INTEREST ON ENHANCED COMPENSATION FROM GOVT FOR COMPULSORY LAND ACQUISITION IS EXEMPT FROM TAX
Facts Of the Case :-
Assessee : Paramjeeet Singh (Agriculturist).
Opponent : Assisstant Commissioner Of Income Tax.
The Assessee land was acquired by govt and He received total compensation of Rs 2,56,29,932/- from Land acquisition which Includes Interest on enhanced compensation of RS 1,08,62,416/-
The Assessee Filed his ITR on 31-03-2012 Declaring Income of Rs.1,50,000/- claiming exemption of Rs. 1,08,62,416/- u/s 10(37) of Income Tax Act.
The Assessing Officer ,while making Assessment, disallowed 50% of the Interest received on enhanced compensation and accordingly added Rs. 54,31,208/-to the Income of the assessee u/s 143(3) 148 of the Income Tax Act.
ISSUE:
Interest on Enhanced Compensation from Government for compulsory Land Acquisition is
Exempt from tax (OR) Taxable??
ARGUMENTS FROM DEFENDANT:
As per Section 56(2)(viii)
Interest Received on Compensation or Enhanced Compensation will Be Taxable as Income from other Sources.
Section 57
Incase of income of nature referred to in section 56(2)(Viii), a Sum equal to 50% of such Income is allowed as Deduction. And rest 50% of the Income Shall be chargeable to tax.
ARGUMENTS FROM PLAINTIFF:
The Ld. AR submitted that Hon’ble Supreme Court in case of CIT vs.Ghansyam HUF (supra)held that interest awarded u/s 28 of the Land Acquisition Act 1894 is capital receipt.
and is nothing but an accretion to the value of compensation.
Thus, it is part and parcel of the compensation, hence is not Taxable.
OBSERVATION BY THE TRIBUNAL
The capital receipt unless specifically taxable u/s 45 under the head capital gain, in principle, is outside the scope of income chargeable to tax and cannot be taxed as income unless it is in the nature of Revenue receipt or specifically brought within the ambit of income by way of specific provision of the Income Tax Act.
JUDGEMENT(16-April-2021):
Thus, the interest received on compensation/enhanced compensation to the assessee is nothing but a capital receipt and the addition is against the law.
Disclaimer:“Information contained herein is for informational purposes only and should not be used in deciding any particular case. The entire contents of this document have been prepared on the basis of relevant provisions and as per the information existing at the time of the preparation. Though utmost efforts have been made to provide authentic information, it is suggested that to have better understanding and obtaining professional advice after thorough examination of particular situation.”
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Prepared By
Pavan Kumar B
Article Assisstant
Date: 23-10-2021