2012 (11) TMI 1088 - AT - Income Tax

Summary

Issues Involved:
1. Taxability of enhanced compensation received on compulsory acquisition of land.
2. Applicability of exemption u/s 10(37) of the Income Tax Act.
3. Validity of reopening of assessment u/s 147.

Summary:

1. Taxability of Enhanced Compensation:
The assessee was aggrieved by the confirmation of an addition of Rs. 1,11,99,608/- as long-term capital gain u/s 45(5) of the Income Tax Act. The A.O. observed that the assessee, along with co-owners, received enhanced compensation for compulsory acquisition of land by the Government of Gujarat. The A.O. taxed 1/4th of the compensation in the hands of the assessee, issuing notices u/s 148 and u/s 142(1) for the same.

2. Applicability of Exemption u/s 10(37):
The assessee contended that the compensation was exempt u/s 10(37) as the land was used for agricultural purposes. The A.O. rejected this claim, stating the land was within municipal limits and thus not eligible for exemption. The CIT(A) upheld the A.O.'s decision, noting that while the land was used for agricultural purposes, there was no evidence that the assessee himself or his parents used the land for such purposes, a condition for exemption u/s 10(37).

3. Validity of Reopening of Assessment u/s 147:
The assessee argued that the reopening of the assessment was based on erroneous directions from the CIT(A) in another case and did not satisfy the primary conditions of s. 147. The A.O. maintained that the directions were binding, and the reopening was valid.

Judgment:
The Tribunal found that the plain reading of Section 10(37)(ii) does not require the assessee himself to carry out agricultural activities. The requirement is that the land be used for agricultural purposes by the assessee or his parent. The Tribunal noted that the agricultural income was regularly declared and accepted by the Revenue, and the assessee provided evidence of agricultural activities. Therefore, the Tribunal concluded that the assessee fulfilled the conditions for exemption u/s 10(37) and directed the A.O. to grant the exemption.

Conclusion:
The appeal was allowed, and the A.O. was directed to grant the exemption u/s 10(37) for the enhanced compensation received on the compulsory acquisition of urban agricultural lands.