2020 (1) TMI 1575 - AT - Income Tax

Assessability of interest received on compensation/enhanced compensation awarded under the Land Acquisition Act - Interest received on compensation by the assessee was under section 28 of the Land Acquisition Act, which is to be considered as part of compensation and not interest for late payments - Case of the Revenue is that the interest received by the assessee on compensation/enhanced compensation is assessable under section 56 of the Act, subject to the deduction allowable under section 57(iv) - HELD THAT - The Hon ble Supreme Court in its earlier decision in Ghanshyam (HUF) 2009 (7) TMI 12 - SUPREME COURT had held that the interest received under section 28 of the Land Acquisition Act is part of compensation and the interest received under section 34 of the Land Acquisition Act is to be assessed as other interest in the hands of the recipients. The assessee before us has placed the evidence to the effect that the interest has been received under section 28 of the Land Acquisition Act. The Hon ble Supreme Court had laid down that the ratio in Ghanshyam (HUF) case is to be applied in order to ascertain whether the interest received by the assessee under the said provision amounts to compensation or not. In view thereof, we direct the Assessing Officer to verify the claim of the assessee that interest had been received under section 28 of the Land Acquisition Act and if that be so, then the same has to be treated as compensation in the hands of the assessee and is not taxable as interest under section 56 of the Act. Accordingly, ground of appeal raised by the assessee is decided in favour of the assessee.

Summary

Issues:
Assessment of interest received on compensation/enhanced compensation under the Land Acquisition Act as income from other sources.

Analysis:
The appeals were filed against orders of CIT(A)-1, Gurgaon, related to assessment year 2013-14. The Assessing Officer added a sum to the income of the assessee, considering interest received from DRO-cum-LAC, Government of Haryana, as taxable income. The Ld. CIT(A) upheld this decision, leading to the appeals before ITAT Delhi. The main contention was whether the interest received should be taxed as income from other sources or considered part of compensation under section 28 of the Land Acquisition Act.

The assessee argued that the interest received was part of compensation under section 28 of the Land Acquisition Act, citing relevant legal precedents. On the other hand, the Revenue relied on a decision of the Hon'ble Punjab & Haryana High Court, stating that interest awarded under section 28 should be taxed as income from other sources. The assessee highlighted a Supreme Court decision that favored their position, emphasizing that the High Court decision did not settle the issue.

ITAT Delhi considered the conflicting arguments and legal precedents. Referring to the Supreme Court decision, it held that interest received under section 28 of the Land Acquisition Act should be treated as compensation and not taxable as interest under section 56 of the Income Tax Act. The court directed the Assessing Officer to verify if the interest was received under section 28 and accordingly treat it as compensation. Following this reasoning, the appeals of the assessees were allowed, as the interest was deemed part of compensation and not taxable as income from other sources.

The judgment clarified the assessability of interest received on compensation/enhanced compensation under the Land Acquisition Act, resolving the dispute between the assessee and the Revenue. By applying legal principles and relevant court decisions, ITAT Delhi ruled in favor of the assessee, highlighting the distinction between interest and compensation under the tax laws.