2019 (11) TMI 1801 - HC - Income Tax

Accrual of income - Taxability of compensation received under an Award - HELD THAT - Section 96 of the Act 30 of 2013 is clear and unambiguous in its literal meaning and does not require any interpretation by a court of law. The dictum contained in the decision of the High Court of Andhra Pradesh in C. Nanda Kumar 2017 (4) TMI 662 - ANDHRA PRADESH HIGH COURT is reiterated by the Division Bench of this court in the judgment in Pramod and others 2016 (8) TMI 1185 - KERALA HIGH COURT . It is held therein that Section 96 of Act 30 of 2013 clearly discloses that no income tax or stamp duty shall be levied on any Award or enhancement made under the said Act, except under Section 46. Hence it is clear that the exemption is provided from levying income-tax and stamp duty. Therefore the assessment of tax made on such compensation received is not sustainable. In view of the position remaining settled, coupled with the terms of the CBDT Circular No.36/2016, dated 25.10.2016, as well as introduction of the proviso to Section 194 LA in the Income-tax Act, there exists no ambiguity that the compensation received under Act 30 of 2013 is in no manner liable to be taxed under any of the provisions of the Income-tax Act.

Summary

Issues:
Interpretation of Section 96 of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 regarding taxation of compensation received for acquisition of depreciable assets.

Analysis:
The main issue in this case was whether the compensation received for the acquisition of an asset, valued under a depreciable method, is covered under Section 96 of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013. The dispute arose from the assessment of tax on the compensation received by the respondent for the acquisition of properties for the Kochi Metro Rail Project. The assessing authority included a portion of the compensation as taxable income based on an interpretation of Section 96 of the Act. The respondent challenged this assessment, arguing that the compensation received for a depreciable asset should not be taxable under Section 96.

The learned Single Judge, in the initial judgment, observed that Section 96 does not differentiate between compensation received for compulsory acquisition based on the nature of the asset acquired. However, the exemption provided under Section 96 was considered broader than tax exemptions under the Income-tax Act, 1961. The Judge referred to a decision of the High Court of Andhra Pradesh and a Circular issued by the Central Board of Direct Taxes, clarifying that compensation received under an Award is exempt from income tax under Section 96 of the Act, even without a specific provision for exemption in the Income-tax Act. The Single Judge emphasized that if the exemption is granted by Parliament, the court should not deny it through interpretation.

Upon appeal, the Division Bench of the Kerala High Court upheld the decision of the Single Judge. The Bench reiterated that Section 96 of the Act is clear and unambiguous, exempting compensation from income tax and stamp duty. The Court referred to previous judgments and the CBDT Circular, stating that compensation received under the Act is not liable to be taxed under any provisions of the Income-tax Act. The Court dismissed the writ appeal, affirming that the compensation received under the Act is not subject to taxation.

In conclusion, the judgment clarified that compensation received for the acquisition of depreciable assets under the Right to Fair Compensation Act is exempt from income tax and stamp duty under Section 96, as the exemption provided by the Act prevails over any tax liabilities under the Income-tax Act.