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Facts
The assessee, a partnership firm, received compensation of Rs.2,74,48,078/- from National Highways Authority of India (NHAI) for compulsory acquisition of land held as stock-in-trade. The assessee claimed this amount was exempt from income tax under Section 96 of the RFCTLAAR Act, 2013, supported by CBDT Circular No. 36/2016. The Assessing Officer and Ld. CIT(A) denied the exemption, arguing that Section 10(37) of the Income Tax Act, 1961, which relates to such exemptions, applies only to individuals and HUFs, and that the income was business income.
Held
The Tribunal held that compensation received for compulsory acquisition of land by a partnership firm, even if held as stock-in-trade, is exempt from income tax under Section 96 of the RFCTLAAR Act, 2013. It emphasized that CBDT Circular No. 36/2016 clarifies the wider scope of Section 96's exemption, which applies irrespective of the land's nature (agricultural or non-agricultural) and the assessee's status, therefore the non-applicability of Section 10(37) to firms does not override Section 96. The Tribunal relied on various judicial precedents supporting this view.
Key Issues
Whether compensation received by a partnership firm for compulsory acquisition of land (held as stock-in-trade) by NHAI is exempt from income tax under Section 96 of the RFCTLAAR Act, 2013, read with CBDT Circular No. 36/2016, despite contentions that Section 10(37) of the Income Tax Act applies only to individuals/HUFs and the income is business income.
Sections Cited
250, 143(3), 143(2), 142(1), 96, 10(37), 46, 24, 11
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Income Tax Appellate Tribunal, PUNE BENCHES “A”, PUNE
Before: DR.MANISH BORAD & SHRI VINAY BHAMORE
आदेश / ORDER
PER DR. MANISH BORAD, ACCOUNTANT MEMBER :
1. The captioned appeal at the instance of appellant is directed against the order dated 16.10.2023 framed by National Faceless Appeal Centre, Delhi u/s.250 of the Income Tax Act, 1961 ( in short ‘the Act’) which inturn is arising out of the Assessment Order dated 24.12.2018 passed u/s.143(3) of the Act.
2. At the outset, we find the appeal is barred by limitation by 60 days before this Tribunal. The assessee has filed an affidavit given by the Authorised Representative explaining the reasonable cause which prevented the assessee in filing the appeal within the stipulated time. The contents of the said affidavit read as under :
“1. I hereby state that I had appeared as the Authorized Representative in the income tax assessment proceedings before Income Tax Officer, Ward 1, Dhule in the case of M/s Balaji Developers, Dhule for Α.Υ.2016 17. I wish to state that the partners of the assessee firm are not well versed with the income tax provisions and procedures and hence, my e- mail id namely shivdongre@gmail.com was mentioned in the Form 35 filed on 11.01.2019. I would like to state that subsequently, I had left the assignment and the partners of the above mentioned firm had appointed a different CA for looking after the appeal work. I wish to state that the notices during the appellate proceedings, as well as the appellate order passed u/s 250 dated 16.10.2023 was received on my email address: shivdongre@gmail.com. I would also like to state that due to pre-occupied work schedule I was not able to check and verify my e-mail account on regular basis. Therefore, the email containing the appellate order u/s 250 was passed in case of M/s Balaji Developers for A.Y.2016-17 went unnoticed from my side and as a result I could not inform the assessee about the same. In view of the above facts, I would like to state that there was a delay of 60 days in filing the appeal before Hon'ble ITAT, Pune.
Whatever is stated above is true and correct to the best of my knowledge and
3. After going through the averments made in the affidavit, we are satisfied that there was reasonable cause for the assessee in not presenting the appeal before the Tribunal. We therefore condone the delay of 60 days in filing this appeal and proceed for adjudication of the appeal.
4. Assessee has raised following grounds of appeal :
1. The learned CIT(A) erred in confirming the addition of Rs.2,74,48,078made by the A.O by holding that the income arising on compulsory acquisition of land held as stock in trade by the appellant firm was taxable as business income under the Income Tax Act, 1961 without appreciating that the said addition was not justified on facts and in law.
2. The learned CIT(A) failed to appreciate that even though the impugned land was held by the appellant firm as stock in trade, the income arising on compulsory acquisition of the said land was exempt from taxation u/s 96 of the RFCTLAAR Act 2013 and hence, the addition made by the A.O is not justified on facts and in law.
