2020 (3) TMI 1327 - AT - Income Tax

Characterisation of income - interest awarded u/s 28 of the Land Acquisition Act - computation of capital gain u/s 45 - Whether interest awarded u/s 28 of Land Acquisition Act, 1894 is nothing but an accretion to the value compensation and hence it is part and parcel of compensation? - HELD THAT - From the perusal of the order of the CIT(A), it can be seen that the CIT(A) has not given a separate finding as to why the Assessing Officer is justified in making an addition. The Assessing Officer as well as the CIT(A) have not given any finding as to the fact that the assessee has not received interest u/s 28 of the Land Acquisition Act, 1894. This issue has been decided by the Hon ble Apex Court in case of Union of India Vs. Hari Singh 2017 (11) TMI 923 - SUPREME COURT wherein it is held that on agricultural Land no tax is payable when the compensation/enhanced compensation is received by the assessee as their land were agricultural land. The compensation was received in respect of agricultural land belonging to the assessee which had been acquired by the state government. The CIT(A) has not taken cognizance of the decision of the Apex Court in case of Hari Singh (supra). The ratio of the said decision is applicable in the present case. Thus, the appeal of the assessee is allowed.

Issues:
1. Taxability of interest awarded under section 28 of the Land Acquisition Act as a capital receipt.
2. Validity of reopening assessment under section 147.
3. Justification for additions made by the Assessing Officer.

Issue 1: Taxability of Interest as a Capital Receipt:

The appellant contested the addition of ?32,14,916 as interest received on compensation, claiming it to be a capital receipt not taxable under section 45 of the Income Tax Act. Citing the decision in CIT v/s Ghanshyyam Dass HUF, it was argued that interest awarded under section 28 of the Land Acquisition Act is an accretion to compensation and hence should be considered part of the capital gain under section 45. The appellant emphasized that unless specifically taxable under section 45, a capital receipt is not within the scope of taxable income. The appellant also referred to the decision in Padmaraje R. Kadambande vs. CIT, asserting that amounts received should be treated as capital receipts and not taxable income. Ultimately, the Tribunal allowed the appeal, considering the interest received as a capital receipt and not subject to taxation.

Issue 2: Validity of Reopening Assessment:

The appellant challenged the reopening of the assessment under section 147, arguing that interest received on compensation is a capital receipt and hence the reopening of the assessment was against the law. It was contended that the interest received was part of the compensation and should not be taxed as income unless falling under specific provisions of the Income Tax Act. The appellant highlighted the lack of a passed order on objections raised for reopening the assessment, asserting that the assessment proceedings were ultra vires and should be quashed. The Tribunal considered the appellant's arguments and held that the reopening of the assessment was not justified, ultimately allowing the appeal.

Issue 3: Justification for Additions Made by the Assessing Officer:

The Assessing Officer had made an addition of ?32,14,916 based on the interest received by the assessee on enhanced compensation, claiming it as taxable income. The CIT(A) upheld this addition in the assessment order. However, during the appeal, the appellant contended that the interest received was a capital receipt and should not be taxed. The Tribunal noted that neither the Assessing Officer nor the CIT(A) provided a finding to justify the addition made, particularly regarding whether the interest received fell under section 28 of the Land Acquisition Act. Referring to a relevant decision by the Hon'ble Apex Court, the Tribunal concluded that on agricultural land, no tax is payable on compensation received, which was applicable in the present case. Consequently, the Tribunal allowed the appeal, ruling in favor of the assessee.

In conclusion, the Tribunal held in favor of the assessee, ruling that the interest received on compensation was a capital receipt and not taxable income, thereby allowing the appeal and quashing the reopening of the assessment under section 147. The Tribunal emphasized the need for proper justification for additions made by the Assessing Officer, ultimately providing a detailed analysis and decision on each issue raised in the appeal.

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