Land acquisition compensation exemption under Section 96 prevents income-tax liability and invalidates contrary assessment demands.

Compensation received for land acquired under an award or agreement under the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 was treated as exempt from income-tax under Section 96 of that Act. Circular No. 36/2016 dated 25.08.2016 was relied on to confirm that such exempt compensation is not taxable under the Income-tax Act, 1961 even if no separate exemption appears in that Act. On that basis, the contrary assessment and demand were unsustainable and were quashed.

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Issues: Whether compensation received for land acquired under an award or agreement under the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 was taxable under the Income-tax Act, 1961 and whether the assessment order and demand notice could be sustained.

Analysis: The compensation arose out of acquisition or an agreement connected with land acquisition under the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013. Section 96 of that Act was read as granting exemption from income-tax in respect of such compensation. The clarification issued in Circular No. 36/2016 dated 25.08.2016 was relied upon to note that compensation received in respect of an award or agreement exempted under Section 96 would not be taxable under the Income-tax Act, 1961 even if no specific exemption provision was found in that Act. The assessment proceeded on a contrary view and therefore could not be sustained.

Conclusion: The compensation was held not taxable, and the assessment order and demand notice were quashed.

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