2023 (11) TMI 276 - AT - Income Tax

Benefit of exemption u/s 10(37) denied - gains arising on account of acquisition of agricultural land by the Central Government - adjustments of treating the compensation received for acquisition of land as taxable income - as per assessee award of the land compensation was received under the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 RFCTLARR Act ), thus exempt HELD THAT - There is no private negotiation on the part of the assessee and it is purely a case where the rural agricultural land held by the assessee has been acquired by the central government and the compensation to the assessee has been given under the RFCTLAAR Act. Now going through Section 96 of the RFCTLAAR Act, the same provides exemption from income tax, stamp duty and fees on any award or agreement, made except those covered u/s 46 of the RFCTLAAR Act (which we have already held to be not applicable on the assessee). Now after dealing with Section 96 of the RFCTLAAR Act, and going to the CBDT circular referred supra, we notice that no distinction has been made between the compensation received for compulsory acquisition of agricultural land and non-agricultural land in the matter of providing exemption from income tax under the RFCTLAAR Act, the exemption provided u/s 96 of the Act is wider in scope than the tax exemption provided in the existing provisions of the Income Tax Act. This clearly indicates that since the assessee company has received compensation under the RFCTLAAR Act and the case of the assessee does not fall under section 46 of the RFCTLAAR Act, no income tax is leviable on the award received on the compulsory acquisition of agricultural land. As respectfully following the decision of M/s. Ganga Developers 2022 (10) TMI 599 - ITAT MUMBAI and under the given facts and circumstances of the case are inclined to hold that the alleged sum of compensation received by the assessee is exempt from Income tax. Decided in favour of assessee.

Issues Involved:

1. Legality of the order passed by the Ld. CIT(A).
2. Jurisdiction of CPC in denying adjustments claimed by the assessee.
3. Confirmation of addition as intra-head adjustment on capital gain.
4. Computation of business income by the A.O. (CPC).
5. Taxability of compensation received from government acquisition of agricultural land.
6. Applicability of Section 2(14) of the I.T. Act regarding capital gains.
7. Charging of interest under Sections 234B and 234C.

Summary:

1. Legality of the order passed by the Ld. CIT(A):
The assessee contended that the order passed by the Ld. CIT(A) on 03.01.2023 was arbitrary, unjustified, and illegal.

2. Jurisdiction of CPC in denying adjustments claimed by the assessee:
The assessee argued that the CPC's denial of the adjustment claimed under Section 143(1) was beyond its jurisdiction and not within the ambit of 'an incorrect claim apparent from any information in the return.'

3. Confirmation of addition as intra-head adjustment on capital gain:
The Ld. CIT(A) confirmed the addition of Rs. 41,51,828/- as intra-head adjustment on capital gain, which the assessee claimed was arbitrary, unjustified, and illegal.

4. Computation of business income by the A.O. (CPC):
The A.O. (CPC) computed the business income at Rs. 41,16,070/- instead of the declared loss of Rs. 35,760/-, which the assessee argued was arbitrary, unjustified, and illegal.

5. Taxability of compensation received from government acquisition of agricultural land:
The assessee received compensation for the acquisition of agricultural land, which it claimed was not taxable under the head of capital gains as per Section 10(37) of the Act. The Ld. CIT(A) did not accept this claim, stating that the exemption under Section 10(37) applies only to individuals and HUFs, not to private limited companies.

6. Applicability of Section 2(14) of the I.T. Act regarding capital gains:
The assessee argued that the compensation received for the acquisition of agricultural land did not relate to the transfer of a capital asset as envisaged in Section 2(14) of the I.T. Act.

7. Charging of interest under Sections 234B and 234C:
The Ld. CIT(A) confirmed the charging of interest amounting to Rs. 303,672/- and Rs. 63,899/- under Sections 234B and 234C, which the assessee claimed was arbitrary, unjustified, and illegal.

Conclusion:
The Tribunal, after considering the CBDT Circular No. 36/2016 and the provisions of the RFCTLARR Act, held that the compensation received by the assessee for the compulsory acquisition of agricultural land is exempt from income tax. The Tribunal set aside the findings of the Ld. CIT(A) and allowed the appeal of the assessee, holding that the compensation received is not taxable under the Income Tax Act. The Tribunal also referenced the decision of the ITAT Mumbai in the case of M/s. Ganga Developers, which supported the assessee's claim. Consequently, the Tribunal allowed Ground Nos. 1 to 6 raised by the assessee, while Ground Nos. 7 and 8 were deemed consequential and general in nature, respectively.

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