2022 (11) TMI 1131 - AT - Income Tax

Addition of compensation in the shape of annuity treating it as interest/reward - exemption income arising equities payment to land owners whose land has been acquired - Rehabilitation and Resettlement Award for affected families by Collector - Right to fair compensation and transparency in land acquisition, rehabilitation and resettlement - As submitted that the annuity scheme under which the assessee received the money is part of the compensation against the land acquired and is exempt u/s 10(37) - HELD THAT - As it becomes obvious with preparation of Rehabilitation And Resettlement Scheme u/s 16 of R R Act is the foundation upon which after necessary enquiries the land acquisition award is passed by the Collector u/s 23 of R R Act. Then sub-clause (b) of Section 23 specifically provides that rehabilitation and resettlement award as determined u/s 31 is part of the land acquisition award passed by the Collector u/s 23. Rehabilitation and resettlement award u/s 31 sub-clause (j) specifically refers to the particulars of annuity provided to the land owners. The Second Schedule to the R R Act relevant to Section 31(1), 38(1) and 105(3) of the R7 r Act, provides elements of R R Entitlements and at item no 4 there is choice of annuity or employement and the Schedule also fixes the minimum royalty to be paid. Section 51 of R R provides for establishment of land acquisition, rehabilitation and resettlement authority for disposal of the disputes arising out of acquisition, compensation, rehabilitation and resettlement. Section 69 provides that in determination of amount of compensation to be awarded for land acquired including the rehabilitation and resettlement entitlement, the authority shall take into consideration whether the Collector has followed the parameters set out u/s 26 of section 30. The form of award is mentioned in section 70 of the R R Act which refers to section 28. Thus, the award for the purpose of R R Act not only includes the market value of the land but also rehabilitation and resettlement entitlements allowed to the land holders arising out the social impact assessment and study of the prospective acquisition of the land. Therefore, for the purpose of the section 96 of the R R Act, not only a monetary compensation of the land and interest upon it but the quantifiable monetary benefits arising out of rehabilitation and resettlement entitlements of the land owners, shall be part of the Award under the R R Act and no income tax can be levied on such payments. The findings of the ld Tax Authorities below are held to be erroneous as they have failed to examine the issue in correct context to the law arising out of R R Act. Grounds are decided in favour of the assessee.

Summary

Issues Involved:
1. Taxability of annuity received as part of compensation for land acquisition.
2. Taxability of agricultural royalty received from the government.

Issue-Wise
Detailed Analysis:

1. Taxability of Annuity Received as Part of Compensation for Land Acquisition:
The primary issue in this case revolves around whether the annuity received by the assessee as part of the compensation for land acquisition is taxable under the Income Tax Act, 1961. The assessee argued that the annuity received is part of the compensation for the acquired land and should be exempt under Section 10(37) of the Act. The Revenue contended that the annuity is not part of the award and hence not exempt from taxation.

Key Arguments:
- The assessee submitted that the annuity scheme is part of the compensation for the acquired land, referring to the Haryana Government notification dated 09.11.2010, which provides annuity and other benefits to landowners whose land was acquired.
- The Revenue argued that the annuity is not part of the award and cannot be equated with compensation or interest upon compensation, asserting no provision under the Act exempts such payments from taxation.

Tribunal's Findings:
- The Tribunal examined the provisions of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 (R&R Act), which emphasizes the inclusion of resettlement and rehabilitation (R&R) entitlements as part of the land acquisition award.
- The Tribunal referred to the Supreme Court's interpretation in the Mahanadi Coal Fields Ltd. case, which highlighted the State's obligations under the R&R Act to provide various benefits, including annuity, as part of the compensation package.
- Section 96 of the R&R Act explicitly states that no income tax shall be levied on any award or agreement under the R&R Act. The CBDT Circular No. 36 of 2016 further clarified that compensation exempted from income tax under the R&R Act shall also not be taxable under the Income Tax Act, 1961.

Conclusion:
The Tribunal concluded that the annuity payments are part of the overall compensation package under the R&R Act and are thus exempt from income tax. The findings of the lower tax authorities were deemed erroneous as they failed to consider the correct legal context. The appeal was allowed in favor of the assessee.

2. Taxability of Agricultural Royalty Received from the Government:
The second issue pertains to the addition made by the Assessing Officer (AO) on account of agricultural royalty received by the assessee from the Haryana Government, which was credited to the capital account but not offered for taxation.

Key Arguments:
- The AO made the addition on the grounds that there is no provision under the Income Tax Act that exempts royalty paid to landowners from taxation.
- The Ld. CIT(A) upheld the addition, stating that the royalty received from the government is not exempt from taxation under any provision of the Income Tax Act.

Tribunal's Findings:
- The Tribunal did not provide a separate detailed analysis for this issue in the judgment. However, it can be inferred that the Tribunal upheld the lower authorities' decision as there was no specific provision or argument presented that could exempt the agricultural royalty from taxation.

Conclusion:
The addition made by the AO on account of agricultural royalty was upheld, as there is no provision under the Income Tax Act that exempts such income from taxation.

Final Judgment:
The Tribunal allowed the appeal in favor of the assessee concerning the taxability of annuity received as part of compensation for land acquisition, holding it exempt under the R&R Act and the Income Tax Act. However, the addition on account of agricultural royalty was upheld as there was no exemption provision applicable. The order was pronounced in the open court on 23/11/2022.