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Facts
The assessee's return was selected for scrutiny, leading to an addition of ₹97,44,420/- (50% of total interest) by the Assessing Officer on interest received for enhanced compensation on compulsory acquisition of agricultural land. This addition was treated as "income from other sources" under Section 56(2)(viii) of the Income Tax Act and subsequently confirmed by the CIT(A).
Held
The Tribunal ruled that interest on enhanced compensation for compulsory acquisition of agricultural land is part of the compensation and is exempt from income tax under Section 96 of the RFCTLARR Act, 2013, and Section 10(37) of the Income Tax Act. Citing Supreme Court and High Court judgments, the Tribunal set aside the CIT(A)'s order and deleted the addition made by the Assessing Officer.
Key Issues
Whether interest received on enhanced compensation for compulsory acquisition of agricultural land is taxable as "income from other sources" under the Income Tax Act or is exempt from tax under the RFCTLARR Act, 2013.
Sections Cited
250, 143(2), 142(1), 57, 56(2)(viii), 57(iv), 145A(b), 194A, 10(37), 28 (Land Acquisition Act, 1894), 96 (RFCTLARR Act, 2013), 3(i) (RFCTLARR Act, 2013), 46 (RFCTLARR Act, 2013)
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Income Tax Appellate Tribunal, ‘B’ BENCH, CHENNAI
Before: SHRI DUVVURU RL REDDYAND SHRI S.R. RAGHUNATHA
O R D E R
PER DUVVURU RL REDDY, VICE-PRESIDENT:
This appeal filed by the assessee is directed against the order of the ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi dated 25.06.2024 passed under section 250 of the Income Tax Act, 1961 (hereinafter called ‘the Act’). The relevant Assessment Year is 2018-19.
We find that this appeal is filed with a delay of 17 days. The assessee filed a petition for condonation of delay explaining reasons for the said delay and prayed for condonation of that delay. On perusal of the condonation petition and upon hearing the ld. AR and ld. DR, we find that the reasons explained by the assessee are bonafide and therefore, the delay is condoned and admitted the appeal for adjudication.
The only effective ground raised in the appeal is whether the ld. CIT(A) is justified in confirming the addition of ₹.97,44,420/- being 50% of the receipt of interest on enhanced compensation made by the Assessing Officer.
Brief facts of the case are that the assessee filed her return of income declaring an income of ₹.2,94,82,650/-. The return filed by the assessee was selected for scrutiny under CASS to examine (i) the payment of compensation on acquisition of immovable property as shown in the TDS return filed by acquirer is more than sale consideration reported in the return of income and (ii) substantial increase in capital in the impugned year. Notice under section 143(2) of the Income Tax Act, 1961 [“Act” in short] dated 28.09.2019 was issued. Notices under section 142(1) of the Act were issued on 13.02.2020, 04.03.2020, 06.08.2020, 29.01.2021 and 08.02.2021. In response to the above said notices, the assessee furnished all the details through e-filing. After considering the submissions of the assessee, by granting 50% relief under section 57 of the Act on the total interest receipt of ₹.1,94,88,840/-, the Assessing Officer made an addition of ₹.97,44,420/- being 50% on the interest receipt on enhanced compensation on compulsory acquisition of land liable to be tax as “income from other sources” under section 56(2)(viii) of the Act.
Aggrieved, the assessee preferred an appeal before the ld. CIT(A) and filed written submissions. After considering the written submissions, the ld. CIT(A) dismissed the ground raised by the assessee for the reason that the interest payment received on compensation/enhanced compensation on compulsory acquisition of land is taxable as income from other sources as per the provisions of section 56(2)(viii) r.w.s. 57(iv) and section 145A(b) of the Act. So far as addition made towards unsecured loan is concerned, the ld. CIT(A) gave relief to the assessee, on that the Revenue has not preferred any appeal before the ITAT.
On being aggrieved against confirmation of the addition made by the Assessing Officer, the assessee preferred an appeal before the ITAT and raised the following grounds:
1. The order of the CIT(A) is contrary to law on the facts and in the circumstances of the case.
2. The CIT(A) has erred in confirming the addition of Rs.97,44,420/- being 50% of Rs.1,94,88,840/- received as interest on enhanced compensation made by the Assessing Officer.
3. It is submitted that the decision of the CIT(A) on the above point is erroneous on point of law. The CIT(A) has erred in confirming the addition on the above issue. The CIT(A) ought to have followed the ratio of decision of the Supreme Court of India in the case of CIT v. Ghashyam HUF (2009) 315 ITR 1 and hence ought to have allowed the appeal of the assessee on the above score.
4. Fore these and such other grounds that may be adduced at the time of hearing, it is submitted that the order of the CIT(A) may be reversed and necessary relief as sought by the assessee may be granted and oblige.
7. Before the Tribunal, the ld. Counsel for the assessee has submitted that in the case of acquisition of agricultural land made which is not capital asset for the purpose of Income Tax Act and thereby, any gain on sale of such agricultural land is exempt from income tax. He argued that any interest awarded on such compensation under Land acquisition Aft, 1894 is considered as compensation and not taxable. Even NHAI does not deduct TDS under section 194A of the Act for such interest payment. He further submitted that the Hon’ble Supreme Court in the case of CIT v. Ghanshyam (HUF) (2009) 315 ITR 1 has held that interest awarded under section 28 of Land Acquisition Act, 1894 is nothing but an accretion to the value of compensation and hence it is part and parcel of compensation and hence, taxability of such interest is of capital in nature. Hence, the interest received on the enhanced compensation is exempt from income tax. He also relied on the decision of the Coordinate Benches of this Tribunal in the case of ACIT v. M/s. SV Global Mill Ltd. in dated 28.01.2021, wherein, it was held 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. Therefore, he pleaded to set aside the orders of authorities below and allow the ground raised by the assessee.
8. On the other hand, the ld. DR has submitted that according to section 145A(b) and section 56(2)(viii) of the Act any interest received on compensation or on enhanced compensation shall be taxable under the heard “income from other sources” in the year of receipt. Therefore, the interest received on compensation or on enhanced compensation is taxable under section 56(2)(viii) of the Act. Therefore, the ld. DR has submitted that the Revenue authorities have rightly levied tax on the interest received on enhanced compensation on compulsory acquisition of land. Therefore, there is no infirmity in the orders passed by the Assessing Officer as well as ld. CIT(A) and pleaded to upheld the orders passed by the authorities below.
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 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 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.