3. The learned CIT(A)erred in not appreciating that the CBDT Circular No. 36 of 2016 in fact supported the case of the appellant and therefore, the reliance placed by the A.O. on the said Circular to make the above addition of Rs.2,74,48,078, was misplaced.
4. The appellant craves leave to add/alter/ amend any of the grounds of appeal.”
Brief facts of the case are that the assessee is a partnership firm and filed e-return for the A.Y. 2016-17 on 03.02.2018 declaring Nil income. Case selected for Limited Scrutiny under CASS for the reason ‘Capital Gains/Loss on sale of property’. Valid notices u/s.143(2) and 142(1) of the Act were duly served upon the assessee. During the course of the proceedings, ld. Assessing Officer (AO) observed that the assessee has claimed exemption at Rs.2,74,48,078/- for the compensation received from National Highways Authority of India (NHAI). This exemption was claimed on the basis of section 96 of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 (in short ‘RFCTLAAR Act, 2013’) and the assessee has also relied on CBDT Circular No.36/2016 dated 25.10.2016. Various submissions were filed by the assessee for the enquiries and information called for by the ld.AO. However, ld.AO was not satisfied with the submissions and was of the view that section 10(37) of the Act is applicable for the individuals and Hindu Undivided Families (HUFs) and since the assessee is a partnership firm it is not eligible for the exemption as the alleged sum was received from sale of stock in trade and is purely a business income. Apart from that, no other addition was made and income assessed at Rs.2,74,48,080/-.
Aggrieved assessee preferred an appeal before the ld.CIT(A) where again the assessee reiterated the submissions filed before the ld. AO claiming that the exemption has been rightly claimed in view of CBDT Circular No.36/2016 dated 25.10.2016 which states for giving due recognition to the provisions of section 96 enacted under the RFCTLAAR Act, 2013. Ld.CIT(A) however was not satisfied and confirmed the finding of the ld.AO observing as follows :
“6.4 I have carefully considered the issue under dispute and examined the same in the light of the facts and circumstances of the case as emanating from the impugned assessment order u/s. 143(3) of the Act and relevant provisions of the statute.
6.5 Ground No.1, 2 & 3 are raised against AO's action in not allowing the exemption claimed on account of compensation received on account of compulsory acquisition of land.
The assessee is a Firm engaged in land development and trading in plots. The return is filed on 03-02-2018, declaring total income of Rs. NIL and claimed refund of Rs. 86,63,550/-. During the year, the assessee firm has received compensation from land acquisition authority at Rs.3,56,20,178/-. After debiting expenses the balance arrived profit at Rs.2,74,48,078/- is claimed as exempt. The assessee firm has relied on section 96 of the RFCTLARR Act and CBDT Circular N. 36/2016 dated 25-10-2016.
6.6 During the assessment proceedings, the AO observed the following points: a. The Firm is trading in business of sale and purchase of plot. b. The plots acquired by land acquisition authority are stock in trade. c. The CBDT circular 36/2016 dated 25-10-2016 is clarification to section 10(37) of the I.T. Act.
6.7 The assessee firm has relied upon CBDT circular No. 36/2016 and section 96 of RFCTLARR Act and the AO rejected the contention of the assessee firm for the following reasons:
1. The CBDT circular 36/2016 dated 25-10-2016 is clarification to section 10(37) of the I.T. Act.
2. Section 10(37) is applicable only to Individuals and HUF and therefore not applicable to the assessee firm.
3. The last para of the circular 36/2016 dated 25-10-2016 is clarification of the earlier paras. Hence the last para has to be read along with the earlier paras. However the assessee speaks only about last para. If the complete circular is read, it is clear that it speaks only of Agricultural and non Agricultural land and does not talk about change in the status of the assessee.
6.8 During the present appellate proceedings, in the statement of facts, the assessee contended that RFCTLARR Act, 2013 exempts all acquisitions under this Act from Income-tax, irrespective of the nature of treatment in books of accounts, and also irrespective of their status and relied on para No. 3 of the CBDT circular 36/2016 dated 25-10-2016.
6.9 I have given my thoughtful consideration to the issue under dispute and found that the AO made the impugned addition based on proper appreciation of factual matrix of the case as well as the relevant provisions of the Act along with the relevant Circulars issued by the Board/CBDT.
