2014 (3) TMI 1199 - AT - Income Tax

Interest received u/s 28 of the Land Acquisition Act, 1894, on enhanced compensation - Whether was not part of compensation but liable to tax under the head Income from other sources ? - HELD THAT - There is no dispute to the fact that the enhanced compensation is awarded by the Additional District Judged vide his order dated 14.03.2008 under section 28 of the Land Acquisition Act, as has been affirmed by the AO in his order reproduced hereinabove. It is also not under dispute that the Hon ble Supreme Court, in the case of CIT vs. Ghanshyam (HUF) 2009 (7) TMI 12 - SUPREME COURT has laid down that the amount received under section 28 is part of the amount of compensation whereas interest u/s 34 is only for delay in making payment after compensation. In the present case, the amount is received u/s 28 of the Land Acquisition Act, 1894 and therefore, according to us this is a compensation and cannot take part of the compensation u/s 45(5) and is exempt u/s 10(37) of the Income Tax Act, 1961. Accordingly, the Ld. CIT(A) is not justified in confirming the action of the A.O. we direct the A.O. to delete the addition made. Thus, all the grounds of the assessee are allowed.

Summary

Issues:
Interpretation of interest received under section 28 of the Land Acquisition Act, 1894 for taxation purposes.

Analysis:
The appellant contested the CIT(A)'s decision regarding interest received under section 28 of the Land Acquisition Act, 1894, arguing that it should be considered part of compensation and exempt under section 10(37) of the Income Tax Act, 1961. The appellant cited the decision in the case of Ghanshyam (HUF) (2009) 315 ITR 1(SC) to support their claim. The AO and CIT(A) relied on the amendment in section 145A(b) introduced by the Finance (No.2) Act, 2009, which deemed interest on compensation as income from other sources. The AO made an addition of Rs.8,89,383/- to the appellant's income based on this interpretation.

The appellant further argued that interest under section 28 of the Land Acquisition Act is distinct from interest under section 34, emphasizing that interest under section 28 is an accretion to the value of the land acquired and should be considered part of compensation. The appellant referenced various court decisions to support their interpretation. The ITAT, in line with the appellant's arguments and the decision in the case of CIT vs. Ghanshyam (HUF) (2009) 315 ITR 1, ruled in favor of the appellant. The ITAT held that interest received under section 28 should be treated as compensation and exempt under section 10(37) of the Income Tax Act, 1961.

In conclusion, the ITAT allowed the appeal, directing the AO to delete the addition made to the appellant's income. The ITAT's decision was based on the interpretation that interest received under section 28 of the Land Acquisition Act should be considered part of compensation and exempt from taxation under section 10(37) of the Income Tax Act, 1961.