2022 (3) TMI 777 - AT - Income Tax

Revision u/s 263 - characterization of receipts - assessee had received compensation under compulsory acquisition of land under RFCTLARR Act - Whether compensation received for compulsory acquisition of land under the RFCTLARR Act (except those made under section 46 of RFCTLARR Act), is exempted from the levy of income-tax? - HELD THAT - As per section 96 of the RFCTLARR Act after considering the above said provision, if any compensation received under RFCTLARR Act, income tax shall not be levied on any award or agreement. We have also perused the land acquisition proceedings and the lands were acquired under RFCTLARR Act. Therefore, as per the CBDT Circular and as per section 96 of RFCTLARR Act, income tax shall not be levied. We are of the firm view that the compensation amount which was received by the assessee for an amount should not be suffered for capital gains tax. Therefore, we set aside the order passed by the Ld.Pr.CIT u/s 263 as erroneous. Hence, we allow the appeal of the assessee.

Summary

Issues:
1. Jurisdiction of Principal Commissioner u/s 263 of the Income Tax Act.
2. Taxability of compensation received under the RFCTLARR Act, 2013 as capital gains.

Jurisdiction of Principal Commissioner u/s 263:
The appeal was filed against the order of the Principal Commissioner of Income Tax (Pr.CIT) for the Assessment Year 2016-17 under section 263 of the Income Tax Act. The Principal Commissioner initiated proceedings under section 263 as the Assessing Officer (AO) did not examine the issue of taxing the compensation received for land acquisition as capital gains. The Principal Commissioner set aside the assessment order and directed the AO to tax the long-term capital gains earned by the assessee. The appellant contended that the assessment order was not erroneous or prejudicial to the revenue. However, the Tribunal held that the Principal Commissioner's order was erroneous as the compensation received under the RFCTLARR Act was exempt from capital gains tax as per CBDT Circular and section 96 of the Act. Therefore, the Tribunal allowed the appeal, setting aside the Principal Commissioner's order under section 263.

Taxability of Compensation Received under RFCTLARR Act, 2013:
The issue revolved around the taxability of the compensation amount of ?1,33,88,000 received by the assessee under the RFCTLARR Act, 2013 for compulsory land acquisition. The assessee argued that this compensation was exempt from income tax as per a CBDT circular issued on 25.10.2016. The Circular stated that income tax shall not be levied on any award or agreement made under the RFCTLARR Act, except under section 46. The Tribunal analyzed the provisions of section 96 of the RFCTLARR Act, which exempted income tax on awards or agreements made under the Act, except under section 46. Since the compensation received was not covered under section 46, the Tribunal concluded that income tax should not be levied on it. Therefore, the Tribunal held that the compensation amount should not be subject to capital gains tax and allowed the appeal of the assessee, setting aside the Principal Commissioner's order.

This judgment clarifies the exemption of compensation received under the RFCTLARR Act, 2013 from capital gains tax, based on the CBDT Circular and the provisions of the Act. The Tribunal's decision highlights the importance of correctly interpreting relevant legal provisions to determine the taxability of specific income sources, ensuring fair treatment for taxpayers in accordance with the law.