VEERASWAMY JOTHEESWARAN,TIRUVALLUR vs. ITO, WARD-1,, TIRUVALLUR

The Special Leave Petition is dismissed. 2. Pending application stands disposed of.”

4 Recently Hon’ble ITAT (G) bench has ruled the same in the case of Veena Shah vs PCIT [2024] 165 taxmann.com 51 on the identical issue. The AO rightly treated the same as income from other sources and given the benefit of deduction of 50% as per section 57(iv) of the IT Act and tax Rs.17,99,975/- as interest income for the AY 2018-19. There is no mistake in the well-reasoned assessment order passed by the AO.”

Aggrieved by the order of the FAA, the assessee has filed the present appeal before the Tribunal. The assessee has filed two sets :- 6 -: of paper-book. In one set of paper-book, assessee has enclosed the case laws relied on. In the other paper-book, assessee has enclosed therein the written submissions filed before the FAA, the award documents, the working of enhanced compensation, the notices issued during the course of reassessment proceedings, etc. The Ld.AR, as regards the issues on merits submitted that the same is covered in favour of assessee by two orders of Chennai Bench of the Tribunal which had followed the Hon’ble Kerala High Court judgment in the case of Anvar Ali Poolakkodan vs. ITO reported in 173 taxmann.com 633. The two orders of the Chennai Bench of the Tribunal are as follows:- i. Malini vs. ACIT in ITA No.2362/Chny/2024, order dated 27.03.2025 ii. Devaraya Pillai Subramanian vs. ITO in ITA No.561/Chny/2025, order dated 04.09.2025

The Ld.DR strongly supported the orders of the AO and the FAA.

I have heard rival submissions and perused the material on record. Admitted facts are that assessee’s agricultural property has been compulsorily acquired under the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 (hereinafter the ‘RFCTLARR Act’). The :- 7 -: assessee during the relevant assessment year had received enhanced compensation of Rs.93,28,713/- which also included interest on enhanced compensation of Rs.35,99,509/-. By virtue of CBDT Circular No.36/2016, dated 25.10.2016, Compensation received in respect of award or agreement which has been exempted from levy of income-tax vide section 96 of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 (RFCTLARR Act, 2013) shall also not be taxable under the provisions of the Income-tax Act even if there is no specific provision of exemption for such compensation in the Income-tax Act, 1961. The limited issue for adjudication is regarding whether the interest on enhanced compensation which was not offered for taxation could be brought to tax u/s.56(2)(viii) r.w.s.57(iv) of the Act. The issue raised is no longer res integra, the Chennai Bench of the Tribunal in the case of Malini vs. ACIT, supra, on identical facts had held that interest received on enhanced compensation for compulsory acquisition of land is akin to the compensation for compulsory acquisition of land which is exempt from taxation by virtue of section 96 of RFCTLARR Act. The relevant finding of the Chennai Bench of the Tribunal order in the case of Malini vs. ACIT, supra is as follows:- 9. Heard both the sides, perused the material available on record and gone through the orders of authorities below as well as case law relied on by the assessee. There is no dispute that the assessee has received :- 8 -: interest on enhanced compensation on compulsory acquisition of agricultural land for the assessment year under consideration. The ld. Counsel for the assessee has brought to our notice about the provisions of section 96 of Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 [RFCTLARR Act, 2013] says that no income tax or stamp duty shall be levied on award or agreement made under this Act except under section 46 and no person claiming under any such award or agreement shall be liable to pay any fee for a copy of the same. Therefore, according to section 96 of RFCTARR Act, 2013, the interest received towards delayed payment of compensation for compulsory acquisition of land is exempted from income tax by virtue of enactment of the RFCTARR Act. Further, as per section 3(i) of RFCTARR Act provides cost of acquisition includes amount of compensation which includes solatium any enhanced compensation ordered by the Land resettlement Authority or the Court and interest payable thereon and any other amount determined as payable to the affected families by such Authority or Court. Therefore, the interest awarded by the authority on the enhanced compensation on compulsory acquisition of land is part of the compensation and hence, not taxable under the Income Tax Act by virtue of provisions containing under section 10(37) of the Act.

Apart from the above discussions, the assessee also relied on the decision of the Coordinate Bench this Tribunal in the case of ACIT v. M/s. SV Global Mill Ltd. (supra), wherein, it was held that “….we are of the considered view that interest received by the assessee towards delayed payment of compensation for compulsory acquisition of land is akin to compensation for compulsory acquisition of land, which is exempt from income tax by virtue of section 96 of RFCTARR Act, 2013. The ld. CIT(A) after considering relevant facts has rightly deleted additions made by the AO towards interest u/s 56(2)(viii) of the IT Act. There is no error in the finding recorded by the ld. CIT(A) and hence, we are inclined to uphold the order of the CIT(A) and dismiss the appeal filed by the Revenue.

Further, we find that in the case of CIT v. Ghanshyam (HUF) (supra), wherein, the Hon’ble Supreme Court held that “interest paid under section 28 of the Land Acquisition Act forms part of :- 9 -: compensation and is a part of enhanced value of the land”. The Hon’ble Gujarat High Court in the case of Movaliya Bhikhubhai Balabhai v. ITO 388 ITR 343 held that interest forms part of compensation and the same is not taxable. Therefore, we are of the view that these two judgements are rendered in consonance with the provisions of section 3(i) of new RFCTARR Act, 2013, which defines the term compensation, which includes interest, if any, payable under the said Act. Hence, the Assessing Officer as well as the ld. CIT(A) are not justified in making addition under section 56(2)(viii) of the Act on the receipt of enhanced interest received by way of enhanced compensation for compulsory acquisition of land. Thus, the order of the ld. CIT(A) is set aside and delete the addition made by the Assessing Officer. Thus, the grounds raised by the assessee are allowed.”