6.10 The assessee firm has relied upon CBDT circular No. 36/2016 and section 96 of RFCTLARR Act.
Any deduction/exemption of income can be claimed only under the applicable provisions of the Income Tax Act. Therefore, the argument of the assessee that it had not claimed exemption under any of the sections/provisions of the Income Tax Act cannot be accepted. The CBDT circular 36/2016 dated 25-10-2016 is clarification to section 10(37) of the I.T. Act. The same is reproduced as under:" Under the existing provisions of the Income Tax Act, 1961, an agriculture land which is not situated in specified urban area, is not regarded as capital asset. Hence capital gain 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 Agriculture land situated in specified urban limits, subject to fulfillment of certain conditions.
6.11 As there was no distinction made between compensation received for compulsory acquisition of Agriculture land and non agriculture land in the matter of providing exemption from Income Tax under the RFCTLARR Act. 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. It is 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 or such compensation in the Income Tax Act, 1961.”
6.12 Section 10(37) of the Income Tax Act has been introduced to provide specific exemption to the capital gains arising to an individual or a HUF from compulsory acquisition of an Agriculture land situated in specified urban limits, subject to fulfillment of certain conditions. As seen from the above, it is clear that the CBDT circular 36/2016 dated 25-10-2016 is clarification to section 10(37) of the I.T. Act. As there was uncertainty in the matter of taxability of compensation received on compulsory acquisition of non-agricultural land, the CBDT has issued the circular 36/2016 dated 25-10-2016 to clarify the matter. The Circular has been issued to clarify that not only compensation received on compulsory acquisition of agricultural land but also non-agricultural land is eligible for exemption as there was no distinction made between compensation received for compulsory acquisition of Agriculture land and non agriculture land in the matter of providing exemption from Income Tax under the RFCTLARR Act.
6.13 Section 10(37) is applicable only to Individual and HUF. The assessee conveniently relied only on para No. 3 (last Para) of the CBDT circular 36/2016 dated 25-10-2016 and contended that RFCTLARR Act, 2013 exempts all acquisitions under this Act from Income-tax, irrespective of the nature of treatment in books of accounts, and also irrespective of their status. However, if the circular is read in toto, it is clear that the last para of the circular is just a clarification of the earlier paras. Therefore, the last para has to be read along with the earlier paras. If the circular is read in toto, it is clear that it talks only about compensation received from compulsory acquisition of Agricultural and non Agricultural land. The CBDT circular no. 36 does not talk about change in the status of the assessee. Hence the circular no. 36/2016 quoted by the assessee firm is not applicable to the assessee as it is a firm. Section 10(37) is applicable only to Individuals and HUF and therefore the AO rightly held that it is not applicable to the assessee firm.
6.14 Further, in the case of assessee, the gain has arisen not out of transfer of capital asset. It is out of transfer of stock in trade. Here the assessee firm has come in to existence with the motive of trading of plots This is the business of the assessee. The profit earned is also taxed as business income. Hence, exemption claimed on profit arisen on account transfer of stock in trade is not acceptable. The assessee relies on section 96 of RFCTLARR Act, but this Act should be applied as per the provisions of the Income Tax Act. In view of the above, the grounds raised by the assessee on this issue are dismissed. 7.0 In the result, the appeal filed against the order u/s.143(3) of the Act for the AY 2016-17 is dismissed.”
Aggrieved assessee is now in appeal before this Tribunal.
8. Ld. Counsel for the assessee took us through the extract of relevant provisions of RFCTLAAR Act, 2013 and the contents of section 10(37) and CBDT Circular No.36/2016 dated 25.10.2016. He further referred to the following decisions where the assessee(s) are non-individuals/HUF, who have received the compensation from the Government/NHAI and have been allowed the benefit of exemption in view of section 96 of the RFCTLAAR Act, 2013 :
