HARBANS SINGH,P.O. KHERA DONA vs. INCOME TAX OFFICER, BSNL EXCHANGE COLONY
Facts
The assessee received Rs. 32.46 lakhs as interest on enhanced compensation for compulsory acquisition of rural agricultural land. The assessee claimed this income as exempt under Section 10(37) of the Income Tax Act, 1961, treating it as capital gains. The Assessing Officer (AO) subsequently assessed it as 'income from other sources' under Section 143(1).
Held
The Tribunal upheld the decision of the first appellate authority, ruling that the interest received on enhanced compensation is taxable under the head 'income from other sources' as per Section 56(2)(viii) and not as capital gains. It also affirmed the allowance of a 50% deduction under Section 57(iv) of the Act, relying on a jurisdictional High Court decision.
Key Issues
Whether interest received on enhanced compensation for compulsory acquisition of agricultural land is taxable as 'income from other sources' or as 'capital gains' and eligible for exemption under Section 10(37).
Sections Cited
Section 250, Section 143(1), Section 10(37), Section 56(2)(viii), Section 57(iv)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, AMRITSAR BENCH, AMRITSAR
Before: DR. M. L. MEENA & SH. UDAYAN DASGUPTA
IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH, AMRITSAR (PHYSICAL HEARING) BEFORE DR. M. L. MEENA, ACCOUNTANT MEMBER AND SH. UDAYAN DASGUPTA, JUDICIAL MEMBER
I.T.A. No. 236/Asr/2024 Assessment Year: 2017-18
Harbans Singh, Vs. Income Tax Officer, P.O. Khera Dona, BSNL Exchange Colony, Punjab 144 620 Kapurthala [PAN: GIZPS 7573H] (Respondent) (Appellant)
Appellant by : Sh. Rajnish Mohindra, Adv. : Respondent by Sh. Charan Dass, Sr. D.R. Date of Hearing : 22.09.2025 Date of Pronouncement : 26.09.2025
ORDER Per Udayan Dasgupta, J.M.:
This appeal is filed by the assessee against the order of the ld. Addl./JCIT(A)-7, Mumbai dated 26.02.2024 passed u/s 250 of the Income Tax Act, 1961 which has
emanated from the order of the AO, CPC passed u/s 143(1) of the Act, 1961 dated
26.09.2018.
2 I.T.A. No. 236/Asr/2024 Assessment Year: 2017-18 2. There are two grounds of appeal taken by the assessee, both relating to the issue
of interest received on enhanced compensation arising on compulsory acquisition of
agricultural lands.
The brief facts arising from record are that the assesee has received interest of
an amount of Rs.32.46 lakhs from Land Acquisition officer which has arisen on
compulsory acquisition of rural agricultural lands by the Government, as enhanced
compensation as part of compulsory acquisition, which has been claimed by the
assessee as exempted income u/s 10 (37) of the Act 61.
The return filed by the assessee declaring taxable income at NIL, has been
assessed u/s 143(1), on a total income of Rs.32.46 lakhs by CPC, Bangalore, treating
the interest received as “income from other source”.
The matter carried in first appeal by the assessee claiming exemption u/s 10(37)
of the Act 61, on the ground that the interest received is a part of the compensation
which is exempt u/s 10(37) of the Act, has been dismissed by the Ld. first appellate
authority, relying on the law laid down by the Hon’ble jurisdictional High Court in the
case of Mahender Pal Narang v CBDT , New Delhi [2020] (423 ITR 13)/316 CTR 906
where the Hon’ble court has observed that interest received on compensation or
enhanced compensation was to be treated as income from other sources , and not under
the head ‘Capital gains.
3 I.T.A. No. 236/Asr/2024 Assessment Year: 2017-18 6. However, the Ld. first appellate authority after considering the amount of
Rs.32.46 lakhs received by the assessee as interest on compensation / or enhanced
compensation, has considered the same to be taxable under the head “income from
other sources” u/s 56(2)(viii) and has judiciously allowed the deduction of a sum equal
to fifty percentage of such income , allowable u/s 57(iv) of the Act 61 and the addition
was restricted to Rs. 16.44 lakhs.
Now, the assessee is in appeal before the Tribunal with the claim that the interest
portion received on compensation is to be treated as income from capital gains and not
income from other sources, and he relied on the decision of the Hon’ble Kerala High
Court in the case of Sh. Anvar Ali Poolakkodan v. ITO, Ward-1, Tirur in ITA No. 60 of 2024 dated 11th April, 2025 where the Hon’ble Court while analyzing the provisions
relating to interest amounts received by assessee in respect of delay payment of
compensation under the Land Acquisition Act has held that the same will be treated as
accruals to the principal compensation amount and be classified as capital gains for the
purpose of Income Tax Act.
The Court has further held that the consequential interest amount will also get
the benefit of section 10(37) of the Act if the land compulsorily acquired is agricultural
land. The ld. AR of the assessee prayed that the interest amount received may be treated
as accruals to the principal compensation and be classified as capital gains which will
be qualified for deduction u/s 10(37).
4 I.T.A. No. 236/Asr/2024 Assessment Year: 2017-18 9. Per contra, the ld. DR relied on the order of the ld. first appellate authority and
has relied on the judgment of the Hon’ble jurisdictional High Court in the case of Mahender Pal Narang v. Central Board of Direct Taxes dated 19th February, 2020
(supra) where it has been held that the interest received on compensation or enhanced
compensation is to be treated as income from other sources and not under the head
capital gains.
The ld. D.R. further pointed out that the department preferred an SLP to appeal
against the judgement of Hon’ble Punjab & Haryana High Court in the aforesaid case
where the Court held that section 10 deals with deductions and clause (37) thereof
deals with capital gains arising from transfer of agricultural land and it nowhere
provides as to what is to be included under the head ‘Capital gains.’ The SLP has been
dismissed by the Hon’ble Apex Court. Thus, interest received on compensation or
enhanced compensation was to be treated as income from other sources and not under
the head capital gains.
Respectfully, following the decision of the Hon’ble jurisdictional High Court,
we are of the opinion that interest on enhanced compensation on compulsory
acquisition of agricultural land will be treated as income from other sources and not
under the head capital gains.
5 I.T.A. No. 236/Asr/2024 Assessment Year: 2017-18 12. As such, we uphold the order of the ld. first appellate authority that the interest
received on compensation by the assessee on compulsory acquisition of land will form
part of the taxable income under the head income from other sources and shall be
entitled to deduction u/s 57 (iv) of the Act, 1961.
In the result, the appeal filed by the assessee is dismissed being devoid of merits.
Order pronounced in the open court as on 26.09.2025
Sd/- Sd/- (Dr. M. L. Meena) (Udayan Dasgupta) Accountant Member Judicial Member *GP/Sr.PS* Copy of the order forwarded to: (1) The Appellant: (2) The Respondent: (3) The CIT concerned (4) The Sr. DR, I.T.A.T True Copy By Order