Similarly, another Bench of the Chennai Tribunal in the case of Devaraya Pillai Subramanian vs. ITO, supra by following the Hon’ble Kerala High Court judgment had held as follows:- 19. We have heard rival submissions and perused the material on record along with paper book filed and gone through the orders of the authorities. Admittedly the assessee had received the disputed interest in consequence to the compulsory acquisition and hence the only issue to be adjudicated in the present appeal is whether the AO was correct in bringing to tax the sum of Rs.22,46,610/- (50 % of the of interest on enhanced compensation amounting to Rs. 44,93,229/- as income of the appellant by invoking the Section 56(2)(viii) r.w.s 145B(i).

We have perused the judgments of the Punjab & Haryana High Court and Kerala High Court referred supra wherein the identical issues were considered by the Hon'ble Courts. We note that on this issue there are divergent views expressed by the Hon'ble High Courts. The Hon'ble Punjab & Haryana High Court had decided the issue in favour of the Revenue and the Hon'ble Kerala had held the issue in favour of the Assessee. In such a scenario, as held by the Hon'ble Supreme Court in the case of Vegetable Products (supra), we are inclined to follow the decisions in favour of the assessee on the issue in hand. :- 10 -: 21. The ratio laid down by the Hon'ble Kerala High Court in the case of Anvar Ali Poolakkodan (supra) under identical circumstances reads as under:

Going by the nature of the payment of interest under the LAA, we are inclined to hold that the payment of interest on delayed payment of compensation to an assessee, be it under Section 28 or Section 34 of the LAA, would partake the character of the principal compensation itself since it is essentially paid to compensate the assessee for the loss he sulflered on account of not having the use of the principal compensation amount at the time when it fell due. We cannot lose sight of the fact that compensation amounts paid to a person towards compulsory acquisition of his property traces its roots to the constitutional obligation to pay such compensation under Article 300A of the Constitution. Recent judicial pronouncements have also recognised the right to property as a human right. In Dharnidhar Mishra (D) v. State of Bilhar [(2024) 10 SCC 605] the court pointed out that although the right property ceased to be a fundamental right by the Constitution (44th Amendment) Act, 1978, continues to be a human right in a welfare state, and a constitutional right under Article 300A of the Constitution. Accordingly, the State cannot dispossess a citizen of his property except in accordance with the procedure established by law. The court went on to observe that the obligation to pay compensation, though not expressly included in Article 300A, can be inferred from that Article since the court has recognized the right to property as a basic human right. That apart, recently in Kolkata Municipal Corporation v. Bimal Kumar Shah [(2024) 10 SCC 533] the court, while rejecting the contention of the Corporation that it had effectively acquired the property of a citizen, drew a distinction between a statutory provision that confers a power of acquisition to the Corporation and other provisions that dealt with the procedure to be followed in the exercise of that power. The court found that Article 300A of the Constitution, that prohibited the deprivation of property of a citizen save as authorized by law, conferred on a citizen seven sub-rights viz. (i) the right to a :- 12 -: notice of the proposed acquisition, (ii) the right to be heard on the objections if any to such proposal (iii) the right to a reasoned decision thereon (iv) the right to insist that the acquisition could only be for a public purpose (v) the right to restitution or fair compensation (vi) the right to an efficient and expeditious process and (vii) the right to a conclusion of the proceedings. In essence, the court saw the concepts of substantive and procedural due process as integral aspects of the phrase 'authority of law' in Article 300A of the Constitution. The developed jurisprudence on property rights therefore unambiguously points to the necessity of treating interest payments for delayed payment of principal compensation amounts for compulsory acquisition of property, as an accretion to the compensation amount itself. For a citizen whose property has been compulsorily acquired by the State, the right to receive the compensation in full accrues from the date of his dispossession and any statutory interest paid to him for delayed payment of the principal compensation amounts partakes the character of the compensation itself. This is irrespective of whether the interest that is paid is under Section 28 or Section 34 of the LAA because the interest payments under both of the said provisions are premised on the same rationale [See: The constitution bench decision in Sundar v. Union of India (2001) 7 SCC 211 ].

In the light of the discussion above, we hold that interest amounts received by an assessee in respect of delayed payment of compensation under the LAA will be treated as accruals to the principal compensation amount and be classified as "Capital Gains' for the purposes of the I.T. Act. Consequently, the interest amounts will also get the benefit of Section 10 (37) of the I.T. Act if the land compulsorily acquired is agricultural land. Further, since the interest amounts so received are not the nature of interest as defined under Section 2 (28A), the provisions of Section 56 of the I.T. Act will not be attracted in such cases. While the provisions of Section 56 (2)(viii) deal with interest on compensation or enhanced compensation, the said reference to compensation or enhanced compensation need not be seen as made in connection with compulsory acquisition of property. The applicability of Section 56 (2)(viii) will depend :- 13 -: upon whether or not, in the particular factual situation, the interest amount can be treated as different in nature from the principal compensation amount.”

In light of the aforesaid judicial pronouncements, I hold that interest received on enhanced compensation partakes the character of compensation which is entitled for exemption u/s.10(37) of the Act / RFCTLARR Act. It is ordered accordingly.

Since, I have decided the issue raised on merits in favour of assessee, the legal contention is not adjudicated and is left open.

In the result, the appeal filed by the assessee is allowed.

Ĥ×यथȸ/Respondent 3. आयकर आयुÈत /CIT, Chennai 4. ͪवभागीय ĤǓतǓनͬध/DR

गाड[ फाईल/GF.