2020 (10) TMI 356 - AT - Income Tax

Interest received by the assessee u/s. 28 of the Land Acquisition Act, 1984 - Whether treated as interest income separately chargeable to tax instead of a part and parcel of the sale consideration? - assessee treated such amount as part of the enhanced compensation of land and claimed the same as exempt from tax on the ground that the land itself was agricultural - HELD THAT - Hon ble Supreme Court in CIT Vs. Ghanshyam (HUF) 2009 (7) TMI 12 - SUPREME COURT held that interest u/s.28 under The Land Acquisition Act, is to be taxed as part of consideration on receipt basis. This judgment was delivered on 16-07-2009. The Finance (No.2) Act, 2009 w.e.f. 01-04-2010 inserted clause (viii) to section 56(2) providing that income by way of interest received on compensation or on enhanced compensation referred to in sub-section (1) of section 145B shall be chargeable to income-tax under the head Income from other sources . Section 145B(1) provides that Notwithstanding anything to the contrary contained in section 145, the interest received by an assessee on any compensation or on enhanced compensation, as the case may be, shall be deemed to be the income of the previous year in which it is received . Thus it is palpable that post the decision in Ghanshyam (supra), a statutory amendment has been carried out providing that income by way of interest received on compensation or on enhanced compensation shall be chargeable to income-tax under the head Income from other sources . Interest u/s.28 under the LAA is chargeable to tax, is intact and has not been disturbed in any manner by the Hon ble Supreme Court in the case of Hari Singh and others 2017 (11) TMI 923 - SUPREME COURT - Respectfully following judgment of Hon ble Punjab Haryana High Court in Manjeet Singh 2015 (12) TMI 1123 - PUNJAB HARYANA HIGH COURT along with the statutory amendment carried out to section 56(2) inserting clause (viii) w.e.f. 01-04-2010, it is overt that the ld. CIT(A) has taken an unexceptionable view in the matter pertaining to the A.Y. 2013-14. We, therefore, uphold the same. This ground is not allowed. Addition as long term capital gain on acquisition of land - HELD THAT - There is complete contrast in the version of the AO and the assessee. Whereas the case of the AO is that the land acquired was situated at Khadgaon, the assessee is contending that it was at Gut No. 11 Vasangaon. In support of such a claim, the assessee has filed certain additional evidence, which has not passed through the eyes either of the AO or the CIT(A). In our considered opinion, it would in the interest of justice, if the impugned order is set aside on this score and the matter is restored to the file of AO for determining as to whether the land acquired was at Khadgaon or Gut No. 11 at Vasangaon in the light of the entire material and thereafter to decide whether it was an agricultural land or a capital asset - Decided in favour of assesse for statistical purposes.

Summary

Issues Involved:
1. Taxability of interest received under Section 28 of the Land Acquisition Act, 1984.
2. Confirmation of addition as long-term capital gain on acquisition of land.

Issue-wise Detailed Analysis:

1. Taxability of Interest Received under Section 28 of the Land Acquisition Act, 1984:
The primary issue in this appeal is whether the interest of ?34,16,010/- received by the assessee under Section 28 of the Land Acquisition Act (LAA) should be treated as interest income separately chargeable to tax or as part of the sale consideration.

The assessee declared total income of ?42,370/- and received enhanced compensation of ?38,19,709/- along with interest under Section 28 of the LAA amounting to ?68,32,020/-. The assessee claimed the interest as part of the enhanced compensation, which was exempt from tax since the land was agricultural. However, the Assessing Officer (AO) treated 50% of the interest income as deductible under Section 57(iv) and added net interest income of ?34,16,010/- under Section 56(2)(viii) of the Income-tax Act, 1961.

The Tribunal noted the statutory amendment by the Finance (No.2) Act, 2009, effective from 01-04-2010, which inserted clause (viii) to Section 56(2) stating that "income by way of interest received on compensation or on enhanced compensation" is chargeable to income-tax under the head "Income from other sources." This amendment overruled the Supreme Court's decision in CIT Vs. Ghanshyam (HUF) (2009), which held that interest under Section 28 of the LAA is part of the compensation.

The Tribunal referred to the Punjab & Haryana High Court's decision in Manjet Singh (HUF) Karta Manjeet Singh Vs. Union of India (2016), which upheld the taxability of interest under Section 28 of the LAA under Section 56(2)(viii). The Supreme Court dismissed the SLP against this judgment, reinforcing the taxability of such interest.

Further, the Tribunal discussed the Bombay High Court's decision in Shivajirao S/o Dnyanoba Ghanwat & Ors. VS. The State of Maharashtra & Ors., which held that interest under Section 28 of the LAA is chargeable to tax, aligning with the larger bench judgment in Bikram Singh vs. Land Acquisition Collector (1997).

The Tribunal concluded that it is bound by the jurisdictional High Court's decision and statutory amendments, thereby upholding the CIT(A)'s view that the interest income under Section 28 of the LAA is taxable under Section 56(2)(viii).

2. Confirmation of Addition as Long-term Capital Gain on Acquisition of Land:
The second issue pertains to the addition of ?38,58,365/- as long-term capital gain on the compulsory acquisition of land.

The AO observed that the land acquired was situated at Village Khadgaon, Tq. Latur, within the municipal limits, and the assessee failed to prove its agricultural use for the relevant assessment years. The AO treated the land as a capital asset and computed the long-term capital gain based on the DVO's valuation.

The assessee contended that the land acquired was at Gut No. 11, Vasangaon, not Khadgaon, and provided additional evidence to support this claim. Due to the conflicting versions and additional evidence, the Tribunal set aside the impugned order and remanded the matter to the AO to determine the correct location of the acquired land and its nature (agricultural or capital asset) based on the entire material.

Conclusion:
The Tribunal upheld the taxability of interest received under Section 28 of the LAA as income from other sources under Section 56(2)(viii). The issue of long-term capital gain on the acquisition of land was remanded to the AO for fresh determination. The appeal was partly allowed for statistical purposes.