2018 (2) TMI 105 - AT - Income Tax

Tribunal remands case for interest assessment under Land Acquisition Act, emphasizing clarity and fair process.

The Tribunal allowed the appeal for statistical purposes, remanding the case to the Assessing Officer to ascertain the nature of the interest received ... Taxability of interest received by assessee on compulsory acquisition of land - assessee has been awarded interest under the provisions of section 23(1A) and 23(2) r.w.s. 28 of the L.A. Act - Held that:- A perusal of Form 35 shows that the assessee in grounds of appeal before the Commissioner of Income Tax (Appeals) has not specified that the interest received by assessee on compulsory acquisition of land is u/s. 23(1A) and 23(2) or u/s. 34 of the L.A. Act. It is for the first time before the Tribunal that assessee in grounds of appeal has clearly stated that assessee has received interest u/s. 23(1A) and 23(2) r.w.s. 28 of the L.A. Act. However, the assertions made by assessee in the grounds of appeal are not supported by any cogent evidence. In the absence of complete facts it would not be possible to adjudicate the issue in hand. Therefore, in our considered opinion this issue needs re-visit to the file of Assessing Officer. - Decided in favour of assessee for statistical purpose. Issues Involved:1. Taxability of interest received on compensation/enhanced compensation under sections 23(1A), 23(2), and 28 of the Land Acquisition Act, 1894.2. Distinction between interest awarded under sections 23(1A), 23(2), and 28 versus section 34 of the Land Acquisition Act.3. Applicability of judicial precedents in determining the taxability of interest received on compensation.Detailed Analysis:1. Taxability of Interest Received on Compensation/Enhanced Compensation:The primary issue is whether the interest received by the assessee on the compulsory acquisition of land is taxable under the Income Tax Act. The assessee argued that the interest received under section 28 of the Land Acquisition Act (LA Act) should be considered a capital receipt and not liable to tax. The Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) (CIT(A)) held that such interest is a revenue receipt and taxable under section 56(2)(viii) of the Income Tax Act. The AO allowed a deduction of 50% under section 57(iv) and made an addition of Rs. 26,48,316/- to the assessee's income.2. Distinction Between Interest Awarded Under Sections 23(1A), 23(2), and 28 Versus Section 34 of the LA Act:The Tribunal noted the distinction between interest awarded under sections 23(1A), 23(2), and 28 and interest awarded under section 34 of the LA Act, as elucidated by the Supreme Court in the case of Commissioner of Income Tax Vs. Ghanshyam (HUF). Interest under sections 23(1A) and 23(2) is considered an additional compensation and part of the market value of the land, whereas interest under section 34 is for delayed payment and is a revenue receipt. The Tribunal emphasized that interest under section 28 is part of the enhanced value of the land, unlike interest under section 34, which is for delay in making payment.3. Applicability of Judicial Precedents:The CIT(A) relied on the Supreme Court's decision in Bikram Singh & Ors. Vs. Land Acquisition Collector & Ors., which held that interest received under section 34 of the LA Act is a revenue receipt and taxable. However, the Tribunal found no conflict between this decision and the decision in Commissioner of Income Tax Vs. Ghanshyam (HUF), which distinguished between interest under sections 23(1A), 23(2), and 28 and interest under section 34. The Tribunal concluded that the interest under sections 23(1A), 23(2), and 28 is part of the compensation and not taxable as revenue receipt, while interest under section 34 is taxable.Conclusion:The Tribunal noted that the records did not clearly indicate whether the interest component was received under sections 23(1A), 23(2), and 28 or under section 34 of the LA Act. The Tribunal remanded the case to the AO to examine the facts and determine the nature of the interest received. The AO was directed to decide the issue de novo, following the principles laid down by the Supreme Court and adhering to the principles of natural justice.Order:The appeal of the assessee was allowed for statistical purposes, and the case was remanded to the AO for re-adjudication. The order was pronounced on January 29, 2018.