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TMI Blog2021 (2) TMI 271X X X X Extracts X X X X X X X X Extracts X X X X ..... from Income Tax in respect of the amounts paid under new Land Acquisition Act, 2013 pursuant to Circular No.36 of 2016 was inserted by way of a clarification amendment by Finance Act, 2017 in Section 10(37) and Section 194LA of IT Act. Second proviso was inserted to Section 194LA of the IT Act, which states that no deduction shall be made under this section, where such payment is made in respect of any award or agreement which has been exempted from levy of income tax u/s.96 of RFCTLARR Act 2013. From the above, it is very that TDS is also not required to be deducted in respect of amount paid under new Land Acquisition Act. It may be noted that the Special Land Acquisition Officer has deducted tax u/s.194LA of IT Act, which makes it clear that the amounts paid are in the nature of compensation and hence it is exempt from the purview of Income Tax. Though tax was not required to be deducted at source, the Special Land Acquisition Officer had deducted TDS by way of abundant caution in the absence of corresponding enactment under income tax, which was not made under this juncture. But, in our view, i It does not make any difference with regard to non-taxability of compensati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quisition of land from Special Land Acquisition Officer, Bangalore under Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act 2003 (hereinafter the RFCTLARR Act, 2013 ) amounting to ₹ 12,25,98,815/-. The assessee has credited interest income in to the profit loss account but while filing return of income in the statement of total income claimed exempt from tax towards interest received under RFCTLARR Act 2013, on the ground that as per Section 96 of the said Act, any compensation or award for compulsory acquisition of land including interest if any is not liable to tax. The case was taken up for scrutiny and during the course of assessment proceedings, the AO on the basis of information furnished by the assessee was of the opinion that, any interest received by the assessee from the Special Land Acquisition Officer under RFCTLARR Act 2013, is not compensation paid for acquisition of land but interest for delayed payment of said compensation which is in the nature of interest liable to be taxed u/s.56(2)(viii) r.w.s. 145A(b) of the Income Tax Act, 1961 (hereinafter the IT Act ) and hence, there is no merit in the arguments tak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uisition of land. The ld.CIT(A) after considering relevant submissions of the assessee and also by relying upon various provisions of RFCTLARR Act 2013, including Section 3(i) of RFCTLARR Act 2013, which deals with the term cost of acquisition , held that interest received for delayed payment of compensation falls under the definition of compensation for acquisition of land, which is specifically exempted as per Section 96 of said act and consequently it cannot be brought to tax u/s.56(2)(viii) of the IT Act. He further held that as per the relevant provisions of new Land Acquisition Act, called RFCTLARR Act 2013, interest received by the assessee towards delayed compensation for compulsory acquisition of land is exempt from Income Tax as per Section 96 of the said Act. Therefore, Section 10(37) of IT Act is not relevant to the assessee s case, as the assessee has received interest under the new Land Acquisition Act. He further held that although Special Land Acquisition Officer had deducted TDS u/s.194LA of the Act, but as per the CBDT Circular No. 36 of 2016 dated 25.10.2016, compensation or enhanced compensation is exempt, irrespective of whether the land acquired was agricultu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re not applicable to the facts and circumstances of the appellant s case as per the observations on Page4 of the assessment order. The AO has relied on the decision of Hon ble ITAT, Chennai. The AO has further referred to the amended Section 194LA. Finally, the AO has assessed the interest on compensation for compulsory acquisition of land u/s 56(2)(viii) r.w. Section 145A(b) as per which the AO has observed that interest received on compensation or enhanced compensation is taxable as Income from Other Sources. After assessing the same u/s 56(2), the AO has notionally determined the expenditure to the tune of ₹ 2.46 Crores and has allowed the deduction u/s 57(iv) [towards expenditure corresponding to the income assessed u/s 56(2)] to ₹ 3.66 Crores. The AO has concluded the assessment of taxable interest received on compulsory acquisition of land as under: 4.3.3. Thus, the AO has made an addition u/s 56(2)(viii) r.w.s. 145A(b) of ₹ 8,59,67,120/- after allowing notional expenditure u/s 57(iv) adjusted proportionately to the tune of estimated expenditure that could have been incurred. 