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Before: Shri V. Durga Rao & Shri G. Manjunatha
PER V. DURGA RAO, JUDICIAL MEMBER:
This appeal filed by the Revenue is directed against the order of the ld. Commissioner of Income Tax (Appeals) 1, Trichy, dated 23.09.2020 relevant to the assessment year 2016-17. The only issue involved in this appeal is relating to the land acquisition compensation under compulsory acquisition by the Government is exempt or not.
The appeal filed by the Revenue is delayed by 51 days in filing the appeal due to outbreak of Covid-10 pandemic and accordingly, the delay in filing the appeal is condoned and admitted for adjudication.
Facts are, in brief, that the assessee’s wife initially purchased the property on 16.06.2008 as a power of attorney (POA) holder from Smt. V. Maheswari, Shri K. Balachander and Smt. R. Gunasundari. Same land was transferred by assessee’s wife in the name of the assessee and the same was registered by document No. 1988/2014 dated 15.10.2013. The same land has been acquired by the Government and paid compensation of ₹.5,19,61,705/-. This fact is not in disputed by the Assessing Officer. However, the Assessing Officer has treated the compensation received by the assessee as short term capital gains and accordingly taxed. On appeal, by following the Circular No. 36/2016 dated 25.10.2016 issued by the CBDT and also by considering the Proceedings of the Authorised Officer cum Special District Revenue Officer (Land Acquisition), National Highways-67, Nagapattinam, Thanjavur Division (Camp: Tiruvarur), dated 01.12.2015, the ld. CIT(A) has held that the entire land acquisition compensation received by the assessee is exempt, whether it is short term capital gains or long term capital gains.
Against the order passed by the ld. CIT(A), the Revenue is in appeal before the Tribunal. The ld. DR strongly relied upon the order passed by the Assessing Officer.
On the other hand, the ld. Counsel for the assessee has strongly relied upon the order passed by the ld. CIT(A) besides placing reliance on the judgement of the Hon’ble Kerala High Court in the case of M. Viswanathan v. CCIT in WP(C) No. 3227 of 2020 (C) dated 18.02.2020 also the decision of the ITAT Patna Bench in I.T.A. No. 210/PAT/2018 in the case of ITO v. Shri Suresh Prasad dated 04.08.2022 and prayed for confirming the order passed by the ld. CIT(A).
We have heard both the sides, perused the materials available on record and gone through the orders of authorities below including case law relied upon and the circular issued by the CBDT. The land and the house property of the assessee was acquired by the Government for expansion of road and compensation was paid to the assessee of ₹.5,19,61,705/- out of which 10% TDS was deducted and net amount of ₹.4,67,65,534/- has been received by the assessee. Out of this amount, the assessee has deposited ₹.2,00,00,000/- into capital gain deposit scheme. The Assessing Officer has held that the asset is short term capital asset and determined short term capital gain. On appeal, after reproducing the order No. 05/2015-2016 of the Proceedings of the Authorised Officer cum Special District Revenue
Officer (Land Acquisition), National Highways-67, Nagapattinam-
Thanjavur Division (Camp: Tiruvarur), the ld. CIT(A) has observed and held as under:
[Findings of the Authorised Officer cum Special District Revenue Officer (Land Acquisition)] The entire extent subject to acquisition in TS. Nos. 3/3A and 3/3B has been purchased by the claimant's husband Sultan Abdul Kader vide document No.1988 dated 15.10.2013 and the same is in his possession and enjoyment, besides the village records and the Patta Transfer order has been filed in proof of her claim. As the claimants husband is abroad his wife has appeared for enquiry and given a statement as well as documents and requested that the compensation awarded for the lands acquired may be granted to Sultan Abdul Kader is the statement of Barakathunnisa wife of Sultan Abdul Kader. As per the documents filed in support of ownership, Surveyor's certificate and the oral statement, the claimant's ownership is confirmed. There is no construction nor any trees in this survey number further this survey number does not attract the Land Reforms Act. As the acquired land is a Punjai site, income tax has been deducted. Therefore, in order to facilitate the grant of the compensation for the acquisition of 6100 sq. mts. comprised in T.S. No.3/3 (3/3A, 3/381) in accordance with the rules cited in reference letters 7, 8, 9, 10, 11 and 18 and it is hereby fixed and ordered In favour of Sultan Abdul Kader son of Mohamed Dawood. The compensation amount payable to the land owners as per the order in accordance with the new act 30/2013 Sect. 30(1) 100% consolation amount and 12% interest as per Sec. 30(3), the amount will be paid from the fund (NHAI) paid into the Bank. As these lands have come within the juri iction of the Central Government free of any encumbrance as per the National Highways Act of India 1956 (48/1956), hence for the acquired lands shall be classified as National Highways Central Government in the revenue records and it is thus ordered.
