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Facts
The assessee, a non-filer for AY 2015-16, received interest on enhanced compensation from land acquisition. The AO reopened the case and, in an ex-parte assessment, taxed the interest under "Income from Other Sources" after allowing a 50% deduction under Section 57(iv). The assessee challenged the assessment's jurisdiction and argued for exemption of the interest under Section 10(37).
Held
The CIT(A) upheld the AO's order, ruling that post-Finance Act 2009, Section 56(2)(viii) specifically taxes such interest as "Income from Other Sources," subject to the Section 57(iv) deduction. The Tribunal affirmed the CIT(A)'s decision, relying on a precedent which established that such interest is taxable under Section 56(2)(viii) and Section 145B(1), and Section 10(37) is not applicable to the interest component.
Key Issues
1. Whether interest received on enhanced compensation for land acquisition is taxable or exempt under Section 10(37). 2. Whether the assessment order passed by a different Assessing Officer (Ward 4 instead of Ward 5) is without jurisdiction.
Sections Cited
147, 144, 148, 145B, 57(iv), 28, 10(37), 56(2)(viii), 34
AI-generated summary — verify with the full judgment below
Order PER LALIET KUMAR, J.M: This is an appeal filed by the Assessee against the order of the Ld. CIT(A)/NFAC, Delhi dt. 27/11/2024 for the A.Y. 2015-16. 2. In the present appeal, Assessee has raised the following grounds:
1. 1. 1. That the assessment order passed by AO is without jurisdiction. 148 notice was issued by Ward 5, Panchkula and Assessment order is passed by Ward 4, Panchkula. It is submitted that the order ought to have been passed by jurisdictional officer only and hence bad in law and void ab initio. It is submitted that in the facts and circumstances of the case, the order passed by the Income Tax Officer requires to be quashed. It be so done.
2. That Department itself says that interest amount is exempt if principal amount is exempt. Department in its website at https://incometaxindia.gov.in/tutorials/81.taxtreatment-on-compulsory-acquision- of-land.pdf is saying that on second last paragraph of page 3 "Further, in view of Section 145B, such interest shall be taxable in the previous year in which it is received. The interest on compensation OR enhanced compensation shall be chargeable to tax only if the original or enhanced compensation is taxable. Thus, if compensation is exempt from tax, the interest payable on such compensation shall also be exempt from tax.”. Hence, addition made of Rs. 11,66,594/- be deleted.
3. Briefly the facts of the case that the assessee, was a non-filer for AY 2015-16. The case was reopened based on information that he had received interest on enhanced compensation related to land acquisition. He received
2 a total interest amount of Rs.23,33,187 from the Land Acquisition Officer, Panchkula.
3.1 Since the assessee did not respond during reassessment proceedings, the AO completed the assessment ex-parte under sections 147/144. The AO treated the interest as taxable under “Income from Other Sources” and, after allowing a 50% deduction under Section 57(iv), added Rs.11,66,594 to the income.
Against the order of the AO the assessee went in appeal before the Ld. CIT(A). Before the Ld CIT(A), the assessee contended that interest received under Section 28 of the Land Acquisition Act forms part of compensation for rural agricultural land and is exempt u/s 10(37), relying on Supreme Court rulings such as Ghanshyam (HUF) and Hari Singh.
4.1 The CIT(A) rejected these arguments, holding that post-Finance Act 2009, Section 56(2)(viii) specifically taxes interest on compensation or enhanced compensation as “Income from Other Sources”, with a 50% deduction under Section 57(iv). Relying on recent judgments, including Inderjit Singh Sodhi (HUF) (Delhi HC, 2024) and Puneet Singh (P&H HC), the CIT(A) concluded that such interest whether under Section 28 or otherwise is a taxable revenue receipt. The addition made by the AO was therefore upheld.
Per contra, the Ld. DR supported the orders of the authorities below and submitted that the issue is squarely covered against the assessee by the decision of the Chandigarh Bench in Ajay Kumar vs ITO (ITA No. 463/Chd/2023), forming part of the consolidated order in land-acquisition matters. 5.1 It was argued that after insertion of sections 56(2)(viii) and 145B(1), all interest received on compensation or enhanced compensation—whether under section 28 or 34 is taxable in the year of receipt, and the earlier judgments relied upon by the assessee relate to the pre-amendment position.
3 It was further submitted that the assessee cannot claim TDS credit without offering the corresponding income to tax.
We have carefully considered the rival submissions and examined the record. We observe that the Coordinate Chandigarh Bench, in the case of Ajay Kumar (supra), has already adjudicated identical arguments. The Bench ruled that interest on compensation falls within the ambit of Section 56(2)(viii) and is taxable in the year of receipt pursuant to Section 145B(1). The Bench explicitly rejected the applicability of Section 10(37) to the interest component and clarified that claiming TDS credit is contingent upon the income being offered to tax. The facts in the instant case are materially identical. 6.1 In respectful adherence to the binding precedent of the Coordinate Bench in Ajay Kumar, we affirm the Ld. CIT(A)'s decision to sustain the addition. The assessee has failed to adduce any distinguishing features or contrary legal propositions that would justify a departure from the settled view of this Bench.
In the result, the appeal of the assessee is dismissed.