2024 (12) TMI 1427 - AT - Income Tax

Characterization of income - addition of interest income received on compensation received u/s. 28 of the Land Acquisition Act, 1894 - assessee had received interest on enhanced compensation on compulsory acquisition of land under the Land Acquisition Act, 1894 and claimed interest as part of the compensation and exempt from tax u/s. 10(37) - scope of provisions of section 56(2) of the Act were amended by the Finance (No.2) Act 2009 w.e.f 01.04.2010 - HELD THAT - Hon'ble Apex Court in the case of CIT vs Ghanshyam HUF 2009 (7) TMI 12 - SUPREME COURT has held that interest received on compensation/enhanced compensation is part of compensation, hence, exigible to tax u/s. 45(5) of the Act. As in the case of Mahender Pal Narang vs CBDT 2020 (3) TMI 1115 - PUNJAB AND HARYANA HIGH COURT after considering amended provisions of section 56(2) of the Act distinguished the decision rendered in the case of Ghanshyam HUF (supra) and held that interest received on compensation or enhanced compensation is to be treated as Income from Other Sources and not under the head Capital Gains . Recently, in the case of PCIT vs. Inderjit Singh Sodhi HUF 2024 (4) TMI 408 - DELHI HIGH COURT held that interest whether on compensation or enhanced compensation received on acquisition of land u/s. 28 or u/s. 34 of the Land Acquisition Act, 1894 shall be exigible to income tax as Income from Other Sources u/s. 56(2)(viii) - Decided against assessee.

Summary

In the case before the ITAT Delhi, the assessee appealed against the order of the Commissioner of Income Tax (Appeals), which confirmed the addition of interest income received on compensation under Section 28 of the Land Acquisition Act, 1894, as "Income from Other Sources." The assessee argued that this interest should be considered part of the compensation and exempt from tax under Section 10(37) of the Income Tax Act, 1961, referencing the Supreme Court rulings in Union of India vs. Hari Singh and CIT vs. Ghanshyam HUF. However, the Finance (No.2) Act 2009 amended Section 56(2) of the Act, specifying that interest on compensation or enhanced compensation is taxable as "Income from Other Sources." The Punjab and Haryana High Court in Mahender Pal Narang vs. CBDT and the Jurisdictional High Court in PCIT vs. Inderjit Singh Sodhi HUF supported this interpretation. Consequently, the ITAT upheld the CIT(A)'s order, dismissing the assessee's appeal.