2024 (8) TMI 487 - AT - Income Tax

Addition u/s 56 - interest on enhanced compensation on compulsory acquisition of agricultural land belonging to the assessee - whether the interest u/s. 28 of the Land Acquisition Act is taxable or not being part and parcel of compensation? HELD THAT - Interest granted u/s. 28 of Land Acquisition Act on enhanced compensation/compensation by the reference court u/s. 18 of Land Acquisition Act, from the date of possession of land and till the judgment of High Court, is part of compensation, could not be taxed in view of amendments by substitution of section 145A read with clause (iii) of section 56(2) of the Act. In the present case, the AO simply proceeded on the premise that the amendments to provisions u/s. 145A which bears the heading method of accounting in certain cases, section 145A(b) provides that notwithstanding anything to the contrary contained in section 145, interest received by an assessee on compensation or on enhanced compensation shall be deemed to be the income of the year in which it is received read with section 56(2)(viii) of the Act which provides income by way of interest on compensation or on enhanced compensation referred to in sub-section (1) of section 145B of the Act shall be chargeable to income tax under the head Income from other sources . Therefore, we hold that the interest granted by the reference Court u/s. 28 of the Land Acquisition Act from the date of possession of land till the date of judgment of High Court is an accretion of the value of the land acquired. Respectfully following the decision of Rupesh Rashmikant Shah 2019 (8) TMI 518 - BOMBAY HIGH COURT we hold the interest received u/s. 28 of the Land Acquisition Act would not fall within the ambit of the expression interest as envisaged u/s. 145A(b) of the Act, further, hold that the amendment by way of substitution of section 145A by Finance (No. 2) Act, 2009 w.e.f. 01-04-2010 and amendment by way of insertion of clause (iii) in section 56(2) by Finance Act, 2009 would have no applicability to the facts of the present case and in view of the same the order of CIT(A) in confirming the order of AO is not justified. Thus, ground Nos. 1 and 2 raised by the assessee are allowed.

Issues Involved:

1. Delay in filing the appeal.
2. Taxability of interest received under Section 28 of the Land Acquisition Act.
3. Application of Section 56(2)(viii) of the Income Tax Act.
4. Applicability of judicial precedents and amendments to Section 145A and Section 56(2) of the Income Tax Act.

Detailed Analysis:

1. Delay in Filing the Appeal:

The appeal was filed with a delay of 40 days. The assessee filed an affidavit explaining the reasons for the delay. After perusal of the record and hearing both parties, it was found that the reasons stated by the assessee were bona fide, which genuinely prevented the assessee from filing the appeal in time. Therefore, the delay of 40 days was condoned.

2. Taxability of Interest Received under Section 28 of the Land Acquisition Act:

The assessee received an amount of Rs. 2,10,45,467/- from the Special Land Acquisition Officer, Udgir, on account of enhanced compensation for compulsory acquisition of agricultural land and interest on enhanced compensation. The assessee contended that the amounts received as solatium and interest under Section 28 of the Land Acquisition Act are exempt from tax, relying on the decision of the Hon'ble High Court of Punjab and Haryana in the case of Haryana State Industrial Development Corp. The AO, however, did not accept this submission and held that 50% of the interest received on enhanced compensation is taxable under the amended provisions of Section 56 w.e.f. 01-04-2010, relying on the decision of the Hon'ble Supreme Court in the case of Bikram Singh.

The CIT(A) upheld the AO's decision, relying on the cases of Bikram Singh, Manjeet Singh (HUF), and Balasaheb Raosaheb Bidwe. The assessee challenged this before the Tribunal, arguing that the interest under Section 28 is part of the compensation, as reiterated by the Hon'ble Supreme Court in the case of Ghanshyam (HUF).

3. Application of Section 56(2)(viii) of the Income Tax Act:

The AO and CIT(A) held that the interest received under Section 28 of the Land Acquisition Act is taxable under Section 56(2)(viii) of the Income Tax Act. The Tribunal, however, noted that the Hon'ble Supreme Court in Ghanshyam (HUF) held that interest under Section 28 is part of the enhanced compensation and not taxable as income. The Tribunal also referred to various other judgments, including those of the Hon'ble High Court of Bombay and Gujarat, which supported the view that interest under Section 28 is part of the compensation and not taxable.

4. Applicability of Judicial Precedents and Amendments to Section 145A and Section 56(2) of the Income Tax Act:

The Tribunal referred to several judicial precedents, including the decisions of the Hon'ble Supreme Court in Ghanshyam (HUF) and Bikram Singh, and the Hon'ble High Courts of Bombay and Gujarat. The Tribunal observed that the amendments to Section 145A and the insertion of Section 56(2)(viii) were not intended to override the judicial precedents that held interest under Section 28 as part of the compensation. The Tribunal concluded that the interest received under Section 28 of the Land Acquisition Act is not taxable as income under the amended provisions of the Income Tax Act.

Conclusion:

The Tribunal allowed the appeal of the assessee, holding that the interest received under Section 28 of the Land Acquisition Act is part of the compensation and not taxable as income. The Tribunal also held that the amendments to Section 145A and Section 56(2)(viii) do not apply to the interest received under Section 28, following the judicial precedents set by the Hon'ble Supreme Court and High Courts. The decision of the CIT(A) was reversed, and the grounds raised by the assessee were allowed.

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