2021 (2) TMI 271 - AT - Income Tax

Addition u/s.56(2)(viii) - interest for delayed payment of compensation under the Land Acquisition Act - assessee has claimed exempt from tax towards interest received on compensation for compulsory acquisition of land on the ground that as per new Land Acquisition RFCTLARR Act 2013, the provisions of Section 96 overrides all provisions of Income Tax relating to taxation of compensation or any award payable under the Act and consequently interest if any received towards delayed payment of compensation is exempt from tax - HELD THAT - Taxability of compensation received on compulsory acquisition of land, especially this relating to acquisition of non-agricultural land, a clarification has been issued by way of Circular No.36 of 2016 and clarified that compensation received in respect of award or agreement which has been exempted from levy of Income Tax vide section 96 of RFCTLARR Act 2013, shall also not to be taxable under the provisions of IT Act, even there is no specific provision of exemption for such compensation in IT Act. Further, the benefit of exemption from Income Tax in respect of the amounts paid under new Land Acquisition Act, 2013 pursuant to Circular No.36 of 2016 was inserted by way of a clarification amendment by Finance Act, 2017 in Section 10(37) and Section 194LA of IT Act. Second proviso was inserted to Section 194LA of the IT Act, which states that no deduction shall be made under this section, where such payment is made in respect of any award or agreement which has been exempted from levy of income tax u/s.96 of RFCTLARR Act 2013. From the above, it is very that TDS is also not required to be deducted in respect of amount paid under new Land Acquisition Act. It may be noted that the Special Land Acquisition Officer has deducted tax u/s.194LA of IT Act, which makes it clear that the amounts paid are in the nature of compensation and hence it is exempt from the purview of Income Tax. Though tax was not required to be deducted at source, the Special Land Acquisition Officer had deducted TDS by way of abundant caution in the absence of corresponding enactment under income tax, which was not made under this juncture. But, in our view, i It does not make any difference with regard to non-taxability of compensation or award including interest if any payable under the new Land Acquisition Act, 2013. Therefore, we are of the considered view that the ld.AO has grossly erred in bringing to tax interest received by the assessee for delayed payment of compensation under New Land Acquisition Act for compulsory acquisition of land. we are of the considered view that interest received by the assessee towards delayed payment of compensation for compulsory acquisition of land is akin to compensation for compulsory acquisition of land, which is exempt from Income Tax by virtue of Section 96 of RFCTLARR Act 2013. The ld.CIT(A) after considering relevant facts has rightly deleted additions made by the AO towards interest u/s.56(2)(viii) of the IT Act. There is no error in the finding recorded by the ld.CIT(A) and hence, we are inclined to uphold the order of the CIT(A) and dismiss the appeal filed by the Revenue.

Issues Involved:
1. Taxability of interest received on delayed payment of compensation for compulsory acquisition of land.
2. Applicability of Section 56(2)(viii) r.w.s. 145A(b) of the Income Tax Act, 1961.
3. Relevance of Section 10(37) of the Income Tax Act, 1961.
4. Applicability of Section 194LA of the Income Tax Act, 1961.
5. Interpretation of Section 96 of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act (RFCTLARR Act), 2013.

Issue-wise Detailed Analysis:

1. Taxability of Interest on Delayed Compensation:
The appellant received interest on delayed payment of compensation for compulsory acquisition of land under the RFCTLARR Act, 2013, amounting to ?12,25,98,815/-. The assessee claimed this interest as exempt from tax under Section 96 of the RFCTLARR Act, 2013, which states that no income tax shall be levied on any award or agreement made under this Act. The Assessing Officer (AO) contended that such interest is taxable under Section 56(2)(viii) r.w.s. 145A(b) of the Income Tax Act, 1961, as it is not part of the compensation but interest for delayed payment of compensation.

2. Applicability of Section 56(2)(viii) r.w.s. 145A(b) of the IT Act:
The AO argued that interest received on compensation or enhanced compensation is taxable as "Income from Other Sources" under Section 56(2)(viii) r.w.s. 145A(b) of the IT Act. The AO allowed a notional deduction under Section 57(iv) for expenses related to earning this interest income. However, the CIT(A) and the Tribunal held that the interest received forms part of compensation under the RFCTLARR Act, 2013, and is exempt from tax by virtue of Section 96 of the said Act. The Tribunal noted that the provisions of Section 56(2)(viii) were introduced before the enactment of the RFCTLARR Act, 2013, and hence, do not apply to interest received under the new Act.

3. Relevance of Section 10(37) of the IT Act:
The AO rejected the assessee's claim of exemption under Section 10(37) of the IT Act, which pertains to compensation received for compulsory acquisition of agricultural land. The CIT(A) and the Tribunal clarified that Section 10(37) is not relevant to the assessee's case as the interest was received under the RFCTLARR Act, 2013, which provides a broader exemption under Section 96, covering both agricultural and non-agricultural land.

4. Applicability of Section 194LA of the IT Act:
The AO noted that TDS was deducted under Section 194LA on the interest paid. However, the CIT(A) and the Tribunal observed that Section 194LA, which deals with TDS on compensation for acquisition of immovable property, was introduced before the RFCTLARR Act, 2013. The Tribunal highlighted that the CBDT Circular No. 36 of 2016 clarified that compensation or enhanced compensation under the RFCTLARR Act is exempt from tax, and consequently, TDS provisions under Section 194LA are not applicable.

5. Interpretation of Section 96 of the RFCTLARR Act, 2013:
Section 96 of the RFCTLARR Act, 2013, explicitly exempts any award or agreement made under the Act from income tax. The CIT(A) and the Tribunal emphasized that this provision overrides the Income Tax Act. They referred to the CBDT Circular No. 36 of 2016, which clarified that the exemption under Section 96 is wider in scope than the existing provisions of the IT Act. The Tribunal concluded that interest received for delayed payment of compensation under the RFCTLARR Act is exempt from tax, as it forms part of the compensation.

Conclusion:
The Tribunal upheld the CIT(A)'s order, which deleted the addition made by the AO towards interest received on delayed compensation for compulsory acquisition of land. The Tribunal concluded that the interest received under the RFCTLARR Act, 2013, is exempt from tax by virtue of Section 96 of the said Act, and the provisions of Section 56(2)(viii) of the IT Act do not apply. The appeal filed by the Revenue was dismissed.

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