8 It would be pertinent to mention that when a particular stream of income has been held by the CBDT not to be taxable at all the question whether this was on account of a short term or tong term capital asset would not to be a determining factor. In view of the binding nature of CBDT circulars and the similarity of the facts mentioned the Circular, the Kerala High Court judgement as extracted above it would appear that assessee deserves succeed. As a result the compensation received by the assessee will not be taxable at all and assessment of the same as taxable capital gains appears to be under mistaken interpretation of the law.
As a result appeal of assessee hereby ALLOWED and additions made on account of capital gain stand deleted.”
1 In this case, the property was originally purchased by wife of the assessee. Subsequently, the same was transferred in the name of the husband (assessee) vide Sale Deed document No.1988/2014 registered on 10/10/2013. This property was compulsorily acquired by the NH department, vide proceedings of the Authorized Officer Cum Special District Revenue Officer (Land Acquisition), National Highways 67-Thanjavur Division, dated 01/12/2015 and a compensation of ₹.5,19,61,705/- was awarded to the assessee. As per section 96 of RFCALARR 2013, the compensation received is exempt from tax. The relevant orders of the Authorized Officer Cum Special District Revenue Officer (Land Acquisition), as has been reproduced in the appellate order above the findings of the ld. CIT(A) are extracted hereinabove, which is not in dispute.
2 Further, vide Circular No. 36/2016 dated 25.10.2016, the CBDT has notified the Taxability of the compensation received by the land 2013 ('RFCTLARR Act') and the same are reproduced as under: Subject: Taxability of the compensation received by the land owners for the land acquired under the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 ('RFCTLARR Act')-reg. Under the existing provisions of the Income-tax Act, 1961 ('the Act'), an agricultural land which is not situated in specified urban area, is not regarded as a capital asset. Hence, capital gains arising from the transfer (including compulsory acquisition) of such agricultural land is not taxable. Finance (No. 2) Act, 2004 inserted section 10(37) in the Act from 01.04.2005 to provide specific exemption to the capital gains arising to an Individual or a HUF from compulsory acquisition of an agricultural land situated in specified urban limit, subject to fulfilment of certain conditions. Therefore, compensation received from compulsory acquisition of an agricultural land is not taxable under the Act (subject to fulfilment of certain conditions for specified urban land). The RFCTLARR Act which came into effect from 1st January, 2014, in 2. section 96, inter alia provides that income-tax shall not be levied on any award or agreement made (except those made under section 46) under the RFCTLARR Act. Therefore, compensation received for compulsory acquisition of land under the RFCTLARR Act (except those made under section 46 of RFCTLARR Act), is exempted from the levy of income-tax.
