2025 (3) TMI 524 - AT - Income Tax

Addition u/s 56(2)(viii) - assessee had received additional compensation against compulsory acquisition of agricultural land by the Government of Gujarat along with interest component - HELD THAT - In the present case since the land acquired was agricultural land the same is not a capital asset u/s 2(14) of the Act and therefore is exempt u/s 10(37) of the Act. As decided in Lakshmama 2019 (11) TMI 1101 - ITAT BANGALORE following the decision of.Movaliya Bhikhubhai Balabhai 2016 (5) TMI 488 - GUJARAT HIGH COURT wherein it was held that the interest received on enhanced compensation u/s 28 of Land Acquisition Act 1984 is eligible for exemption u/s 10(37) of the Act. As decided in Movaliya Bhikhubhai Balabhai 2016 (5) TMI 488 - GUJARAT HIGH COURT the words interest received on compensation or enhanced compensation in section 145A of the Act have to be construed in the manner interpreted in CIT vs. Ghanshyam (HUF) 2009 (7) TMI 12 - SUPREME COURT As a necessary corollary therefore the payment made u/s. 28 of the 1894 Act is interest as envisaged u/s. 145A and cannot be treated as income from other sources. Appeal of the assessee is hereby allowed.

ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment were:

Whether the interest received by the assessee on enhanced compensation for compulsory acquisition of agricultural land is taxable under Section 56(2)(viii) of the Income Tax Act, 1961 as "income from other sources" or is exempt under Section 10(37) of the Act.
Whether the interest component on enhanced compensation should be treated as part of the compensation itself, as per the precedent set by the Supreme Court in the case of CIT Vs. Ghanshyam (HUF).
The applicability of the amended provisions of Section 56(2)(viii) and Section 145B of the Act to the interest received on enhanced compensation.
The impact of judicial precedents and legislative amendments on the taxability of interest on enhanced compensation.

ISSUE-WISE DETAILED ANALYSIS

1. Taxability of Interest on Enhanced Compensation

Relevant Legal Framework and Precedents: The legal framework involves Section 56(2)(viii) and Section 145B of the Income Tax Act, which were amended to include interest on compensation or enhanced compensation as taxable under "income from other sources." The precedent set by the Supreme Court in CIT Vs. Ghanshyam (HUF) held that interest on enhanced compensation is part of the compensation and taxable under capital gains.
Court's Interpretation and Reasoning: The Tribunal considered the legislative amendments and judicial precedents, particularly the Supreme Court's decision in Ghanshyam (HUF), which equated interest on enhanced compensation under Section 28 of the Land Acquisition Act with compensation.
Key Evidence and Findings: The Tribunal noted the amendments to the Income Tax Act and the CBDT Circular No. 5 of 2010, which clarified the taxability of interest on compensation as "income from other sources." However, the Tribunal also considered the judicial interpretation that interest under Section 28 is part of the compensation.
Application of Law to Facts: The Tribunal applied the legal provisions and judicial precedents to the facts of the case, considering the nature of the land and the interest received on enhanced compensation.
Treatment of Competing Arguments: The Tribunal considered the arguments from both sides, including the reliance on the Ghanshyam (HUF) decision by the assessee and the revenue's argument based on the legislative amendments.
Conclusions: The Tribunal concluded that the interest on enhanced compensation is part of the compensation itself and not taxable as "income from other sources," aligning with the Supreme Court's decision in Ghanshyam (HUF).

SIGNIFICANT HOLDINGS

Preserve Verbatim Quotes of Crucial Legal Reasoning: "Interest under Section 28 is part of the amount of compensation whereas interest under Section 34 is only for delay in making payment. This vital difference needs to be kept in mind in deciding this matter."
Core Principles Established: The interest received under Section 28 of the Land Acquisition Act is considered part of the compensation and not taxable as "income from other sources." The legislative amendments do not override the judicial interpretation provided by the Supreme Court in the Ghanshyam (HUF) case.
Final Determinations on Each Issue: The Tribunal allowed the appeal of the assessee, holding that the interest on enhanced compensation for the compulsory acquisition of agricultural land is not taxable under Section 56(2)(viii) but is exempt under Section 10(37) as part of the compensation.

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