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2025 (4) TMI 853 - AT - Income TaxAddition being 50% of the receipt of interest on enhanced compensation - to be taxed as income from other sources u/s 56(2)(viii) or if it is exempt from income tax as part of the compensation under the Right to Fair Compensation and Transparency in Land Acquisition Rehabilitation and Resettlement Act 2013 (RFCTARR Act 2013) - HELD THAT - According to section 96 of RFCTARR Act 2013 the interest received towards delayed payment of compensation for compulsory acquisition of land is exempted from income tax by virtue of enactment of the RFCTARR Act. As per section 3(i) of RFCTARR Act provides cost of acquisition includes amount of compensation which includes solatium any enhanced compensation ordered by the Land resettlement Authority or the Court and interest payable thereon and any other amount determined as payable to the affected families by such Authority or Court. Therefore the interest awarded by the authority on the enhanced compensation on compulsory acquisition of land is part of the compensation and hence not taxable under the Income Tax Act by virtue of provisions containing under section 10(37) of the Act. We find that in the case of CIT v. Ghanshyam (HUF) 2009 (7) TMI 12 - SUPREME COURT wherein held that interest paid under section 28 of the Land Acquisition Act forms part of compensation and is a part of enhanced value of the land . The Hon ble Gujarat High Court in the case of Movaliya Bhikhubhai Balabhai 2016 (5) TMI 488 - GUJARAT HIGH COURT held that interest forms part of compensation and the same is not taxable. Therefore we are of the view that these two judgements are rendered in consonance with the provisions of section 3(i) of new RFCTARR Act 2013 which defines the term compensation which includes interest if any payable under the said Act. Hence AO as well as the ld. CIT(A) are not justified in making addition u/s 56(2)(viii) on the receipt of enhanced interest received by way of enhanced compensation for compulsory acquisition of land. Thus the order of the CIT(A) is set aside and delete the addition made by the Assessing Officer. Thus the grounds raised by the assessee are allowed.
1. ISSUES PRESENTED and CONSIDERED
The core legal question considered in this judgment is whether the interest received on enhanced compensation for the compulsory acquisition of land should be taxed as "income from other sources" under section 56(2)(viii) of the Income Tax Act, 1961, or if it is exempt from income tax as part of the compensation under the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 (RFCTARR Act, 2013). 2. ISSUE-WISE DETAILED ANALYSIS Relevant Legal Framework and Precedents: The primary legal provisions involved are section 56(2)(viii) and section 57(iv) of the Income Tax Act, which categorize interest received on compensation or enhanced compensation as taxable income under "income from other sources." Additionally, section 96 of the RFCTARR Act, 2013, exempts income tax on compensation received for land acquisition. The Supreme Court's decision in CIT v. Ghanshyam (HUF) and the Gujarat High Court's decision in Movaliya Bhikhubhai Balabhai v. ITO were pivotal precedents considered, which held that interest awarded under section 28 of the Land Acquisition Act forms part of the compensation and is not taxable. Court's Interpretation and Reasoning: The Tribunal interpreted the provisions of the RFCTARR Act, 2013, emphasizing that section 96 explicitly exempts income tax on compensation or agreements made under this Act. The Tribunal reasoned that interest on enhanced compensation should be considered part of the compensation itself, as supported by the Supreme Court's interpretation in the Ghanshyam (HUF) case. The Tribunal also referenced the Coordinate Bench's decision in ACIT v. M/s. SV Global Mill Ltd., which aligned with this interpretation. Key Evidence and Findings: The Tribunal noted that the assessee received interest on enhanced compensation for the compulsory acquisition of agricultural land. It was undisputed that the interest was related to compensation for land acquisition, which is generally exempt from income tax under the RFCTARR Act, 2013. Application of Law to Facts: The Tribunal applied the legal principles from the RFCTARR Act, 2013, and relevant case law to the facts, concluding that the interest received on enhanced compensation should not be taxed as "income from other sources." The Tribunal found that the interest is an accretion to the compensation amount and thus part of the compensation itself, exempt from income tax. Treatment of Competing Arguments: The Tribunal considered the Revenue's argument that section 56(2)(viii) of the Income Tax Act mandates taxation of interest on compensation. However, it found this argument unconvincing in light of the RFCTARR Act, 2013, and judicial precedents, which provide a clear exemption for such interest when it forms part of the compensation. Conclusions: The Tribunal concluded that the addition of Rs. 97,44,420/- by the Assessing Officer as taxable income from other sources was unjustified. It set aside the orders of the lower authorities and allowed the appeal, granting relief to the assessee. 3. SIGNIFICANT HOLDINGS Preserve Verbatim Quotes of Crucial Legal Reasoning: "Interest received by the assessee towards delayed payment of compensation for compulsory acquisition of land is akin to compensation for compulsory acquisition of land, which is exempt from income tax by virtue of section 96 of RFCTARR Act, 2013." Core Principles Established: The Tribunal established that interest on enhanced compensation for land acquisition is part of the compensation and thus exempt from income tax under the RFCTARR Act, 2013. This aligns with the Supreme Court's interpretation in the Ghanshyam (HUF) case. Final Determinations on Each Issue: The Tribunal determined that the interest received by the assessee on enhanced compensation for compulsory acquisition of land is not taxable under the Income Tax Act, 1961, and directed the deletion of the addition made by the Assessing Officer.
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