As no distinction has been made between compensation received for compulsory acquisition of agricultural land and non-agricultural land in the matter of providing exemption from income-tax under the RFCTLARR Act, the exemption provided under section 96 of the RFCTLARR Act is wider in scope than the tax- exemption provided under the existing provisions of Income-tax Act, 1961. This has created uncertainty in the matter of taxability of compensation received on compulsory acquisition of land, especially those relating to acquisition of non- agricultural land. The matter has been examined by the Board and it is hereby clarified that compensation received in respect of award or agreement which has been exempted from levy of income-tax vide section 96 of the RFCTLARR Act shall also not be taxable under the provisions of Income-tax Act, 1961 even if there is no specific provision of exemption for such compensation in the Income-tax Act, 1961. 6.3 I.T.A. No. 25/Chny/21
Department & Ors. In WP(C) No. 3227 of 2020(C) dated 18.02.2020, the Hon’ble Kerala High Court has observed and held as under:
“6. Having heard the learned counsel appearing for both the parties and apprising the paper books, I am of the view that there is force and merit in the submissions. The Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 came into force with effect from 01.01.2014. It is a matter of record that the parties to the lis; viz., the petitioner and the acquisition authority, for the purpose of coming out the way development had in unison agreed to acquire and give the land on the basis of certain conditions in fixing the market value. Petitioner, in lieu, thereof received 80% of the amount, i.e., Rs.43,51,786/-. I would not be commenting on the claim of the petitioner with regard to the balance amount, as the matter is subjudice in this Court. The language of Section 96 of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013, do not leave any doubt in the mind that if the land is either acquired or the result of an agreement, it could not fall within the mischief of Income Tax Act, in other words, exemption is liable to be granted. It is in this background of the matter and owing to certain confusions, the Central Board of Direct Tax vide the Circular No.36/2016 dated 25.08.2016 came out with a clarification. For the sake of brevity, only relevant portion of the circular is re-produced herein:- "
As no distinction has been made between the compensation received for compulsory acquisition of agricultural land and non- agricultural land in the matter of providing exemption from income- tax under the RFCTLARR Act, the exemption provided under Section 96 of the RFCTLARR Act is wider in scope than the tax-exemption provided under the existing provisions of Income-tax Act, 1961. This has created uncertainty in the matter of taxability of compensation received on compulsory acquisition of land, especially those relating to acquisition of non-agricultural land. The matter has been examined by the Board and it is hereby clarified that compensation received in respect of award or agreement which has been exempted from levy of income-tax vide section 96 of the RFCTLARR Act shall also not be taxable under the provisions of income-tax Act, 1961 even if there is no specific provision of exemption for such compensation in the Income-tax Act, 1961." The aforementioned clarification is totally opposite to what has been assessed by the Assessing Officer. For the reasons aforementioned, the assessment and demand notice cannot sustain and are hereby quashed.
4 The ld. DR could not controvert the above circular issued by the CBDT as well as judgement of the Hon’ble Kerala High Court. By considering the above circular issued by the CBDT, order of the Authorised Officer cum Special District Revenue Officer (Land Acquisition), judgement of the Hon’ble Kerala High Court in the case of M. Viswanathan v. CCIT (supra), the findings given by ld. CIT(A) that the compensation received by the assessee will not be taxable. The Assessing Officer has erroneously taxed the compensation received as short term capital gain. The same is corrected by the ld. CIT(A) by following CBDT circular and also the decision of the Hon’ble Kerala High Court in the case of M. Viswanathan v. CCIT (supra). Thus, we find no infirmity in the order passed by the ld. CIT(A) and the grounds raised by the Revenue are dismissed.
In the result, the appeal filed by the Revenue is dismissed. Order pronounced on 28th October, 2022 at Chennai. (G. MANJUNATHA) JUDICIAL MEMBER Chennai, Dated, 28.10.2022 Vm/- आदेश की "ितिलिप अ"ेिषत/Copy to: 1. अपीलाथ"/Appellant, 2.""थ"/ Respondent, 3. आयकर आयु" (अपील)/CIT(A), 4. आयकर आयु"/CIT, 5. िवभागीय "ितिनिध/DR & 6. गाड" फाईल/GF.