that

such a finding should be reversed.

all, interest received u/s 28 of the Land Acquisition Act is not part of

compensation and is taxable and in support decisions of Hon’ble

Punjab & Haryana High Court in case of Manjit Singh (2016) 65

taxman.com, Mahender Pal Narang vs. CBDT 423 ITR 13 and

Punit Singh vs. CIT (A) 110 taxman 16. Thus, AO has rightly denied

the exemption u/s 10(37) of the Act holding that interest received on

enhanced compensation u/s 28 of the Land Acquisition Act is taxable.

Insofar as observation and the finding of the ld. NFAC that it was not

agricultural land, he strongly relied upon the finding and reasoning of

the ld. first appellate authority.

9 ITA No.499/Del./2021 10. We have heard rival submissions and also perused the

relevant findings given in the impugned order as well as the material

referred to before us. Here in this case, the assessee is having

agricultural land in Village Gulab Nagar, HB-404, Tehsil Jagadari,

District Yamuna Nagar, Haryana. The assessee’s land was acquired by

the Government of Haryana and Land Acquisition Collector had

announced award on 16.07.2007 fixing the market value of the land at

Rs.20,00,000/- per acre. Later on, it was awarded enhanced

compensation of Rs.95,00,000/- per acre by Hon’ble Supreme Court.

The assessee was awarded interest u/s 28 of the Land Acquisition Act

of Rs.3,31,93,013/- and had claimed deduction of 50% in the revised

return and accordingly, in the return of income, the assessee has

shown income on this amount of interest at Rs.1,70,83,650/-. Later

on, during the course of assessment proceedings, the assessee claimed

that this interest is not taxable at all, because such interest is

enhanced income u/s 28 of the Land Acquisition Act and, therefore, it

partakes the character of compensation which is held to be not taxable

by Hon’ble Supreme Court in the case of CIT vs. Ghanshyam HUF

and in the case of UOI vs. Hari Singh (supra). Ld. AO however held

that the same is taxable. In the appeal filed before the first appellate

authority, NAFC, the first appellate authority changed the entire

10 ITA No.499/Del./2021 nature of controversy and held that the amount on which

compensation was awarded itself was not an agricultural land and,

therefore, assessee is not entitled for any exemption u/s 10(37) of the

Act which was brought into the statute to safeguard the interests of

the farmers by the State Government under schemes of compulsory

acquisition.

for the Revenue that whether interest awarded u/s 28 of the Land

Acquisition Act is part of compensation is taxable or not. According to

the provisions of Land Acquisition Act, when the land is acquired the

Collector may be directed to pay interest on excess compensation to

the landowner u/s 28 of the Land Acquisition Act which is by the

order of the Court and for the period the till excess compensation is

deposited in the court. The said section has following limb :-

Matter Section Period Rate To be awarded by the court 28 From the date of taking 9% along with the excess possession of land by compensation award the collector to the date of payment of excess award in the court Court may also direct for 28 From the date of expiry 15% payment of this interest if of. Of one year of the enhanced compensation is date of possession till paid into court after the the amount is date of expiry of. Of one deposited in the court. year from the date on which position is taken

11 ITA No.499/Del./2021 12. In Bikram Singh vs. Land Acquisition Collector (1996) 89

taxmann 119 (SC) three judges bench decisions dated September 12,

1996 considered the provisions of Section 2 (28A) of the income tax act

and defined the meaning of the interest. The issue before the court

was whether interest received on amount of compensation Under the

land acquisition act 1894 for the delay in its payment was income

receipt or not. The claim before the Hon’ble court by the assessee is

that payment of interest is only a payment in consideration of loss of

enjoyment of the possession of the land by the owner and not by way

of any charge on compensation and therefore it was not exigible to

income tax. It was also the claim that definition of interest u/s 2 (28A)

is confined only to money lending business between a debtor and the

creditor. The Hon’ble High Court of Punjab and Haryana in that case

has held that the interest is not part of compensation but it is awarded

for depriving assessee of user of such compensation due to delay in

payment and such is income. The Hon’ble Supreme Court:

i. Rejected the contention that definition of interest in Section 2 (28A) is only confined to money lending business. It held that the meaning of the interest Under the income tax act to mean interest payable in any manner in respect of an incurred including a deposit, claim or obligation and includes - - -

12 ITA No.499/Del./2021 ii. It held that once it is construed that any interest is a revenue receipt unless there is an exemption under the appropriate provision the revenue receipt is exigible to tax. It held that interest received as income on the delayed payment of the compensation determined under the provisions of the land acquisition act is a taxable event and therefore it is a revenue receipt exigible to tax u/s 4.

