2025 (2) TMI 37 - AT - Income Tax

Revision u/s 263 - CIT directing the AO to tax the interest on enhanced compensation u/s 56(2)(viii) and 57(iv) - Addition being interest on enhanced compensation on acquisition of agriculture land u/s 28 of Land Acquisition Act 1894 claimed as exempt in return filled - AO also held that a further amount received by the assessee as enhanced compensation for land acquired under LAA was exempt from tax u/s 10(37) HELD THAT - The language in section 56(2)(viii) and 145B(1) are plain simple and unambiguous and that the correct legal position is that the interest received during the year on enhanced compensation under section 28 of the Land Acquisition Act 1894 is exigible to tax u/s 56(2)(viii) r.w.s 145B(1). Assessee s claim of the same as exempt u/s 10(37) of the Act is unsustainable as the provisions of section 10(37) deals with compensation only and not interest on compensation or enhanced compensation . Respectfully following the High Court s decisions of Inderjit Sodhi 2024 (4) TMI 408 - DELHI HIGH COURT and Mahender Pal Narang 2020 (3) TMI 1115 - PUNJAB AND HARYANA HIGH COURT we hold that the ld. PCIT order to recompute the interest on enhanced compensation in accordance with section 56(2)(viii) r.w.s. 145B(1) and allowing deduction u/s 57(iv) needs no interference. Grounds 1 and 2 raised by the assessee are accordingly dismissed.

1. ISSUES PRESENTED and CONSIDERED

The core legal issues considered in this judgment are:

Whether the interest received on enhanced compensation under Section 28 of the Land Acquisition Act, 1894, is exempt from tax under Section 10(37) of the Income Tax Act, or taxable as "income from other sources" under the amended provisions of Section 56(2)(viii) and Section 145B(1) of the Income Tax Act.
The validity of the Principal Commissioner of Income Tax's (PCIT) invocation of Section 263 of the Income Tax Act to revise the assessment order concerning the taxability of interest on enhanced compensation.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Taxability of Interest on Enhanced Compensation

Relevant Legal Framework and Precedents: The legal framework involves Sections 28 and 34 of the Land Acquisition Act, 1894, and Sections 10(37), 56(2)(viii), and 145B(1) of the Income Tax Act. The precedents include Supreme Court decisions in Sham Lal Narula, Bikram Singh, and Ghanshyam (HUF), among others.
Court's Interpretation and Reasoning: The Court analyzed the distinction between interest under Sections 28 and 34 of the Land Acquisition Act. It noted that while Section 34 interest is for delayed payment, Section 28 interest is considered an accretion to compensation. The Court emphasized the legislative amendments in 2010, which classified interest on enhanced compensation as taxable "income from other sources."
Key Evidence and Findings: The Court relied on the legislative amendments and judicial interpretations post-2010, particularly the Delhi High Court's ruling in Inderjit Singh Sodhi and the Punjab & Haryana High Court's decision in Mahender Pal Narang, which clarified the taxability of such interest.
Application of Law to Facts: The Court applied the amended provisions of Sections 56(2)(viii) and 145B(1) to conclude that the interest received by the assessee on enhanced compensation is taxable as "income from other sources," not exempt under Section 10(37).
Treatment of Competing Arguments: The Court addressed the assessee's reliance on the Ghanshyam (HUF) decision, clarifying that it pertained to the law before the 2010 amendments. The Court found the assessee's argument unsustainable under the current legal framework.
Conclusions: The interest on enhanced compensation is taxable as "income from other sources," and the claim for exemption under Section 10(37) is untenable.

Issue 2: Validity of PCIT's Invocation of Section 263

Relevant Legal Framework and Precedents: Section 263 of the Income Tax Act empowers the PCIT to revise an assessment order if it is erroneous and prejudicial to the interests of the Revenue.
Court's Interpretation and Reasoning: The Court upheld the PCIT's invocation of Section 263, finding that the Assessing Officer's (AO) failure to tax the interest under the amended provisions was erroneous and prejudicial to the Revenue.
Key Evidence and Findings: The Court noted that the AO's order did not align with the amended legal provisions governing the taxability of interest on enhanced compensation.
Application of Law to Facts: The Court found that the PCIT correctly exercised his powers under Section 263, given the AO's oversight in applying the amended tax provisions.
Treatment of Competing Arguments: The Court dismissed the assessee's arguments against the PCIT's order, emphasizing the necessity of aligning tax assessments with current legal standards.
Conclusions: The PCIT's order to revise the assessment was justified, and the invocation of Section 263 was appropriate.

3. SIGNIFICANT HOLDINGS

Core Principles Established: The judgment reaffirms the principle that interest on enhanced compensation under Section 28 of the Land Acquisition Act is taxable as "income from other sources" under the amended provisions of the Income Tax Act, post-2010.
Final Determinations on Each Issue: The Court dismissed the assessee's appeal, upholding the PCIT's order and confirming the taxability of interest on enhanced compensation under Sections 56(2)(viii) and 145B(1).
Verbatim Quotes of Crucial Legal Reasoning: The Court noted, "The language in section 56(2)(viii) and 145B(1) are plain, simple, and unambiguous... interest on enhanced compensation... is exigible to tax under section 56(2)(viii) r.w.s 145B(1)." This underscores the clarity and intent of the legislative amendments.

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