2019 (3) TMI 731 - AT - Income Tax

Interest received on compensation or enhanced compensation amount u/s 28 of the Land Acquisition Act - Income from other sources or Capital gain as exempt u/s 10(37) - Characterization of income - method of accounting followed by the assessee - refund of tds - HELD THAT - In the case of Ghanshyam 2009 (7) TMI 12 - SUPREME COURT in unequivocal terms that the additional amount u/s 23(1A), solatium under section 23(2) and interest on excess compensation u/s 28 of the Land Acquisition Act form part of enhanced compensation u/s 45(5)(b) and, therefore, is subject to tax u/s 45(5) in the year of receipt. No contrary view is taken by the Supreme Court in the subsequent judgments and as on the date, law is fairly settled that the amount of interest received u/s 28 of the land Acquisition Act is in the nature of capital gain. In the case of Hari Singh 2017 (11) TMI 923 - SUPREME COURT while dealing with the similar question under identical set of facts while setting aside the matter to the file of the AO to examine the facts of the case and to apply the law as contained in the Income-tax Act, Hon ble Supreme Court specifically directs that in case the learned AO finds that the compensation was received in respect of the agricultural land, the tax deposited with the Income-tax Department shall be refunded to the assessee. It does not admit of any doubt as to the nature of amount by way of interest u/s 28 of the Land Acquisition Act in the hands of the assessee or the applicability of the Income-tax Act to sch amount. We, therefore, do not have any doubt in our mind as to the law in this aspect and while respectfully following the ratio laid down by the Hon ble Supreme Court in the case of Ghanshyam (supra) and Hari Singh (supra) above, direct the ld. AO to refund the TDS amount that was deducted on account of the enhanced compensation. With these directions, we allow the appeal of the assessee. - Decided in favour of assessee.

Summary

Issues Involved:
Taxability of interest received on enhanced compensation under the Land Acquisition Act, applicability of exemption u/s 10(37) of the Income-tax Act, 1961, and the interpretation of relevant legal provisions by the appellate authorities.

Analysis:

Issue 1: Taxability of Interest Received on Enhanced Compensation:
The assessee received enhanced compensation under the Land Acquisition Act, including interest, and claimed exemption u/s 10(37) of the Income-tax Act. The Assessing Officer (AO) taxed 50% of the interest received, treating it as income under u/s 57(iv) of the Act. The assessee contended that the interest on enhanced compensation is part of the compensation and not taxable as interest income. The Commissioner of Income-tax (Appeals) (CIT(A)) upheld the taxability of interest as an accretion to compensation, dismissing the appeal.

Issue 2: Applicability of Exemption u/s 10(37) of the Act:
The assessee argued that judgments by the Hon’ble Apex Court classify interest received u/s 28 of the Act as a capital receipt under Section 45(5) of the Act, maintaining that the exemption u/s 10(37) should apply. The Departmental Representative (DR) cited precedents emphasizing that interest must be taxed in the year of receipt. The ITAT analyzed the Supreme Court decisions in Ghanshyam and Hari Singh cases, concluding that interest under u/s 28 is capital gain, directing the AO to refund the TDS amount deducted on enhanced compensation.

Conclusion:
The ITAT allowed the appeal, following the Supreme Court rulings in Ghanshyam and Hari Singh cases, directing the AO to refund the TDS amount deducted. The judgment clarified that interest received under u/s 28 of the Land Acquisition Act is in the nature of capital gain, exempt from taxation under u/s 10(37) of the Income-tax Act. The decision emphasized the importance of applying the law in a holistic manner, considering both the nature of the receipt and relevant exemptions under the Act.