2019 (5) TMI 676 - AT - Income Tax

Nature of receipt - interest u/s 28 of the Land Acquisition Act - additional amount u/s 23(1A) - solatium u/s 23(2) - will form part of enhanced compensation u/s 45(5)(b) - HELD THAT - Section 45(5) makes no reference to the nature of property that is acquired but it deals with the category of cases which falls in the description of capital assets . Section 10(37) exempts specifically an income chargeable under the head capital gains arising from the transfer of agricultural land. It is, therefore, clear that once the Hon ble Supreme court directed the AO in the case of Hari Singh 2017 (11) TMI 923 - SUPREME COURT that after examining the facts to apply the provisions contained in the Income-tax Act with a specific reference to the agricultural land stating that in case if it is found that the compensation was received in respect of the agricultural land, the tax deposited with the Income-tax Department shall be refunded to these depositors. What was acquired by the Government was an agricultural land and such a fact is well evident from the assessment order itself . As a matter of fact, AO, by granting exemption under section 10(37) of the Act, refunded a sum of ₹ 1,22,01,723/-. Only question is whether the interest received u/s 28 of the Act assumes the character of enhanced compensation and consequently it is exempt u/s 10(37) ? - In view of the decisions of the Hon ble Supreme Court referred to above, we do not have any doubt in our mind as to the law in this aspect and while respectfully following the ratio laid down by the Hon ble Supreme Court in the case of Ghanshyam 2009 (7) TMI 12 - SUPREME COURT and Hari Singh 2017 (11) TMI 923 - SUPREME COURT above, direct the AO to refund the TDS amount that was deducted on account of the interest received under section 28 of the Land Acquisition Act Also. With these directions, we allow the appeal of the assessee.

Summary

Issues:
Taxation of interest received on enhanced compensation under Land Acquisition Act, applicability of exemption u/s 10(37) of the Income-tax Act, 1961.

Analysis:
The appeal concerned the taxation of interest received on enhanced compensation under the Land Acquisition Act and the applicability of exemption u/s 10(37) of the Income-tax Act, 1961. The assessee inherited agricultural land, received enhanced compensation of &8377; 7,74,13,335, including interest, from the Land Acquisition Officer. The Assessing Officer (AO) taxed 50% of the interest received, adding it back to the assessee's income, based on amendments in the Act. The assessee contended that the interest on enhanced compensation is exempt u/s 10(37) following Supreme Court judgments. The Commissioner of Income-tax (Appeals) (CIT(A)) upheld the tax levy, stating the interest is taxable as an accretion to compensation. The assessee argued that the interest should be treated as a capital receipt under Section 45(5) and be exempt under Section 10(37). The Departmental Representative (DR) cited Supreme Court decisions supporting immediate taxation of interest received. The Tribunal analyzed the Supreme Court's rulings in similar cases and directed the AO to refund the TDS deducted on the interest received under the Land Acquisition Act, allowing the appeal.

In conclusion, the Tribunal held that the interest received on enhanced compensation under the Land Acquisition Act is a capital receipt exempt under Section 10(37) of the Act when the acquired property is agricultural land. The Tribunal relied on Supreme Court judgments emphasizing the nature of the receipt as capital gain and the specific exemption under Section 10(37). The AO was directed to refund the TDS deducted on the interest received, in line with the Supreme Court's directions in similar cases. The appeal of the assessee was allowed, and the decision was pronounced in open court on 14th March 2019.