2020 (5) TMI 281 - AT - Income Tax

Chargeability of interest awarded under Section 28 of the Land Acquisition Act - exemption under Section 10(37) or Income from other sources u/s 56 - AR submitted interest under Section 28 of the Land Acquisition Act, 1984 cannot be considered/equated as interest as referred under Section 56(2)(viii) of IT Act which has been inserted w.e.f. 1.4.2009 effectively from Assessment Year 2010-11 - HELD THAT - We found the assessee has claimed exemption under Section 10(37) of the Act whereas as per Section 28 of Land Acquisition Act, the compensation to be awarded in excess of the sum awarded by the Land Acquisition Officer, the Court may direct the Land Acquisition Officer to pay interest @ 9% per annum from the date of compensation on land to the date of payment of such excess deposit in the Court. We found the co-ordinate Bench of the Tribunal dealt on the issue in the case of ITO, Ward 1 Vs. Basavaraj M Kudarikannur 2018 (6) TMI 1529 - ITAT BANGALORE as held interest under section 28 of the Act of 1894 is an accretion to compensation and forms part of the compensation and, therefore, exigible to tax under section 45(5) of the Act. Interest under section 28 of the Act of 1894 is part of the amount of compensation whereas interest under section 34 thereof is only for delay in making payment after the compensation amount is determined. Interest under section 28 is a part of the enhanced value of the land which is not the case in the matter of payment of interest under section 34 - See CIT v. Ghanshyam (HUE) 2009 (7) TMI 12 - SUPREME COURT . Allowing exemption u/s. 10(37) of the Act on the interest received by the assessee u/s. 28 of the Land Acquisition Act, 1894 - Decided in favour of assessee.

Issues Involved:
1. Delay in filing the appeal.
2. Denial of exemption under Section 10(37) of the Income Tax Act, 1961.
3. Taxation of interest under Section 28 of the Land Acquisition Act, 1894.
4. Applicability of judicial precedents and decisions in similar cases.

Issue-wise Detailed Analysis:

1. Delay in Filing the Appeal:
The assessee filed an appeal against the order of the Commissioner of Income Tax with a delay of 708 days. The assessee submitted an Affidavit and Medical Certificate to justify the delay. Upon verification, the Tribunal found the reasons satisfactory and, as there were no serious objections from the Departmental Representative, the delay was condoned, and the appeal was admitted and heard.

2. Denial of Exemption under Section 10(37) of the Income Tax Act, 1961:
The assessee, an employee of Karnataka Vikas Grameena Bank, filed a return of income disclosing Long Term Capital Gains from compensation received under Section 28 of the Land Acquisition Act, 1894, and claimed exemption under Section 10(37) of the Income Tax Act, 1961. The Assessing Officer (AO) allowed exemption for the enhanced compensation related to agricultural land but taxed the interest component as 'income from other sources' under Section 56(2)(viii) of the Act. The CIT(Appeals) upheld the AO's decision, leading to the appeal before the Tribunal.

3. Taxation of Interest under Section 28 of the Land Acquisition Act, 1894:
The main issue was whether the interest awarded under Section 28 of the Land Acquisition Act, 1894, should be taxed as 'income from other sources' or considered part of the compensation. The Tribunal noted that the interest under Section 28 is an accretion to the value of the land and forms part of the compensation, as held by the Hon'ble Supreme Court in CIT v. Ghanshyam (HUF). The Tribunal also referred to the decision of the Hon'ble Gujarat High Court in Movaliya Bhikhubhai Balabhai vs. ITO, which held that interest under Section 28 is not covered under Section 56(2)(viii) of the Income Tax Act, 1961.

4. Applicability of Judicial Precedents and Decisions in Similar Cases:
The Tribunal relied on various judicial precedents, including the decision of the Hon'ble Gujarat High Court in Movaliya Bhikhubhai Balabhai and the Hon'ble Supreme Court in CIT v. Ghanshyam (HUF). The Tribunal also considered the decision of the co-ordinate Bench in ITO, Ward 1 vs. Basavaraj M Kudarikannur, which held that interest under Section 28 of the Land Acquisition Act is part of the enhanced compensation and not taxable as 'income from other sources'.

Conclusion:
The Tribunal concluded that the interest under Section 28 of the Land Acquisition Act, 1894, is an accretion to the compensation and not taxable under Section 56(2)(viii) of the Income Tax Act, 1961. The Tribunal directed the Assessing Officer to delete the interest disallowance and allowed the grounds of appeal of the assessee. The appeal was thus allowed, and the order was pronounced in the open court on January 3, 2020.

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