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2022 (3) TMI 1031 - AT - Income TaxTDS u/s 194A - AO acquired land from the land owners under compulsory acquisition for public purposes as per the directions of Haryana Urban Development Authority (HUDA) and land owners got enhanced compensation which was awarded by the court on which they received interest - whether the impugned interest received by the land owners on enhanced compensation is income from other sources under section 56 of the Act attracting the TDS provision enshrined under section 194A? - HELD THAT - Compulsory acquisition of capital asset under any law is transfer under section 2(47)(iii) - any profit or gain arising from transfer of such a capital asset is exigible to capital gains tax under section 45 of the Act in the previous year in which the transfer took place. However, capital gains arising from transfer of agricultural land situate in any area referred to in item (a) or item (b) of section 2(14)(iii) by way of compulsory acquisition under any law is exempt from tax under section 10(37) - Accordingly, any income by way of capital gains engrained in the receipt of compensation and/ or enhanced compensation is exempt in the hands of the recipient land owners. This is obvious from the reading of the provisions of section 10(37) of the Act. Following the judgment of the Hon ble Supreme Court in Ghanshyam (HUF) 2009 (7) TMI 12 - SUPREME COURT , we hold that interest received by the land owners on enhanced compensation awarded to them by the court under section 28 of the LA Act is not in the nature of income from other sources in the hands of the recipient land owners under section 56 of the Act and therefore, the LAO was not under any legal obligation to comply with the TDS provisions of section 194A of the Act. Accordingly, we allow the grounds raised by the assessee by way of additional grounds taken before the Tribunal. The assessee succeeds
Issues Involved:
1. Whether interest received by landowners on enhanced compensation under Section 28 of the Land Acquisition Act, 1894, is taxable as 'income from other sources' under Section 56 of the Income Tax Act, 1961. 2. Applicability of TDS provisions under Section 194A of the Income Tax Act, 1961, on interest received on enhanced compensation. 3. Whether interest on enhanced compensation under Section 28 is part of the compensation and exempt from capital gains tax under Section 10(37) of the Income Tax Act, 1961. Detailed Analysis: Issue 1: Taxability of Interest on Enhanced Compensation The primary issue was whether the interest received by landowners on enhanced compensation under Section 28 of the Land Acquisition Act, 1894, is taxable as 'income from other sources' under Section 56 of the Income Tax Act, 1961. The assessee argued that such interest is part of the compensation and not taxable as income from other sources. The Tribunal observed that the Hon’ble Supreme Court in the case of CIT vs. Ghanshyam (HUF) held that interest under Section 28 is an accretion to the value and hence part of the enhanced compensation. This view was also supported by the Punjab & Haryana High Court in the case of Jagmal Singh vs. State of Haryana. Accordingly, the Tribunal concluded that the interest received by landowners on enhanced compensation is not taxable as income from other sources under Section 56 of the Act. Issue 2: Applicability of TDS Provisions under Section 194A The second issue was whether the TDS provisions under Section 194A of the Income Tax Act, 1961, apply to the interest received on enhanced compensation. The Tribunal noted that the assessee had deducted tax at source at a normal rate of 10% instead of 20% due to the lack of PAN details of the deductees. The assessee contended that no TDS was required as per the judgment in Jagmal Singh's case, which held that interest under Section 28 is part of the compensation. The Tribunal upheld this view, stating that since the interest under Section 28 is part of the compensation, the TDS provisions under Section 194A do not apply. Issue 3: Exemption from Capital Gains Tax under Section 10(37) The third issue was whether the interest on enhanced compensation under Section 28 is part of the compensation and thus exempt from capital gains tax under Section 10(37) of the Income Tax Act, 1961. The Tribunal agreed with the assessee's argument that agricultural land does not fall within the ambit of 'capital asset' and is thus exempt from capital gains tax under Section 10(37). The Tribunal cited the Supreme Court's judgment in Ghanshyam (HUF) and concluded that the interest received on enhanced compensation is part of the compensation and exempt from capital gains tax. Conclusion: The Tribunal allowed the appeals of the assessee, holding that: 1. Interest received by landowners on enhanced compensation under Section 28 of the Land Acquisition Act is not taxable as 'income from other sources' under Section 56 of the Income Tax Act. 2. The TDS provisions under Section 194A do not apply to such interest as it is part of the compensation. 3. Interest on enhanced compensation under Section 28 is exempt from capital gains tax under Section 10(37) of the Income Tax Act. The Tribunal's decision was pronounced in the open court on 22nd March 2022, allowing all three appeals of the assessee.
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