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2019 (11) TMI 1101 - AT - Income TaxExemption u/s. 10(37) - Capital Gain on compulsory acquisition of urban Agricultural Land - Assessee contended that interest awarded u/s. 28 of the Land Acquisition Act, 1894 partook the character of compensation for land acquired and fell within the ambit of section 10(37) of the Act and to that exempt was exempt - assessee provisions of section 57(iv) r.w.s. 56(2)(viii) r.w.s. 145A(b) of the Act were not applicable for interest on enhanced compensation as interest was in the nature of enhanced compensation and not interest - HELD THAT - As decided in MOVALIYA BHIKHUBHAI BALABHAI VERSUS INCOME TAX OFFICER - TDS - 1 - SURAT 1 2016 (5) TMI 488 - GUJARAT HIGH COURT interest under section 28 of the Act of 1894 is an accretion to compensation and forms part of the compensation and, therefore, exigible to tax under section 45(5) of the Act. In coming to the aforesaid conclusion, the Hon ble Gujarat High Court followed the decision of Hon ble Supreme Court in the case of CIT v. Ghanshyam (HUF) 2009 (7) TMI 12 - SUPREME COURT wherein it was held that interest under section 28 of the Act of 1894 is part of the amount of compensation whereas interest under section 34 thereof is only for delay in making payment after the compensation amount is determined. Interest under section 28 is a part of the enhanced value of the land which is not the case in the matter of payment of interest under section Assessee is entitled to exemption u/s. 10(37) of the Act on the interest received u/s. 28 of the Land Acquisition Act, 1894. We therefore direct the AO to allow the claim of the Assessee in this regard. Appeal of the Assessee is allowed.
Issues Involved:
1. Exemption under Section 10(37) of the Income Tax Act, 1961 for interest received on enhanced compensation under Section 28 of the Land Acquisition Act, 1894. 2. Applicability of Sections 57(iv), 56(2)(viii), and 145A(b) of the Income Tax Act, 1961 to the interest received on enhanced compensation. Detailed Analysis: 1. Exemption under Section 10(37) of the Income Tax Act, 1961 for interest received on enhanced compensation under Section 28 of the Land Acquisition Act, 1894: The core issue was whether the interest received by the Assessee on enhanced compensation under Section 28 of the Land Acquisition Act, 1894 is exempt under Section 10(37) of the Income Tax Act, 1961. The Assessee owned agricultural land that was compulsorily acquired, and the enhanced compensation awarded by the Karnataka High Court included interest under Section 28 of the Land Acquisition Act. The Assessee claimed that this interest amount should be considered as part of the compensation and thus exempt under Section 10(37). The Assessee relied on the decision of the Hon'ble Supreme Court in the case of CIT Vs. Ghanshyam (HUF) (2009) 8 SCC 912, which held that interest paid on enhanced compensation is akin to enhanced compensation. The AO, however, rejected this claim, stating that interest on enhanced compensation is taxable under Sections 57(iv), 56(2)(viii), and 145A(b) of the Income Tax Act, 1961. 2. Applicability of Sections 57(iv), 56(2)(viii), and 145A(b) of the Income Tax Act, 1961 to the interest received on enhanced compensation: The AO's stance was that the interest on enhanced compensation should be taxed as "Income from Other Sources" under Section 56(2)(viii) and computed according to Section 57(iv), which allows a deduction of 50% of such income. Section 145A(b) specifies that interest received on compensation or enhanced compensation should be considered income in the year it is received. The CIT(Appeals) upheld the AO's decision, leading the Assessee to appeal to the Tribunal. The Tribunal considered the Assessee's reliance on the Gujarat High Court's decision in Movaliya Bhikhubhai Balabhai v. Income-tax Officer-TDS-1-Surat [2016] 70 taxmann.com 45 (Guj), which dealt with the nature of interest awarded under Section 28 of the Land Acquisition Act, 1894. The Gujarat High Court held that interest under Section 28 is an accretion to compensation and forms part of the compensation, thus taxable under Section 45(5) of the Income Tax Act, not as "Income from Other Sources." The Tribunal agreed with this interpretation, noting that the interest in question was awarded under Section 28 and should be treated as part of the compensation. Conclusion: The Tribunal concluded that the Assessee is entitled to exemption under Section 10(37) of the Income Tax Act for the interest received under Section 28 of the Land Acquisition Act, 1894. The AO was directed to allow the Assessee's claim for exemption on this interest. Consequently, the appeal of the Assessee was allowed. The judgment was pronounced in the open court on November 22, 2019.
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