4.3.4. Before the CIT(A), the appellant s AR has strongly contended again ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owners for the land acquired under the new Land Acquisition Act, called the RFCTLARR Act. I have perused the said circular which is reproduced hereunder for ready reference: Circular No. 36 of 2016 F.No. 225/S8/201 6-ITA.II Government of India Ministry of Finance Department of Revenue Central Board of Direct Taxes Dated: 25th October, 2016 Subject: Taxability of the compensation received by the land owners for the land acquired under the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 ( RFCTLAAR Act)-reg. 1. Under the existing provisions of the Income-tax Act 1961 ( the Act ), an agricultural land which is not situated in specified urban area, is not regarded as a capital asset Hence, capital gains arising from the transfer (including compulsory acquisition] of such agricultural land is not taxable. Finance (No, 2] Act, 2004 inserted section 10(37) in the Act from 01.04.2005 to provide specflc exemption to the capital gains arising to an Individual or a HUF from compulsory acquisition of an agricultural land situated in specified urban limit, subject to fulfilment of certain conditions. Therefo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce with effect from 1-10- 2004 and was relevant to the old Land Acquisition Act prior to the introduction of new RFCTLARR Act. I have perused Section 194LA which has been reproduced hereunder for ready reference: Section 194LA: Payment of compensation on acquisition of certain immovable property: Any person responsible for paying to a resident any sum, being in the nature of compensation or the enhanced compensation or the consideration or the enhanced consideration on account of compulsory acquisition, under any law for the time being in force, of any immovable (other than agricultural land), shall, at the time of payment of such sum in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to ten per cent of such sum as income-tax thereon: Provided that no deduction shall be made under this section where the amount of such payment or, as the case may be, the aggregate amount of such payments to a resident during the financial year does not exceed two lakh and fifty thousand rupees: Provided further that no deduction shall be made under this section where such payment is made in respect of ant, award or agr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have perused the relevant portion of the ITAT s decision which is reproduced hereunder: In my opinion, the argument of the ld.A.R is having no merit. Interest on delayed payment of enhanced compensation in respect of acquisition of immovable property is a revenue receipt and it is to be taxed and cannot be exempted u/s. 10(37) of the Act and it cannot be considered as a part of consideration received in respect of agricultural land specified us.2(14)(iv) of the Act 4.3.11. The AR has contended that the aforesaid decision is not applicable to the appellant s case as it was related to interest received under the old Land Acquisition Act, under which there was no provision for exemption. However, under the new RFCTLARR Act, 2013 followed by CBDT Circular No.36/20 16; the compensation or enhanced compensation received by an assessee irrespective of whether the land acquired was agricultural or not is exempt. After perusal of the appellant s contention and the ITAT s decision, I am convinced that the aforesaid decision relied on by the AC is not applicable to the appellant s case for the above reasons. 4.3.12. The AR has drawn attention to the relevant sections of the new ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assent of the President. Section 3 of the RFCTLARR Act, 2013 In this Act, unless the context otherwise requires, - (a) (b) (c) (d) (e) (I) (9) (h) -- FniT T2stof acquisition includes - I (i). amount of compensation which includes solatium, any enhanced compensation ordered by the Land Acquisition and Rehabilitation / and Resettlement Authority or the Court and interest payable thereon and any other amount determined as payable to the affected families by such Authority or Court; ii.). demurrage to be paid for damages caused to the land and standing crops in the process of acquisition; (iii). cost of acquisition of land and building for settlement of displaced or adversely affected families (iv). cost of development of infrastructure and amenities at the resettlement areas; (v). cost of rehabilitation and resettlement as determined in accordance with the provisions of this Act; (vi). administrative cost (B). for acquisition of land including both in the project site and out of project area lands, not exceeding such percentage of the cost of compensation as may be specified by the appropr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , award or agreement made under this Act except under section 46 and no person claiming under any such award or agreement shall be liable to pat, ant, fee for a copy of the same . 4.3.13. After perusal of the new Land Acquisition Act called RFCTLARR Act, 2013, particularly Section 96 under the said Act, I am convinced that the interest received by the appellant company for the delayed compensation falls under the said Act as it has been specifically mentioned in the order awarding interest dated 12-2-20 16. It can be inferred from Section 3(f) of the said Act that compensation includes interest for belated compensation. 