2023 (2) TMI 1388 - AT - Income Tax

Receipt of compensation along with interest on compulsory acquisition of its land - claim of assessee towards exemption on this is by way of reference to provisions contained in Section 96 of the RFCTLAAR Act 2013 read with CBDT Circular no. 36/2016 dated 25/10/2016. HELD THAT - It is not a case where an exemption has been claimed u/s 10(37) of the Act as observed by ld. AO. The only objection of ld. AO is that exemption is not available to assessee it being a company not covered under the definition as contained in Section 10(37) of the Act as it is available only to assessees having status of individual or HUF . We note that Section 96 of the RFCTLAAR Act 2013 provides that no income-tax or stamp duty shall be levied on any award or agreement made under this Act except u/s 46 and no person other than a specified person u/s 46(1) of the RFCTLAAR Act 2013 shall be liable to pay any fee for copy of the same. CBDT Circular no. 36/2016 dated 25/10/2016 in para 3 states that exemption provided u/s 96 of the RFCTLAAR Act 2013 is wider in scope than exemption provided under the existing provisions of the Act. CBDT Circular no. 36/2016 dated 25/10/2016 provides that in absence of specific provisions in the Income-tax Act 1961 award under the RFCTLAAR Act 2013 in the hands of land losers both for agricultural and non agricultural land is tax free both under normal and MAT provisions under the Act. No reason to interfere with the findings of ld. CIT (A) directing ld. AO to delete the addition made in this respect. Accordingly grounds taken in this respect are dismissed. Disallowance made towards salary expenses - CIT (A) has meritoriously dealt with the issue after going through the material placed on record for which we do not find any reason to interfere with the same. Accordingly ground taken in this respect is dismissed. Disallowance of donation expenses claimed in the profit and loss account it is a fact that assessee had suo moto added it back while computing its income and therefore no disallowance is called for in this respect as held by ld. CIT(A). Before ld. CIT(A) assessee has made a fresh claim of deduction u/s 80G of the Act in respect of donation made by it. Ld. CIT (A) after verifying the documents in this respect has held it to be allowable though claimed for the first time before him. For this we do not find any reason to interfere in the finding given by the ld. CIT(A). Accordingly ground taken in this respect is dismissed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The judgment considered the following core legal issues:

• Whether the compensation received by the assessee for the compulsory acquisition of land, along with interest, is exempt from tax under Section 96 of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 (RFCTLAAR Act), as opposed to Section 10(37) of the Income-tax Act, 1961.
• Whether the disallowance of salary expenses and donation expenses by the Assessing Officer (AO) was justified.

2. ISSUE-WISE DETAILED ANALYSIS

Exemption of Compensation and Interest under RFCTLAAR Act:

• Relevant legal framework and precedents: The RFCTLAAR Act, 2013, specifically Section 96, provides that no income tax shall be levied on any award or agreement made under this Act, except under Section 46. The CBDT Circular No. 36/2016 clarifies that this exemption is broader than the existing provisions of the Income-tax Act, 1961, and applies to both agricultural and non-agricultural land.
• Court's interpretation and reasoning: The Court observed that the exemption claimed by the assessee was under the RFCTLAAR Act, 2013, and not under Section 10(37) of the Income-tax Act, which is limited to individuals and Hindu Undivided Families (HUFs). The Court emphasized that the RFCTLAAR Act, being a special law, prevails over the general provisions of the Income-tax Act.
• Key evidence and findings: The assessee received compensation and interest from the compulsory acquisition of land, which was claimed as exempt under Section 96 of the RFCTLAAR Act. The CIT(A) relied on the Kerala High Court decision in Madaparambil Varkey Varghese vs. ACIT, which upheld the non-taxability of such compensation under the RFCTLAAR Act.
• Application of law to facts: The Court found that the AO's objection based on Section 10(37) was misplaced, as the exemption was claimed under the RFCTLAAR Act. The CBDT Circular further supported the assessee's claim, indicating that the exemption is applicable regardless of the assessee's status as a company.
• Treatment of competing arguments: The AO's argument that the exemption is not available to companies was dismissed, as the RFCTLAAR Act does not distinguish between different categories of assessees.
• Conclusions: The Court upheld the CIT(A)'s decision to delete the addition made by the AO, confirming that the compensation and interest were exempt from tax under the RFCTLAAR Act.

Disallowance of Salary and Donation Expenses:

• Relevant legal framework and precedents: The AO disallowed salary expenses due to lack of verification documents and donation expenses as unexplained under Section 69C of the Income-tax Act.
• Court's interpretation and reasoning: The CIT(A) found that the salary payments were made through bank transfers and were reflected in the books of accounts. The donations were made to entities registered under Section 80G(5) and were added back in the computation of income.
• Key evidence and findings: The assessee provided ledger accounts and bank statements for salary expenses. The donations were made to registered charitable organizations, and the amounts were added back in the income computation.
• Application of law to facts: The CIT(A) allowed the salary expenses based on the provided evidence. The donation expenses were not disallowed as they were already added back, preventing double taxation.
• Treatment of competing arguments: The AO's disallowance was overturned due to the evidence provided by the assessee and the proper accounting treatment of the donations.
• Conclusions: The Court upheld the CIT(A)'s decision to allow the salary and donation expenses, dismissing the AO's disallowance.

3. SIGNIFICANT HOLDINGS

• Core principles established: The RFCTLAAR Act, 2013, being a special law, prevails over the general provisions of the Income-tax Act, 1961, providing broader exemption for compensation received from compulsory land acquisition.
• Final determinations on each issue: The compensation and interest received by the assessee were exempt from tax under the RFCTLAAR Act. The disallowance of salary and donation expenses by the AO was not justified, and the CIT(A)'s decision to allow these expenses was upheld.
• Verbatim quotes of crucial legal reasoning: "The RFCTLARR Act, 2013 is a Special Law and that Special Law should prevail over-the General law. Moreover, it is true that under any statute where there is special as well as general provision special provision always prevails."