2018 (7) TMI 2051 - AT - Income Tax

Characterization of income - compensation received by the assessee on account of compulsory acquisition of its land - interest taxable u/s 56 or in the nature of compensation which was exempt from capital gain tax u/s 10(37) - HELD THAT - Undisputedly the interest amount had been received u/s 28 of the Land Acquisition Act, 1894. We find that the nature of the said interest and its taxability had been settled by the Hon'ble Apex Court in its decision in the case of Ghanshyam, HUF 2009 (7) TMI 12 - SUPREME COURT which has been reiterated by the apex court in the case of Gobind Bhai Mamaiya 2014 (9) TMI 587 - SUPREME COURT and Hari Singh Others 2017 (11) TMI 923 - SUPREME COURT holding the same to be in the nature of compensation taxable as such. We hold that the interest received by the assessee during the impugned year on the compulsory acquisition of its land u/s 28 of the Land Acquisition Act, is in the nature of compensation and not interest which is taxable under the head income from other sources u/s 56 of the Act as held by the authorities below. The compensation being exempt u/s 10(37) of the Act is not disputed. In view of the same the order passed by the CIT(Appeals) upholding the addition made by the AO on account of interest on enhanced compensation is not sustainable. - Decided in favour of assessee

Issues:
1. Taxability of interest received on enhanced compensation under the Land Acquisition Act.
2. Interpretation of relevant provisions of the Income Tax Act.
3. Applicability of judicial precedents on similar cases.

Issue 1: Taxability of interest received on enhanced compensation under the Land Acquisition Act

The appeal was filed against the order relating to the assessment year 2008-09, where the appellant, a property dealer, received compensation on the compulsory acquisition of agricultural land. The key contention was whether the interest received along with the compensation was taxable under section 56 of the Income Tax Act or exempt under section 10(37) as capital gain tax. The Assessing Officer treated the interest as taxable under section 56, while the appellant argued that it should be considered part of compensation exempt under section 10(37).

Issue 2: Interpretation of relevant provisions of the Income Tax Act

The appellant relied on the decision of the Supreme Court in the case of CIT Vs. Ghanshyam (HUF) to support the claim that interest received under section 28 of the Land Acquisition Act should be considered as compensation and not taxable as interest. The Assessing Officer, however, followed the decision of the Jurisdictional High Court, which held that such interest was taxable under section 56 of the Income Tax Act. The CIT(Appeals) upheld the Assessing Officer's decision, citing previous judgments and dismissing the appellant's contentions.

Issue 3: Applicability of judicial precedents on similar cases

During the appeal hearing, the appellant's counsel referred to subsequent Supreme Court judgments that reiterated the position in the Ghanshyam case, emphasizing that interest under section 28 should be treated as compensation. The Departmental Representative argued in favor of the Jurisdictional High Court's decision. The Tribunal analyzed the legal position established by the Supreme Court in various cases, including Ghanshyam, and concluded that interest received under section 28 of the Land Acquisition Act was in the nature of compensation and not taxable as interest under section 56. The Tribunal held that the interest was exempt under section 10(37) and allowed the appeal of the assessee.

In conclusion, the Tribunal ruled in favor of the appellant, holding that the interest received on enhanced compensation under section 28 of the Land Acquisition Act was to be treated as compensation and exempt from tax under section 10(37) of the Income Tax Act. The decision was based on the interpretation of relevant legal provisions and judicial precedents, particularly the Supreme Court's rulings in similar cases.

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