2021 (2) TMI 271 - AT - Income Tax

Interest on delayed land compensation exempt from tax under RFCTLARR Act, 2013

The ACIT, Corporate Circle 6 (2), Chennai. Versus M/s. SV Global Mill Ltd.

The ACIT, Corporate Circle 6 (2), Chennai. Versus M/s. SV Global Mill Ltd. - TMI Issues Involved:1. Taxability of interest received on delayed payment of compensation for compulsory acquisition of land.2. Applicability of Section 56(2)(viii) r.w.s. 145A(b) of the Income Tax Act, 1961.3. Relevance of Section 10(37) of the Income Tax Act, 1961.4. Applicability of Section 194LA of the Income Tax Act, 1961.5. Interpretation of Section 96 of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act (RFCTLARR Act), 2013.Issue-wise Detailed Analysis:1. Taxability of Interest on Delayed Compensation:The appellant received interest on delayed payment of compensation for compulsory acquisition of land under the RFCTLARR Act, 2013, amounting to Rs. 12,25,98,815/-. The assessee claimed this interest as exempt from tax under Section 96 of the RFCTLARR Act, 2013, which states that no income tax shall be levied on any award or agreement made under this Act. The Assessing Officer (AO) contended that such interest is taxable under Section 56(2)(viii) r.w.s. 145A(b) of the Income Tax Act, 1961, as it is not part of the compensation but interest for delayed payment of compensation.2. Applicability of Section 56(2)(viii) r.w.s. 145A(b) of the IT Act:The AO argued that interest received on compensation or enhanced compensation is taxable as 'Income from Other Sources' under Section 56(2)(viii) r.w.s. 145A(b) of the IT Act. The AO allowed a notional deduction under Section 57(iv) for expenses related to earning this interest income. However, the CIT(A) and the Tribunal held that the interest received forms part of compensation under the RFCTLARR Act, 2013, and is exempt from tax by virtue of Section 96 of the said Act. The Tribunal noted that the provisions of Section 56(2)(viii) were introduced before the enactment of the RFCTLARR Act, 2013, and hence, do not apply to interest received under the new Act.3. Relevance of Section 10(37) of the IT Act:The AO rejected the assessee's claim of exemption under Section 10(37) of the IT Act, which pertains to compensation received for compulsory acquisition of agricultural land. The CIT(A) and the Tribunal clarified that Section 10(37) is not relevant to the assessee's case as the interest was received under the RFCTLARR Act, 2013, which provides a broader exemption under Section 96, covering both agricultural and non-agricultural land.4. Applicability of Section 194LA of the IT Act:The AO noted that TDS was deducted under Section 194LA on the interest paid. However, the CIT(A) and the Tribunal observed that Section 194LA, which deals with TDS on compensation for acquisition of immovable property, was introduced before the RFCTLARR Act, 2013. The Tribunal highlighted that the CBDT Circular No. 36 of 2016 clarified that compensation or enhanced compensation under the RFCTLARR Act is exempt from tax, and consequently, TDS provisions under Section 194LA are not applicable.5. Interpretation of Section 96 of the RFCTLARR Act, 2013:Section 96 of the RFCTLARR Act, 2013, explicitly exempts any award or agreement made under the Act from income tax. The CIT(A) and the Tribunal emphasized that this provision overrides the Income Tax Act. They referred to the CBDT Circular No. 36 of 2016, which clarified that the exemption under Section 96 is wider in scope than the existing provisions of the IT Act. The Tribunal concluded that interest received for delayed payment of compensation under the RFCTLARR Act is exempt from tax, as it forms part of the compensation.Conclusion:The Tribunal upheld the CIT(A)'s order, which deleted the addition made by the AO towards interest received on delayed compensation for compulsory acquisition of land. The Tribunal concluded that the interest received under the RFCTLARR Act, 2013, is exempt from tax by virtue of Section 96 of the said Act, and the provisions of Section 56(2)(viii) of the IT Act do not apply. The appeal filed by the Revenue was dismissed.