2022 (3) TMI 645 - AT - Income Tax

Correct head of income - Interest awarded u/s. 28 of Land Acquisition Act, 1894 - whether taxability of such interest is of Capital nature and should be included to Consideration received for the purpose of computation of capital gain u/s. 45 of Income Tax Act, 1961? - HELD THAT - After considering the submissions of both the parties, it is noticed that a similar issue has already been adjudicated in case of ITO Vs. Smt. Chawli Devi 2021 (5) TMI 730 - ITAT CHANDIGARH wherein held interest received by the assessee during the impugned year on the compulsory acquisition of its land u/s. 28 of the Land Acquisition Act, is in the nature of compensation and not interest which is taxable under the head income from other sources u/s. 56 of the Act as held by the authorities below. The compensation being exempt u/s. 10(37) of the Act is not disputed. In view of the same the order passed by the CIT(Appeals) upholding the addition made by the AO on account of interest on enhanced compensation is, not sustainable. Decided in favour of assessee.

Issues Involved:

1. Validity of the order passed by the CIT(A).
2. Timeliness of the order passed under Section 250 by the AO.
3. Taxability of interest awarded under Section 28 of the Land Acquisition Act.
4. Consideration of judicial precedents and legal interpretations by the CIT(A).

Issue-Wise Detailed Analysis:

1. Validity of the order passed by the CIT(A):

The appellant argued that the CIT(A) erred in confirming the AO's action and that the order was against the law and facts of the case. The CIT(A) upheld the addition made by the AO, relying on the decisions of the Hon'ble Jurisdictional High Court of Punjab & Haryana. The Tribunal, however, found merit in the appellant's arguments, referencing the ITAT Chandigarh Bench's prior rulings, which aligned with the appellant's stance.

2. Timeliness of the order passed under Section 250 by the AO:

The appellant contended that the AO's order was time-barred as it was passed after the prescribed period under Section 153(2). The notice under Section 148 was issued on 17.05.2018, and the order should have been passed by 30.09.2019. However, this ground was withdrawn by the appellant during the proceedings, and the Tribunal did not provide further analysis on this issue.

3. Taxability of interest awarded under Section 28 of the Land Acquisition Act:

The core issue was whether the interest awarded under Section 28 of the Land Acquisition Act should be treated as a capital receipt or taxable interest income. The appellant cited the Supreme Court's ruling in CIT vs. Ghanshyam HUF, which held that such interest is part of the compensation and thus a capital receipt. The Tribunal agreed with this interpretation, referencing multiple decisions, including the ITAT Chandigarh Bench's rulings, which consistently treated such interest as part of the enhanced compensation and not taxable as interest income under Section 56.

4. Consideration of judicial precedents and legal interpretations by the CIT(A):

The appellant argued that the CIT(A) misinterpreted various judicial pronouncements, particularly those of the Supreme Court. The Tribunal noted that the CIT(A)'s reliance on the Punjab & Haryana High Court's decisions was misplaced, as subsequent Supreme Court rulings (e.g., CIT vs. Ghanshyam HUF) clarified that interest under Section 28 is part of the compensation. The Tribunal emphasized that the Supreme Court's decisions are the law of the land and must be followed by all lower authorities.

Conclusion:

The Tribunal, after considering the submissions and reviewing the relevant case law, concluded that the interest received under Section 28 of the Land Acquisition Act is in the nature of compensation and not taxable as interest income. Consequently, the Tribunal deleted the addition made by the AO and sustained by the CIT(A), allowing the appeal of the assessee. The order was pronounced in the open court on 24/02/2022.

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