iii. The Hon’ble court held that the controversy was decided greatly in the case of Dr sham Lal Narula versus CIT (1964) 53 ITR 151 [ another three judges bench of Hon SC] wherein the definition of the interest was considered. It was held that when the title has passed on to the state any statutory interest provided thereafter can only be regarded either as representing the profit which the owner of the land might have made if here the use of the money or the losses suffered because he had not that use it cannot be held to be as damages or compensation. The court in that case held that the interest paid u] s 34 of the act is interest paid for the delayed payment of compensation and therefore it is a revenue receipt liable to tax under the income tax act.

iv. The court also considered several decisions of the Hon’ble Supreme Court in case of 66 ITR 465, 181 ITR 400 & 181 ITR 408.

v. The Hon’ble court in para number 10 categorically held that interest received as income on the delayed payment of the compensation determined u/s 28 or 31 [?] {sic 34} of the

13 ITA No.499/Del./2021 land acquisition act is taxable event. It held that it is a revenue receipt chargeable to tax u/ s 4 of the act.

vi. In that para only the court also hinted that appellants are entitled to spread over the income for which payment came to be made so as to compute the income for assessing tax for the relevant accounting year.

vii. It upheld the order of the Hon’ble Punjab and Haryana High Court.

occasion to determine the interest on compensation received by the

assessee in case of [2009] 182 Taxman 368 (SC)/[2009] 315 ITR 1

(SC)/[2009] 224 CIT versus Ghanshyam (HUF). The Hon’ble

Supreme Court held that:-

i. Year of taxability of enhanced compensation is the year of receipt. ii. Interest is different from compensation iii. Interest paid on the excess amount u/s 28 depends upon the claim of the landowner, interest u/ s 34 for compensating delay in making payment. iv. Interest u/s 28 is part of the compensation for the reason that it includes within its ambit both the market valuation and solatium. v. Interest u/s 34 is only for delay in making payment after the compensation amount is determined.

14 ITA No.499/Del./2021 vi. Interest u/s 28 is part of the enhanced value of land and is distinct from interest u/s 34 of the act. vii. The provisions of the income tax act were not at all considered in that case

case of Union of India versus Hari Singh and others where the order

was passed on September 15, 2017 wherein it has been held that

when the compensation is paid the assessing officer should keep into

mind the provisions of Section 28 of the land acquisition act and the

law laid down by the Hon’ble Supreme Court in case of can sham HUF

in order to ascertain whether the interest given Under the said

provision amounts to compensation or not.

2010 there is an amendment Under the provisions of Section 56 (2)

(viii) which provided that income by way of interest received on

compensation or on enhanced compensation referred to in clause (B)

of Section 145A is an income. A corresponding provision was also

introduced u/s 57 (iv) providing for deduction of a sum equal to the

50% of the income chargeable to tax under the above provision. The

provisions of Section 145A (B) was also introduced providing that

interest received by the assessee shall be deemed to be the income of

the year in which it is received. Subsequently with retrospective effect

15 ITA No.499/Del./2021 from 1.4.2017 The Finance Act 2018 provided that income by way of

interest received on compensation or enhanced compensation is

chargeable to tax as income from other sources Under the provisions

of Section 56 (2) (viii) of the act.

consistent view that interest received on delayed payment of

compensation under either Section 28 or u/s 34 is taxable as income

from other sources in the year of the receipt under the act. Such view

was after considering the order of the Hon’ble Supreme Court in Dr

Shyam Lal Narula, Bikram Singh, (supra). In the cases of Puneet

Singh versus CIT (2019) 110 taxmann.com 16 and Manjeet Singh HUF

versus Union of India (2016) 65 taxmann.com 160, wherein similar

issue was involved, in those decisions the interest received u/s 28 of

the land acquisition act was in question and it was held that same is

chargeable to tax u/s 56 of the act. It further held that the decision of

the Hon’ble Punjab and Haryana High Court in case of CIT versus Bir

Singh HUF does not require any consideration in view of the judgment

of the Hon’ble Supreme Court in case of Ghanshyam HUF. The Hon’ble

High Court also held that in view of the authoritative pronouncement

of the Hon’ble Supreme Court in case of Shaymlal Narula, Govindraja

Chetty , Amarjit Singh, Sunder and Bikram Singh, Rama Bai and K S

16 ITA No.499/Del./2021 Krishna Rao, the assessee cannot derive any benefit from the

observation made by the Hon’ble Supreme Court in the case of

Ghanshyam HUF.

of Movaliya Bhikhubhai Balabhai vs. ITO (2016) 70 taxmann.com

45 (Gujarat), wherein it has been held that interest on compensation

or enhanced compensation u/s 28 of the land acquisition act forms

part of compensation and not an interest as contemplated Under the

provisions of Section 145A of the act and therefore same are not

taxable Under the head income from other sources and revenue was

not justified in deducting tax at source u/s 194A of the act. Before the

Hon’ble Gujarat High Court, revenue placed reliance upon the decision

of the Hon’ble Punjab and Haryana High Court in case of Hari Kishan

versus Union of India and CIT versus Bir Singh HUF. The reliance was

also placed upon the decision of the Hon’ble Supreme Court in case of

Dr Sham Lal Narula, Govindaraju and Bikram Singh. The Hon’ble

Gujarat High Court after considering all the decisions of the various

courts disagreed with the view taken by the Hon’ble Punjab and

Haryana High Court and held that interest received u/s 28 of the

income tax act is part of the compensation and is not an interest as

17 ITA No.499/Del./2021 contemplated u/s l45A of the income tax act and therefore same is not

taxable u/s 56 (2) of the act.

