2023 (1) TMI 220 - AT - Income Tax

Long term capital gain (LTCG) arising out of compensation against the land acquisition treating as exempt from tax - assessee has agricultural land which was ancestral and the only sources of income was cultivation of land - CIT(A) held in favour of the assessee, firstly observing that case of the assessee is covered by the provisions of section 10(37) of the Act and secondly, the alleged compensation is not taxable in view of section 96 of the RFCTLAAR Act. HELD THAT - Regarding the observation of the ld. CIT(A) that the said sum is not taxable in view of the RFCTLAAR Act, we do not find any merit because the said Act i.e Right To Fair Compensation And Transparency in Land Acquisition, Rehabilitation and Settlement Act 2013 came into force w.e.f 1.1.2014 whereas alleged compensation was received by the appellant as mentioned in Form 16A showing deduction of tax at source on 24-10-2013 which clearly shows that alleged compensation was received prior to the effective date of RFCTLAAR Act and therefore, the relief granted by the ld.CIT(A) based on the application of section 96 of the RFCTLAAR Act has no merit and deserves to be set aside. Our view is further supported by the decision of the co-ordinate bench (ITAT Agra) in the case of Shri Krishna Kumar Sharma 2021 (3) TMI 561 - ITAT AGRA which has been relied on by the ld. Departmental Representative. Compensation is an exempt income u/s. 10(37) - We find that the assessee in order to avail the exemption under the said section needs to fulfill the four ((i) to (iv) conditions. So far as (iii) (iv) conditions are concerned, which speaks about compulsory acquisition under any law as determined or approved by the Central Government or the Reserve Bank of India, if the consideration is received by such assessee on or after the 1st day of April, 2004, the same are duly fulfilled in the case of assessee as there is no dispute to this fact at the end of Revenue. Now as far as first two ( i ii ) conditions are concerned, which provides that the land in question is an agricultural land and it has been used for the purpose of agriculture for the immediately two years, we observe that during the course of assessment proceedings AO deputed an inspector to enquire as to whether the said land is agricultural land and cultivated before its acquisition. From the assessment order, we notice that the inspector s vide letter no. 2857 dt. 30-11-2006 stated that the land acquired by the Government measuring 3.845 acre was of the status of Dhanahar (pragatishil bhumi) . Before us the Ld. Counsel for the assessee has filed various documents explaining the meaning of Dhanahar land to be an agricultural land. Dhanhar land is said to be low land during rainy season. Reference was made to Bihar Visesh Survey page 5 in Chapter XVIi page 211 defining dhanhar fasal land having three categories, A,B C i.e Dhanhar I, Dhanhar II and Dhanhar III. Reference was further made to Bihar Tenancy Act, 1885, wherein Dhanhar has been defined as land cropped in winter. Reference also made through documents filed in paper book defining Dhanahar as irrigated land where rice is cultivated for kheti. Above discussion on Dhanhar land brings us to the conclusion that the said land owned by the assessee is an agricultural land and was used for the purpose of agriculture in the past. Therefore, since all the conditions mentioned in section 10(37) of the Act are fulfilled, we are of the opinion that the alleged land for which compensation has been received by the assessee qualifies for exemption u/s. 10(37) - Decided against revenue.

Summary

Issues Involved:

1. Applicability of RFCTLARR Act, 2013 for tax exemption.
2. Validity of relief granted for long-term capital gain (LTCG) on land acquisition compensation.
3. Timeliness of the appeal and cross objection.
4. Applicability of Section 10(37) of the Income Tax Act, 1961.

Detailed Analysis:

1. Applicability of RFCTLARR Act, 2013 for tax exemption:
The revenue contended that the Commissioner of Income-tax (Appeals) [CIT(A)] erred in applying the RFCTLARR Act, 2013 to grant tax relief on the compensation received for land acquisition. The CIT(A) assumed the RFCTLARR Act applied without sufficient evidence or claims from the assessee. However, the tribunal found that the compensation was received before the RFCTLARR Act came into effect on 01.01.2014, thus invalidating the CIT(A)'s reliance on this Act for tax exemption. This view was supported by the ITAT Agra's decision in Shri Krishna Kumar Sharma Vs. DCIT.

2. Validity of relief granted for LTCG on land acquisition compensation:
The CIT(A) granted relief of Rs. 1,04,58,374/- on account of LTCG, treating the compensation as exempt from tax. The tribunal examined whether the land in question was agricultural and used for agricultural purposes in the two years preceding its acquisition. The CIT(A) had relied on the District Land Acquisition Officer's report and other documents, which classified the land as "Dhanahar" (agricultural land). The tribunal confirmed that the land was indeed agricultural and used for cultivation, thus fulfilling the conditions for exemption under Section 10(37) of the Income Tax Act, 1961.

3. Timeliness of the appeal and cross objection:
The appeal was delayed by 95 days due to the COVID-19 pandemic, which was considered beyond the control of the parties involved. The tribunal condoned this delay and admitted the appeal for adjudication on merits.

4. Applicability of Section 10(37) of the Income Tax Act, 1961:
The tribunal scrutinized Section 10(37), which exempts capital gains from the transfer of agricultural land under specific conditions. The conditions include the land being agricultural, used for agriculture in the two years preceding the transfer, and the transfer being through compulsory acquisition. The tribunal found that the land met these criteria, as it was agricultural and used for cultivation, and the compensation was received after 01.04.2004. Therefore, the compensation was exempt from tax under Section 10(37).

Conclusion:
The tribunal dismissed the revenue's appeal, confirming that the compensation received by the assessee for the compulsory acquisition of agricultural land was exempt from tax under Section 10(37) of the Income Tax Act, 1961. The cross objection by the assessee was deemed infructuous and dismissed. The order was pronounced in open court on 04-01-2023.