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Facts
The assessee received interest on enhanced compensation for agricultural land. The Assessing Officer taxed 50% of this receipt under Section 56(2)(viii) read with Section 145B(1), and this was upheld by the CIT(A).
Held
The Tribunal held that interest on compensation falls within the ambit of Section 56(2)(viii) and is taxable in the year of receipt under Section 145B(1), following a precedent set by a coordinate bench.
Key Issues
Whether interest on enhanced compensation is taxable as income from other sources or capital gains, and whether it is exempt under Section 10(37).
Sections Cited
28, 145B(1), 56(2)(viii), 10(37), 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, Appeal Addl / JCIT (A)-2, Mumbai dt. 13/11/2024 for the A.Y. 2015-16. 2. In the present appeal, Assessee has raised the following grounds:
1. 1. The Ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre had made a grave legal error in upholding the addition made by Ld. AO of Rs. 22,57,525/- with respect to Interest received on enhanced compensation(construed as Compensation) u/s 28 of Land Acquisition Act 1894 amounting Rs. 45,15,051/- without considering the decision of Hon’ble Apex Court.
2. The Ld. Assessing Officer had made grave legal error in making addition to the total income of the assessee on account of Interest on enhanced compensation (construed as Compensation) u/s 28 of Land Acquisition Act, 1894 as Income from Other Sources instead of “Capital Gains”.
3. That the appellant graves leave to add, delete or amend the grounds of appeal till the disposal of the same.
3. Briefly stated, the assessee received interest on enhanced compensation granted under section 28 of the Land Acquisition Act, 1894 in respect of compulsory acquisition of agricultural land. The Assessing Officer taxed 50% of the said receipt u/s 56(2)(viii) r.w.s. 145B(1). The Ld. CIT(A) upheld the action of the Assessing Officer after noting that the assessee had not produced any material to show that the amount represented part of compensation rather than interest.
The Ld. AR submitted that the interest granted u/s 28 is in the nature of enhanced compensation and is therefore exempt u/s 10(37). Reliance was placed upon Ghanshyam (HUF) and Hari Singh, as well as certain coordinate Bench decisions, contending that interest awarded under section 28 partakes the character of compensation. It was emphasised that the assessee is an agriculturist and the receipt should be viewed as part of the compensation for accretion in value of land.
Per contra, the Ld. Departmental Representative 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. 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.