1. Parasnath Vinimay Pvt. Ltd. v. CPC [ITA No. 151/Kol/2023] dated 06.07.2023.
2. Seema Jagdish Patil v. NHRC [(2022) 139 taxmann.com 249 (Bom)(HC)] 3. C. Nanda Kumar v. UOI [(2017) 396 ITR 21 (AP)] 4. Vishwanthan M. CCIT [WP No. 3227 of 2020 (C)/ Kerala HC] dated 18.02.2020 5. PCIT v. Durgapur Projects Ltd. [[ITA No. 282/2022 (Calcutta High Court] dated 24.02.2023 6. ITO v. Shri Suresh Prasad [ITA No. 210/Patna/2018] dated 04.08.2022 7. Ranjeet Singh v. ITO [ITA No. 91/Amritsar/2023] dated 30.08.2023 8. Smt. Baljeet Kaur v. ITO [(2022) 36 ΝΥΡTTJ 1130 (Chd)] 9. Satish Kumar v. ITO [(2023) 37 NYPTTJ 931 (Chd)]
9. On the other hand, ld. Departmental Representative vehemently argued supporting the orders of the lower authorities and ld. DR further made new argument stating that compensation received from NHAI is not eligible for exemption u/s.96 of the RFCTLAAR Act, 2013. In support, he relied on the decision of Coordinate Bench of the Tribunal in the case of Heritage Buildcon(P) Ltd. vs. PCIT reported in (2023) 155 taxmann.com 68 (Raipur Trib.) and that of Coordinate Bench, Agra in the case of Jagdish Arora vs. ITO reported in (2021 127 taxmann.com 728 (Agra Trib.).
10. At this stage, Ld. Counsel for the assessee opposed the submissions advanced by the ld. DR taking altogether a new argument which has not been raised by the AO nor by the ld.CIT(A). Taking support from judicial precedents referred in Vol.2 of legal compilation, he stated that it has been held consistently that the ld. DR cannot be permitted to improve the case of the AO by justifying the addition on a new ground and the ld. DR can only support the order of the AO on the ground on which the additions have been made. Further, reliance placed on the decision of Hon’ble Karnataka High Court in the case of BMRCL vs. Sri Balaji Corporate Services, PCIT and Ors in Writ Petition No.890/2022, dated 27.09.2023 in support of the contention that exemption from levy of income-tax provided u/s.96 of the RFCTLAAR Act, 2013 is also allowable in respect of acquisitions made under Karnataka Industrial Areas Development Act, 1966.
11. We have heard the rival contentions and perused the record placed before us. The sole grievance of the assessee is that the ld.CIT(A) erred in confirming the action of the AO by denying the exemption for the amount at Rs.2,74,48,078/- received by the assessee from NHAI for acquisition of the land held by the assessee firm as stock in trade. We note that during the course of assessment proceedings when the assessee referred to the provisions of section 96 of the RFCTLAAR Act, 2013 along with referring to the CBDT Circular No.36/2016 dated 25.10.2016 for claiming exemption, ld. AO denied the claim solely on the ground that the assessee is not eligible for exemption because the same is available only to individuals and HUFs.
12. Before us, ld. DR has referred to the decision of Coordinate Bench of the Tribunal in the case of Jagdish Arora vs. ITO (supra) contending that compensation received from NHAI is not covered in section and section 105 of 96 of the RFCTLAAR Act, 2013 and the assessee is not eligible for exemption. We further notice that the ld. AO has denied the exemption solely on the ground that the assessee is not an individual or HUF as referred in section 10(37) of the Act which means that if the assessee had been an individual or HUF then the claim of exemption would have been allowed by the AO. We note that the Special Bench in the case of Mahindra & Mahindra Ltd. Vs. DCIT reported in (2009) 122 TTJ 577 (Mum) (Special Bench), Coordinate Bench in the case of Ericsson AB vs. DCIT reported in (2012) 19 ITR 341 (Delhi Trib) and this Tribunal in the case of Bharatnagar Buildcon LLP vs. CIT reported in (2023) 203 ITD 539 (Pune) and Kasat Paper & Pulp vs. ACIT reported in (2000) 74 ITD 455 (Pune) held that Departmental Representative cannot be permitted to improve the case of the AO by justifying the addition on a new ground. Ld. DR can only support the order of the AO on the grounds on which the additions have been made. Therefore, we are not inclined to admit the new contentions putforth by the ld. DR before this Tribunal for the first time.
