2022 (4) TMI 89 - AT - Income Tax

Long Term Capital Gain - compensation received on account of compulsory acquisition of land on National Highway-64 covered under RFCTLARR Act - HELD THAT - As relying on SHRI SATISH KUMAR, SMT. URMILA GARG C/O SNAGRUR SURGICAL AND LAPROSCOPE CENTRE VERSUS THE ITO WARD SANGRUR, SANGRUR 2021 (12) TMI 161 - ITAT CHANDIGARH assessee received compensation for compulsory acquisition of commercial land during the F.Y. 2014-15 which was exempted under section 96 of the RFCTLARR Act, as clarified by the CBDT Circular No. 36/2016 dt. 25/10/2016. CIT(A) was not justified in confirming the action of the A.O. in not accepting the claim of the assessee for exemption of the compensation received on compulsory acquisition of land acquired by the Land Acquisition Officer from Income Tax. Accordingly the appeal of the assessee is allowed.

Summary

Issues:
1. Taxability of compensation received on compulsory acquisition of land.
2. Exemption under RFCTLARR Act.
3. Applicability of CBDT Circular No. 36/2016.
4. Binding nature of CBDT circulars on Income Tax Authorities.

Analysis:
1. The appeal concerns the taxability of compensation and interest on compulsory land acquisition. The Assessee challenges the assessment by the Income Tax Officer (ITO) and Commissioner of Income Tax (Appeals) regarding the treatment of compensation as "Long Term Capital Gain" and interest as taxable income.

2. The Assessee argues that the compensation received for the acquisition of land on National Highway-64, covered under the RFCTLARR Act, should be exempt from tax as per a circular issued by the Central Board of Direct Taxes (CBDT). The Assessee claims that the CBDT Circular No. 36/2016 provides for exemption from income tax for compensation received after 01/01/2014 under the RFCTLARR Act.

3. The Assessee relies on a previous ITAT order in a similar case, where it was held that compensation received for land acquisition under the RFCTLARR Act is exempt from income tax. The CBDT circular clarifies that no distinction is made between compensation for agricultural and non-agricultural land, providing wider exemption under the RFCTLARR Act compared to the Income Tax Act.

4. The ITAT finds that the CBDT circular is binding on Income Tax Authorities, as per legal precedents. The circular's clarifications regarding the exemption of compensation received under the RFCTLARR Act are applicable, even if not specifically provided for in the Income Tax Act. Therefore, the Assessee's claim for exemption of compensation on land acquisition is upheld.

5. Considering the identical nature of the present case to the referenced case in the ITAT order, the appeal of the Assessee is allowed. The ITAT holds that the compensation received for compulsory land acquisition is exempt from income tax under the RFCTLARR Act, as clarified by the CBDT circular. The decision is based on the interpretation of relevant legal provisions and precedents.

6. In conclusion, the ITAT allows the Assessee's appeal, ruling in favor of the exemption of compensation received for compulsory land acquisition. The judgment emphasizes the importance of legal clarity provided by CBDT circulars in determining the taxability of specific transactions.