2022 (7) TMI 256 - AT - Income Tax

LTCG - land including factory building of the assessee was acquired by the State Govt. and the assessee had received compensation including interest - assessee claimed deduction of solatium while calculating Long Term Capital Gain - HELD THAT - The impugned transaction is covered under RFCTLARR Act. Even the Assessing Officer has not disputed this position that the land for which compensation has been received had been acquired by the National Highway Authority of India (NHAI) and it is also a matter of record and it also remains undisputed that NHAI is one of the bodies covered u/s 106 of the RFCTLARR Act and all compensation given by them are exempt. As per Schedule 1 of the RFCTLARR Act, compensation includes additional compensation, solatium and any other receipt which implies that solatium and interest are part of compensation - CBDT Circular No. 36/2016 dated 25.10.2016 has extended the exemption by including compulsorily acquisition of land without any restriction on area as well as acquisition of land. As also settled law that the Income-tax authorities are bound by the guidelines laid down the CBDT Circulars. The position as it stands now with the passage of the RFCTLARR Act, is that all compensations received qua this Act are not taxable. It has been clarified by the CBDT Vide Circular No.36/2016 dated 21.10.2016 that even where there is no separate deduction allowable under the Income Tax Act, any compensation covered by sections 105 and 106 of the RFCTLARR Act is exempt from taxation. We note that the Ld. CIT(A) has also given a detailed findings on the issue in which the Ld. CIT(A) has also quoted and followed certain judicial precedents and we are in complete agreement with the findings so arrived at by the Ld. CIT(A) in this regard. Accordingly, we find no reason to interfere with the findings of the Ld. CIT(A) on the issue and we uphold his findings while dismissing the ground raised by the Department.

Summary

Issues:
1. Taxability of solatium in Long Term Capital Gain
2. Taxability of interest received on compensation under income from other sources
3. Application of RFCTLARR Act on compensation received for land acquisition
4. Compliance with CBDT Circular No. 36/2016

Analysis:

Issue 1: Taxability of solatium in Long Term Capital Gain
The assessee claimed deduction of solatium while calculating Long Term Capital Gain, but the Assessing Officer treated the solatium received as income under Long Term Capital Gains. The Assessing Officer disagreed with the assessee's submission that solatium should be excluded from taxable income. The total Long Term Capital Gain was computed after adding the solatium amount to the original calculation. The assessee filed an application for rectification, which was accepted, reducing the assessed income. The Ld. CIT(A) accepted the assessee's contention and directed the Assessing Officer to treat the entire compensation, including solatium, as exempt.

Issue 2: Taxability of interest received on compensation under income from other sources
The Assessing Officer held that interest received on compensation was taxable under income from other sources, with only 50% of the interest amount eligible for exemption. This decision led to an addition under income from other sources, increasing the total computed income.

Issue 3: Application of RFCTLARR Act on compensation received for land acquisition
The Department challenged the Ld. CIT(A)'s decision, arguing that the compensation received for land acquisition should be taxable under Long Term Capital Gain, citing the provisions of the National Highway Act, 1956. The Ld. AR contended that the acquisition of land fell under the RFCTLARR Act, providing exemption from income tax as per section 96 of the Act. The Ld. AR referred to Circular No. 36/2016 by CBDT, emphasizing that compensation exempt under RFCTLARR Act should not be taxable under the Income Tax Act, 1961.

Issue 4: Compliance with CBDT Circular No. 36/2016
The Tribunal upheld the Ld. CIT(A)'s decision, stating that all compensation received under the RFCTLARR Act is not taxable. The Tribunal noted that CBDT Circular No. 36/2016 extended the exemption to compulsorily acquired land without any restrictions, emphasizing that Income-tax authorities are bound by CBDT Circulars. The Tribunal agreed with the Ld. CIT(A)'s findings, citing judicial precedents and the CBDT Circular, and dismissed the Department's appeal.

In conclusion, the Tribunal dismissed the Department's appeal, upholding the decision of the Ld. CIT(A) regarding the taxability of solatium, interest received on compensation, and the application of the RFCTLARR Act on compensation received for land acquisition. The Tribunal emphasized compliance with CBDT Circular No. 36/2016, affirming that compensation covered by the RFCTLARR Act is exempt from taxation.