Now coming the main issue raised in the instant appeal, we find that the issue stands covered squarely in favour of the assessee by plethora of judgments. We notice that the Coordinate Bench Kolkata in the case of Parasnath Vinimay Pvt. Ltd. Vs. CPC in dated 06.07.2023 has allowed the claim of exemption made by the assessee for acquisition of land by the Central Government very much relying on section 96 of the RFCTLAAR Act, 2013 as well as CBDT Circular No.36/2016 dated 25.10.2016 referred (supra). While arriving at this decision, reliance was placed by the decision of Coordinate Bench Mumbai in the case of DCIT vs. M/s.Ganga Developers in dated 12.10.2022. The finding of the Tribunal in case of Parasnath Vinimay Pvt. Ltd. Vs. CPC (supra) read as follows :
“6. We have heard rival contentions and perused the material placed before us. The sole grievance of the assessee is that the Id. CIT(A) has erred in not providing exemption of Rs.41,51,828/- as gains arising on account of acquisition of agricultural land by the Central Government. We notice that the assessee held land in rural area located at Dist. Purnea in Bihar. Compensation of Rs.42,62,880/- was awarded by the central government towards acquisition of assessee's land and after deduction of tax at source net amount of Rs.38,40,192/-was received by the assessee which was duly deposited in the State Bank of India on 12/11/2016. Though the compensation received is Rs.42,66,880/-but the ld. Assessing Officer has mentioned the amount at Rs.41,16,069/-. We are here to deal with the issue that whether the alleged sum is exempt from tax. The ld. Counsel for the assessee has referred to the following CBDT Circular issued on 25/10/2016:-
"Government of India Ministry of Finance Department of Revenue Central Board of Direct Taxes
ITA.II division, North Block, New Delhi, the 25th of October, 2016 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 ('RFCTLAARAct')- reg.-Resettlement Act, 2013
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 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 110 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.
The above may be brought to the notice of all concerned.
5. Hindi version of the order shall follow."
Further before us ld. Counsel for the assessee, referring to the compensation advice bearing number 245/2016-17 has contended that, the said land as a rural agricultural land. In the above CBDT Circular in para 2, reference is made to Section 96 and 46 of the RFCTLAAR Act. For adjudication of the issue we will go through these two sections also:-
"96. Exemption from income-tax, stamp duty and fees.-No income tax or stamp duty shall be levied on any 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.
Provisions relating to rehabilitation and resettlement to apply in case of certain persons other than specified persons. – (1) Where any person other than a specified person is purchasing land through private negotiations for an area equal to or more than such limits, as may be notified by the appropriate Government, considering the relevant State specific factors and circumstances, for which the payment of Rehabilitation and Resettlement Costs under this Act is required, he shall file an application with the District Collector notifying him of (a) intent to purchase; (b) purpose for which such purchase is being made; (c) particulars of lands to be purchased.
(2) It shall be the duty of the Collector to refer the matter to the Commissioner for the satisfaction of all relevant provisions under this Act related to rehabilitation and resettlement.
3) Based upon the Rehabilitation and Resettlement Scheme approved by the Commissioner as per the provisions of this Act, the Collector shall pass individual awards covering Rehabilitation and Resettlement entitlements as per the provisions of this Act.
(4) No land use change shall be permitted if rehabilitation and resettlement is not complied with in full.
(5) Any purchase of land by a person other than specified persons without complying with the provisions of Rehabilitation and Resettlement Scheme shall be void ab initio: Provided that the appropriate Government may provide for rehabilitation and resettlement provisions on sale or purchase of land in its State and shall also fix the limits or ceiling for the said purpose.
(6) If any land has been purchased through private negotiations by a person on or after the 5th day of September, 2011, which is more than such limits referred to in sub-section (1) and, if the same land is acquired within three years from the date of commencement of this Act, then, forty per cent. of the compensation paid for such land acquired shall be shared with the original land owners. Explanation.- For the purpose of this section, the expression – (a) original land owner refers to the owner of the land as on the 5th day of September, 2011; 27 (b) -specified persons includes any person other than – (i) appropriate Government; (ii) Government company; (iii) association of persons or trust or society as registered under the Societies Registration Act, 1860 (21 of 1860), wholly or partially aided by the appropriate Government or controlled by the appropriate Government."
Now going through the above provisions, so far as the section 46 is concerned, the said section can come into operation only if any person other than a specified person is purchasing land through person private negotiations for an area equal to or more than such limits, as may be notified by the appropriate Government, considering the relevant State, specific factors and circumstances. However, in the instant case, there is no private negotiation on the part of the assessee and it is purely a case where the rural agricultural land held by the assessee has been acquired by the central government and the compensation to the assessee has been given under the RFCTLAAR Act. Now going through Section 96 of the RFCTLAAR Act, the same provides exemption from income tax, stamp duty and fees on any award or agreement, made except those covered u/s 46 of the RFCTLAAR Act (which we have already held to be not applicable on the assessee).