4.3.14. Now, I deal with the AO s decision to assess the interest u/s 56(2)(viii) after allowing deduction u/s 57(iv). The AR has contended that the Section 56(2) (viii) is not applicable to the appellant s case as the said provision was introduced much prior to the enactment of the new Land Acquisition Act called RFCTLARR Act, 2013. Further, the AR has contended that the AO has notionally allowed 50% of interest as deduction u/s 57(iv) and has allowed proportionate expenses on a notional basis. The AR has argued that when the interest is not to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as no bearing on the issue under consideration. The ld.DR further submitted that as per the provisions of Section 56(2)(viii) r.w.s. 145A(b) of the IT Act, interest received by an assessee on compensation or enhanced compensation shall be deemed to be the income of the year under which it is received and hence such interest is taxable in the year of receipt. The ld.CIT(A) without appreciating the facts, simply deleted the additions made by the AO. 6. The ld.AR for the assessee referring to the provisions of Section 96 of RFCTLARR Act 2013, submitted that no income tax or stamp duty shall be levied on any award or agreement made under this Act, except u/s.46 and no person claiming under any such award or agreement shall be liable to pay any fee for a copy of the same. He further submitted that provisions of Section 46 deals with acquisition of land in a case of certain persons other than specified persons, where the District Collector while notifying the acquisition of land shall determine the compensation payable under the Act. Further Section 3(i) of the said Act defines the term, cost of acquisition with reference to Section 46 of the RFCTLARR Act 2013, which includes amo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubmitted that the AO has completely erred in taxing interest received for delayed payment of compensation for compulsory acquisition of land u/s.56(2)(viii) of the IT Act. 8. We have heard both the parties, perused the materials available on record and gone through orders of the authorities below. The facts borne out from record indicate that the land parcel owned by the assessee at Bangalore had been compulsorily acquired for Railway project by the Special Land Acquisition Officer. During the year under consideration, the assessee has received interest of ₹ 12,25,98,815/- for delayed payment of compensation under the Land Acquisition Act. The assessee has claimed exempt from tax towards interest received on compensation for compulsory acquisition of land on the ground that as per new Land Acquisition RFCTLARR Act 2013, the provisions of Section 96 overrides all provisions of Income Tax relating to taxation of compensation or any award payable under the Act and consequently interest if any received towards delayed payment of compensation is exempt from tax. The provisions of new Land Acquisition Act came into effect from 01.04.2014. Prior to this, any compensation recei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A of the IT Act, which states that no deduction shall be made under this section, where such payment is made in respect of any award or agreement which has been exempted from levy of income tax u/s.96 of RFCTLARR Act 2013. From the above, it is very that TDS is also not required to be deducted in respect of amount paid under new Land Acquisition Act. It may be noted that the Special Land Acquisition Officer has deducted tax u/s.194LA of IT Act, which makes it clear that the amounts paid are in the nature of compensation and hence it is exempt from the purview of Income Tax. Though tax was not required to be deducted at source, the Special Land Acquisition Officer had deducted TDS by way of abundant caution in the absence of corresponding enactment under income tax, which was not made under this juncture. But, in our view, it does not make any difference with regard to non-taxability of compensation or award including interest if any payable under the new Land Acquisition Act, 2013. Therefore, we are of the considered view that the ld.AO has grossly erred in bringing to tax interest received by the assessee for delayed payment of compensation under New Land Acquisition Act for co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er, the assessee has relied upon the decision of Hon ble Supreme Court in the case of CIT vs. Ghanshyamdas, 315 ITR 1, where the Hon ble Supreme Court held that interest paid u/s.28 of the Land Acquisition Act forms part of compensation and is a part of enhanced value of land. The Hon ble Gujarat High Court in the case of Movaliya Bhikhubhai Balabhai v. ITO, 388 ITR 343, held that interest forms part of compensation and the same is not taxable. The said two judgments rendered by Hon ble Supreme Court and Gujarat High Court are in consonance with the provisions of Section 3(i) of new RFCTLARR Act 2013, which defines the terms compensation which includes interest if any payable under said Act. Therefore, we are of the considered view, the case laws relied upon by the assessee in the above two cases are squarely applicable to the facts of the present case. 10. In this view of the matter and by respectfully following the case laws discussed hereinabove, we are of the considered view that interest received by the assessee towards delayed payment of compensation for compulsory acquisition of land is akin to compensation for compulsory acquisition of land, which is exempt from Incom ..... X X X X Extracts X X X X X X X X Extracts X X X X
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