that Hon’ble Punjab and Haryana High Court in case of Jagmal

Singh versus State of Haryana in civil revision number 7740 of

2012 on 18 Jul 2013 has clearly held that the interest u/s 28 is part

of the compensation unlike u/s 34 of the act which is income. This

was the solitary judgment of the Hon’ble Punjab and Haryana High

Court taking a view that interest on compensation u/s 28 of the land

acquisition act is not an income chargeable to tax as interest but is

part of compensation. However, in the latest decision of Hon’ble

Punjab & Haryana High Court in the case Mahindra Pal Narang vs.

CBDT (2020) 423 ITR 13 dated 19/2/2020 wherein the Hon’ble

High Court considered the provisions of Section 10 (37), 56 (2) (viii), 57

(iv), 145A (b) of the income tax act. It rejected the reliance by the

assessee on the decision of Hon’ble Supreme Court in Ghanshyam

HUF. It further rejected the reliance by the assessee on the decision of

the Hon’ble Gujarat High Court in Movaliya's case holding that the

Hon’ble Gujarat High Court did not read properly the paragraph

number 46.3 of the circular number 5 of 2010 where all interest

received on compensation or on enhanced compensation shall be

18 ITA No.499/Del./2021 assessed as income from other sources in the year in which it is

received. It further held that in view of the amendment to the

provisions of the income tax act decision of the Hon’ble Supreme Court

in the case of Ghanshyam does not come to the rescue of the assessee.

It further held that the language of the income tax act with respect to

the chargeability of interest as income is plain, simple and

unambiguous and therefore no scope of taking outside aid for giving

any interpretation to this subsection or clauses are required. Thus it

held that interest received on compensation or enhanced

compensation is to be treated as income from other sources and not

under the head capital gains. Special leave petition against this

decision has been dismissed by the Hon’ble Supreme Court.

the enhanced compensation awarded u/s 28 of the Land Acquisition

Act wherein the Hon’ble Punjab & Haryana High Court has

consistently taking a view that it is an income to be treated under the

head ‘income from other sources’. The Hon’ble Gujarat High Court

has decided this issue in favour of the assessee following the decision

of Hon’ble Supreme Court in the case of Ghanshyam (supra). Since the

AO of the present case falls under the jurisdiction of Hon’ble Delhi

High Court, therefore following the dictum that, if one High Court is in

19 ITA No.499/Del./2021 favour of the assessee, then in absence of any jurisdictional High

Court, that should be followed in favour of the assessee. Thus, ratio of

Hon’ble Punjab & Haryana High Court may not have any binding

precedent. Thus, the interest on the enhanced compensation u/s 28 of

the Land Acquisition Act is not taxable.

or not, from the bare perusal of various evidences which were filed

before the ld. first appellate authority viz. –

(i) Award showing the land as irrigated land; (ii) Existence of tubewells, tress and kharif crops; (iii) Form No.D issued by Land Acquisition Officer which was signed by him and also by Patwari & Kanungo clearly mentioned that the amount paid to the assessee is against agricultural land; (iv) Jamabandi showing the nature of crops produced; and (v) Income-tax returns showing agricultural income; it cannot be inferred even remotely that the land which was acquired

by the Government was not an agricultural land. The observation and

the finding of the ld. first appellate authority despite noting down

these evidences does not have any basis to negate these evidences nor

any independent enquiry has been made to counter these evidences.

In fact the entire impugned order revolves around on various case laws

20 ITA No.499/Del./2021 and the facts discussed herein which has been distinguished by ld.

counsel before us. However, we do not find it relevant to discuss here,

as none of the case laws are relevant for the present case in the light of

these evidences. Once the Land Acquisition Officer as well as court

have awarded the compensation treating to be an agricultural land

and not only that, all the Revenue departments have certified that it

was an agricultural land and substantial proof has been given that

agricultural activities were being carried out, then to say that it was a

commercial land and not an agricultural land, is unjustifiable.

which the compensation has been awarded by the court; and secondly,

the interest received on enhanced compensation u/s 28 of the Land

Acquisition Act is part of compensation and hence is not taxable,

accordingly assessee is entitled for exemption u/s 10(37) of the Act.

Order was pronounced on this 4th day of May, 2022.

Sd/- sd/- (PRADIP KUMAR KEDIA) (AMIT SHUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER

Dated: 04.05.2022 TS

21 ITA No.499/Del./2021