10. Now after dealing with Section 96 of the RFCTLAAR Act, and going to the CBDT circular referred supra, we notice that 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 RFCTLAAR Act, the exemption provided u/s 96 of the Act is wider in scope than the tax exemption provided in the existing provisions of the Income Tax Act. This clearly indicates that since the assessee company has received compensation under the RFCTLAAR Act and the case of the assessee does not fall under section 46 of the RFCTLAAR Act, no income tax is leviable on the award received on the compulsory acquisition of agricultural land. Our view is further supported by the decision of the Mumbai bench of the ITAT in the case of M/s. Ganga Developers (supra), wherein also the assessee is a partnership firm (not an individual or HUF) and the compensation was received on 24/08/2013 and this Tribunal after referring to the CBDT circular referred supra and section 96 of the RFCTLAAR Act, held that the sum received by the assessee is not taxable under the Income Tax Act. Relevant part of the said order is extracted below:-
On careful perusal of the award dated 5/8/2016, it is clear that according to rule 18 (3) of the rights to fair compensation and transparency in land acquisition, rehabilitation and resettlement rules 2014 the Commissioner has granted approval to this award. The award was also passed after the land acquisition act 1984 stood repealed from 1/1/2014 which has been replaced by the right to fair compensation and transparency in land acquisition, rehabilitation and resettlement act of 2013.
11. The provisions of Section 24 of the act clearly provides that that when no award u/s 11 of the said land acquisition act has been made, then all the provisions of the new act relating to the determination of compensation shall apply. It also excludes where the award is already been made u/s 11 of that act and for that particular purpose only the old act continue to apply. In this case the award has been made on 5/8/2016. Therefore the new act shall apply.
According to Section 96 of that act income tax shall not be levied on any award agreement made Under that act except as provided u/s 46 of that act. This award/agreement is not u/s 46 of that act. Therefore the income arising in the form of compensation shall be governed by the provisions of Section 96 of the act. Accordingly the income is not chargeable to income tax.
13. Further the issue is squarely covered in favour of the assessee by the decision of the honourable Kerala High Court in Vishwanatha MV Chief Commissioner 116 Taxmann.com 894, honourable Andhra Pradesh High Court in case of C Nand Kumar 88 taxmann.com 526 as well as circular number 36/2016 dated 25/10/2016 which clarified in paragraph number 3 of the act that compensation received in respect of award agreement which is been exempted from levy of income tax as per provisions of Section 96 of that act shall also not be taxable Under the provisions of the income tax act.
14. As the learned CITA has carefully considered all the above judgement as well as the provision of new law and the old law of acquisition of land and therefore held that sum received by the assessee is not taxable, cannot be found fault with. Accordingly we confirm the order of the learned CIT appeal of the AO." A and dismiss ground number 1 of the
As the facts the case on hand are identical to the facts of the case law discussed above, we thus respectfully following the decision of the Co-ordinate Bench Mumbai in case of M/s. Ganga Developers (supra), and under the given facts and circumstances of the case are inclined to hold that the alleged sum of compensation received by the assessee is exempt from Income tax. Thus, the finding of the Id. CIT(A) is set aside and the effective Ground Nos. 1 to 6 raised by the assessee are allowed.”
