2020 (6) TMI 697 - AT - Income Tax

Exemption u/s 10(37) - interest received on compensation/enhanced compensation u/s 28 and 34 of the Land Acquisition Act - whether the interest on the compensation received by the assessee is in the nature of compensation exempt from tax u/s 10(37 ) or taxable under Section 56 (2 )( viii) as interest under the head income from other sources ? - HELD THAT - As decided in SHRI SATBIR, SHRI VED PAL, SHRI SHEO CHAND, SHRI KARAMBIR, SHRI DHARAM PAL AND SHRI CHANDGI RAM VERSUS THE ITO, WARD 1, JIND 2018 (7) TMI 1163 - ITAT CHANDIGARH proposition laid down in Ghanshyam, HUF 2009 (7) TMI 12 - SUPREME COURT remains and which having been laid down by the Hon'ble Apex Court is the law of the land and has to be followed by all lower authorities. The interest received by the assessee during the impugned year on the compulsory acquisition of its land u/s 28 of the Land Acquisition Act, is in the nature of compensation and not interest which is taxable under the head income from other sources u/s 56 of the Act as held by the authorities below. The compensation being exempt u/s 10(37) of the Act is not disputed. In view of the same the order passed by the CIT(Appeals) upholding the addition made by the AO on account of interest on enhanced compensation is, not sustainable. Further the issue under consideration regarding the taxability of interest on enhanced compensation is a debatable issue and do not constitute a mistake apparent on record. In view of the limited and restricted powers of rectification u/s 154 or u/s 254 as the case may be, it cannot be said that any mistake apparent on record had occurred in the order of the Tribunal. In view of the above discussion, these appeals of the assessee are hereby allowed.

Issues Involved:
1. Determination of total income.
2. Taxability of interest received on enhanced compensation for compulsory acquisition of agricultural land.
3. Applicability of Section 56(2)(viii) and Section 57(iv) of the Income Tax Act.
4. Reliance on judicial precedents and interpretation of interest under the Land Acquisition Act.

Detailed Analysis:

1. Determination of Total Income:
The assessee filed a return declaring a total income of ?26,96,93,700, which included taxable income of ?3,08,920 and exempted income of ?26,93,84,780. The Assessing Officer (AO) determined the total income at ?4,04,15,500, treating the interest income of ?8,02,13,160 received on enhanced compensation as taxable under the head "income from other sources" u/s 56(2)(viii) of the Income Tax Act.

2. Taxability of Interest Received on Enhanced Compensation:
The primary issue was whether the interest on compensation received by the assessee is exempt from tax u/s 10(37) or taxable under Section 56(2)(viii). The assessee argued that the interest received u/s 28 of the Land Acquisition Act should be considered part of the compensation and thereby exempt. The AO and CIT(A) relied on the Supreme Court judgment in Bikram Singh vs. Land Acquisition Collector, which held that interest received on compensation/enhanced compensation is a revenue receipt and taxable.

3. Applicability of Section 56(2)(viii) and Section 57(iv) of the Income Tax Act:
The CIT(A) upheld the AO's view, invoking Section 56(2)(viii) and Section 57(iv) of the Act, which were introduced by the Finance Act, 2009, effective from 01.04.2010. These provisions state that income by way of interest received on compensation or enhanced compensation is taxable under the head "income from other sources."

4. Reliance on Judicial Precedents and Interpretation of Interest under the Land Acquisition Act:
The assessee cited several Supreme Court judgments, including CIT vs. Ghanshyam (HUF), CIT vs. Govindbhai Mamaiya, and CIT vs. Chet Ram (HUF), which held that interest received u/s 28 of the Land Acquisition Act is an accretion to the value of the land and forms part of the enhanced compensation, thereby being exempt from tax. The ITAT reviewed these judgments and noted the distinction between interest u/s 28 (considered part of compensation) and interest u/s 34 (considered interest income).

Judgment:
The ITAT held that the interest received by the assessee on the enhanced compensation u/s 28 of the Land Acquisition Act is in the nature of compensation and not interest taxable under the head "income from other sources." The ITAT emphasized the Supreme Court's consistent view that interest u/s 28 is an accretion to the value of the land and forms part of the compensation, thus exempt under Section 10(37). Consequently, the appeal of the assessee was allowed, and the addition made by the AO was not sustained.

Conclusion:
The ITAT's decision reaffirmed that interest received on enhanced compensation u/s 28 of the Land Acquisition Act is part of the compensation and exempt from tax under Section 10(37). The judgment relied on the Supreme Court's interpretation, distinguishing it from interest u/s 34, which is taxable as income from other sources. The appeal was allowed, providing relief to the assessee.

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