2024 (10) TMI 361 - AT - Income Tax

Accrual of income - treating the interest received along additional compensation on account of land acquisition as income chargeable to tax - assessee an individual and owns certain agricultural land along other co-owners (16 Co-owners). The land was acquired by the Government of Kerala in earlier year and compensation received against acquisition of land was claimed exempted u/s 10(37) - AO held that only the part of additional compensation shall be subject to exemption under section 10(37) of the Act, and the amount of interest is required to be taxed as income under the head other sources as per the provision section 145A(b) r.w.s. 56(2)(viii) Whether the interest received on enhanced compensation shall be exempted u/s 10(37) of the Actor chargeable to tax as income from other sources as per the provisions of section 56(2)(viii) r.w.s. 145A(b)? - HELD THAT - In this regard we note that the issue on hand is squarely covered in favour of the assessee by the judgment of Hon ble Gujarat High court in the case of Movaliya Bhikhubhai Balabhai 2016 (5) TMI 488 - GUJARAT HIGH COURT discussed the law laid down in the case of CIT v. Ghanshyam (HUF) 2009 (7) TMI 12 - SUPREME COURT and the effect of amendment brought in by inserting clause (b) to section 145A of the Act as well as finding of Jagmal Singh v. State of Haryana 2013 (7) TMI 774 - PUNJAB HARYANA HIGH COURT which was relied upon by the learned CIT(A). Thus, respectfully following the finding of the Hon ble Gujarat High Court, we hereby hold that the interest received by the assessee on enhanced compensation under section 28 of the Land Acquisition Act is not chargeable to tax as income from other sources. Thus, we set aside the finding of the ld. CIT(A) and direct the AO to delete the addition made by him. Hence, the ground of appeal filed by the assessee is hereby allowed.

Summary

Issues Involved:

1. Taxability of interest received on additional compensation for land acquisition under the Income Tax Act.
2. Applicability of Section 10(37) of the Income Tax Act for exemption of such interest.
3. Interpretation of Section 28 of the Land Acquisition Act, 1894, in relation to tax exemption.
4. Relevance of judicial precedents in determining the nature of interest as part of compensation.

Detailed Analysis:

1. Taxability of Interest Received on Additional Compensation:

The primary issue in this case was whether the interest received on additional compensation for land acquisition should be treated as taxable income under the head "income from other sources" or as part of the exempt compensation under Section 10(37) of the Income Tax Act. The Assessing Officer (AO) had treated the interest as taxable under Section 56(2)(viii) read with Section 145A(b), arguing that it should be considered income from other sources. The AO added 50% of the interest amount to the assessee's income after providing a deduction under Section 57(iv).

2. Applicability of Section 10(37) for Exemption:

The assessee argued that the interest received on enhanced compensation was exempt under Section 10(37) of the Income Tax Act, as it was related to agricultural land. The contention was based on the premise that such interest, computed under Section 28 of the Land Acquisition Act, 1894, forms part of the compensation and should therefore be exempt.

3. Interpretation of Section 28 of the Land Acquisition Act, 1894:

The crux of the argument revolved around whether the interest under Section 28 of the Land Acquisition Act should be considered as part of the compensation or as separate interest income. The assessee relied on the Supreme Court's decision in CIT vs. Ghanshyam (HUF), which held that interest under Section 28 is an accretion to the compensation and not separate interest income. This view was supported by the Gujarat High Court in Movaliya Bhikhubhai Balabhai vs. ITO-TDS, which reinforced that such interest should not be taxed as income from other sources.

4. Relevance of Judicial Precedents:

The appellate tribunal considered various judicial precedents, including the Supreme Court's decision in Ghanshyam (HUF) and the Gujarat High Court's ruling in Movaliya Bhikhubhai Balabhai. These cases established that interest under Section 28 is part of the compensation and not taxable as separate interest income. The tribunal disagreed with the Punjab & Haryana High Court's ruling in Jagmal Singh, which treated such interest differently, emphasizing the binding nature of the Supreme Court's interpretation.

Conclusion:

The tribunal concluded that the interest received under Section 28 of the Land Acquisition Act is not chargeable to tax as income from other sources. It held that such interest is part of the enhanced compensation and directed the AO to delete the addition made to the assessee's income. Consequently, the appeal filed by the assessee was allowed, reaffirming the interpretation that interest under Section 28 is an integral part of compensation, thereby exempt from tax under Section 10(37) of the Income Tax Act.