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TMI Blog2018 (10) TMI 865X X X X Extracts X X X X X X X X Extracts X X X X ..... dated 3.10.2012 awarded enhanced compensation. The Assessee received enhanced compensation of Rs. 79,75,895 and Rs. 1,70,50.934 as interest on enhanced compensation u/s.28 of the Land Acquisition Act, 1894. 3. The question before the AO was with regard to taxability of a sum of Rs. 1,70,50,934 received as interest on enhanced compensation. Under the provisions of section 10(37) of the Income-Tax Act, 1961 ["the Act"] enhanced compensation received on acquisition of agricultural lands is exempt. The provisions of section 10(37) of the Act reads as follows:- "Section 10(37): Capital Gain on compulsory acquisition of urban Agricultural Land: In the case of an assessee, being an individual or a Hindu individual family, any income chargeable under the head" Capital gain" arising from the transfer of agricultural land, shall be exempted, where : 1. Such land is situate in any area referred to in, item (a) or item (b) of sub-clause (iii) of clause (14) of Section 2 2. Such land, during the period of two years immediately preceding the date of transfer, was being used for agricultural purposes by such Hindu undivided family or individual, or a parent of his 3. Such transfer is by w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amely :- (i) .......................... to (vii) .......................... (viii) income by way of interest received on compensation or on enhanced compensation referred to in clause (b) of section 145A;" Method of accounting in certain cases. "145A. Notwithstanding anything to the contrary contained in section 145,- (a) .................. (b) interest received by an assessee on compensation or on enhanced compensation, as the case may be, shall be deemed to be the income of the year in which it is received." 5. The AO rejected the claim of exemption u/s. 10(37) of the Act and held that interest is chargeable to tax in the year of receipt, irrespective of the period for which the interest is calculated. The AO held that as per the provisions of section 56(2)(viii) of the I.T. Act, 1961 inserted w.e.f. 01-04-2010, income by way of interest received on compensation or on enhanced compensation shall be chargeable to tax under the head "Income from Other Sources" and clause (b) of Section 145A specifies the year of accounting of this income as the year in which it is received. Section 56(2)(viii) is unambiguous on this issue and includes interest of any nature and kind wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not in dispute that the interest in question was interest awarded u/s. 28 of the Land Acquisition Act, 1894. In the given circumstances, we are of the view that the decision of the Hon'ble Gujarat High Court in the case of Movaliya Bhikhubhai Balabhai (supra) will be applicable to the facts of the present case. 11. In Movaliya Bhikhubhai Balabhai v. Income-tax Officer-TDS-1-Surat [2016] 70 taxmann.com 45 (Gujarat), the Hon'ble Gujarat High Court had to deal with the nature of the interest awarded u/s.28 of the Land Acquisition Act, 1894. The facts of the case before the Hon'ble Gujarat High Court was that the petitioner's agricultural lands came to be acquired under the provisions of the Act of 1894 for the public purpose of the Ozat-2 Irrigation Scheme. The award passed by the Collector came to be challenged by the petitioner before the learned Principal Senior Civil Judge, Junagadh (hereinafter referred to as the "Reference Court"), who by an order dated 20th March, 2011 awarded additional compensation of Rs. 5,01,846/- in favour of the petitioner together with other statutory benefits. Pursuant to such award, the second respondent calculated the amount payable to the petit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income by way of interest received on compensation or on enhanced compensation referred to in clause (b) of section 145A which is chargeable as income from other sources. The first respondent Income Tax Officer seeks to tax the interest received by the petitioner under section 28 of the Act of 1894 as income from other sources under section 56(2)(viii) read with section 145A(b) of the I.T. Act. In the opinion of this court, in the light of the law laid down by the Supreme Court in the case of Ghanshyam (HUF) (supra), the interest received under section 28 of the Act of 1894 would not fall within the ambit of the expression "interest" as envisaged under section 145A(b) of the I.T. Act, inasmuch as, the Supreme Court in the above decision has held that interest under section 28 of the Act of 1894 is not in the nature of interest but is an accretion to the compensation and, therefore, forms part of the compensation." It was argued on behalf of the Revenue before the Hon'ble Gujarat High Court that the decision of Hon'ble Supreme Court in the case of Ghanshyam (HUF) was rendered prior to the substitution of section 145A of the I.T. Act by Finance (No. 2) Act, 2009 with effect from 1s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ghanshyam (HUF)'s case (supra) but was brought in to mitigate the hardship caused to the assessee on account of the decision of the Supreme Court in Rama Bai v. CIT [1990] 181 ITR 400/[1991] 54 Taxman 496 whereby it was held that arrears of interest computed on delayed or enhanced compensation shall be taxable on accrual basis. Therefore, when one reads the words "interest received on compensation or enhanced compensation" in section 145A of the I.T. Act, the same have to be construed in the manner interpreted by the Supreme Court in Ghanshyam (HUF)'s case (supra)." 12. The Hon'ble Gujarat High Court finally concluded, as follows: "13. The upshot of the above discussion is that since interest under section 28 of the Act of 1894, partakes the character of compensation, it does not fall within the ambit of the expression "interest" as contemplated in section 145A of the I.T. Act. The first respondent - Income Tax Officer was, therefore, not justified in refusing to grant a certificate under section 197 of the I.T. Act to the petitioner for non-deduction of tax at source, inasmuch as, the petitioner is not liable to pay any tax under the head "income from other sources" on ..... X X X X Extracts X X X X X X X X Extracts X X X X
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