We also note take note of the judgment of Hon’ble Calcutta High Court in the case of PCIT Vs. Durgapur Projects Ltd. in dated 24.02.2023 (assessee being Limited Company) wherein also the issue of compensation by a non- individual/non HUF came up for adjudication before the Hon’ble Court and again the same was decided in favour of the assesee and the relevant observation of the Hon’ble Court reads as under:
“11. Coming back to the taxability of the compensation received by the assessee for the lands compulsory acquired under the 2013 Act, it is relevant to take note of the circular issued by the CBDT dated 25.10.2016 in Circular No. 36/2016. It was pointed out that under the existing provisions of the Income Tax Act an agricultural land which is not situated in specified urban area is not regarded as a capital asset and hence capital gain arising from the transfer (including compulsory acquisition) of such agricultural land is not taxable. It is further stated that Finance (No. 02) Act, 2004 inserted Section 10(37) in the Act from 01.04.2005 to provide specific exemption to capital gains arising to an individual or a HUF from compulsory acquisition of an agricultural land situated in specified urban limited subject to fulfillment of certain conditions. Thus, it was ordered that the compensation received from the compulsory acquisition of an agricultural land is not taxable under the Income Tax Act subject to the fulfillment of certain conditions for specified urban land. It was further stated that the 2013 Acquisition Act came into effect from 01.01.2014 and Section 96 inter alia provides that income tax shall not be levied on any award or agreement made except those made under Section 46 of the said Act. Therefore, it was directed that compensation for compulsory acquisition of land under the 2013 Acquisition Act except those made under Section 46 of the said act is exempted from the levy of income tax. Further it was ordered that 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 2013 Acquisition Act, the exemption provided under Section 96 of the 2013 Acquisition Act is wider in scope than the tax exemption provided under the existing provisions of the Income Tax Act, 1961. It was pointed out that this aspect 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. This matter was examined by the CBDT and it was clarified that compensation received in respect of award or agreement which has been exempted from the levy of income tax under Section 96 of the 2013 Acquisition Act shall also not be taxable under provisions of the Income Tax Act, 1961 even if there is no specific provision of exemption for such compensation in the Income Tax Act, 1961. The said Circular No. 36 of 2016 would come to the aid and assistance of the assessee and the compensation received by the assessee on account of the compulsory acquisition of land under the 2013 Acquisition Act is exempt from the tax.
12. For all the above reasons, we find no grounds to interfere with the order passed by the learned tribunal and consequently the appeal filed by the revenue fails and the substantial questions of law are answered against the revenue. No costs.”
Now considering the ratios laid down by the Hon’ble Calcutta High Court in the case of PCIT Vs. Durgapur Projects Ltd.(supra) as well as the decision of Kolkata Bench of the Tribunal in the case of Parasnath Vinimay Pvt. Ltd. Vs. CPC (supra), we find that the assessee is a partnership firm and the land owned by it as stock in trade was acquired by the Government which in this case is NHAI for the consideration finalised by NHAI. It is an admitted fact that when the lands of various land owners are acquired by the Government in the public interest, even if the owners are not willing to sell the lands or is willing to sell at a future date for maximum gains, they have to abide by the law and are forced to offer their lands for compulsory acquisition.
RFCTLAAR Act, 2013 was inserted to deal with all these issues and section 96 of this Act clearly provides that no income- tax or stamp duty shall be levied on any award or agreement made under this Act (except those made u/s.46) and no person claiming any such award or agreement shall be liable to pay any fee for a copy of the same. This act came into force from 1st January, 2014 and the transaction in question pertains to F.Y.
2015-16 and therefore RFCTLAAR Act, 2013 applies for the year under consideration with full force and the benefit of section 96 is available to the assessee.
Here, we would like to refer to the judgment of Hon’ble Karnataka High Court in the case of BMRCL vs. Sri Balaji Corporate Services, PCIT and Ors (supra) where the claim of exemption u/s.96 of the RFCTLAAR Act, 2013 was also allowed in respect of acquisition made by Karnataka Industrial Area Development Act, 1966 and Hon’ble Court referring to the judgment of Hon’ble Apex Court in the case of Nagpur Improvement Trust vs. Vithal Rao and Others reported in (1973) 1 SCC 500 held that if the acceptance of two acts enables the State to give one owner different treatment from another equally situated, the owner who is discriminated against can claim protection of Article 14. That it is immaterial under which Act and for what purpose the land is acquired as far as land losers are concerned the differential standard of compensation cannot be applied. This ratio laid down by the Hon’ble Karnataka High Court further asserts the claim of exemption by the assessee firm for the compensation received from NHAI for acquiring the land held by it as stock in trade.
Under these facts and circumstances and respectfully following the decision of Coordinate Bench Kolkata in the case of Parasnath Vinimay Pvt. Ltd. Vs. CPC (supra) as well as the decision of Hon’ble Calcutta High Court in the case of PCIT Vs. Durgapur Projects Ltd. (supra), we are inclined to hold that the compensation received by the assessee firm at Rs.2,74,48,078/- from acquisition of land held by it, is exempt from income tax in terms of section 96 of the RFCTLAAR Act, 2013. Accordingly, finding of ld.CIT(A) is reversed and Grounds of appeal No. 1 to 3 raised by the assessee are allowed.
19. Ground No.4 being general in nature needs no adjudication.
In the result, the appeal of the assessee is allowed. Order pronounced on this 24th day of March, 2025.