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AI Drafter - (New and Powerful) ✕ Generate professional replies, appeals, opinions to Show Cause Notices, assessment orders, audit objections, and other legal communications using TaxTMI's AI Drafter.
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Issues: Taxability under section 56(2)(viii) of the Income-tax Act, 1961 of interest received for delayed payment of compensation for compulsory acquisition of land under the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013.
Analysis: The interest arose from delayed payment of compensation awarded under the RFCTLARR Act, 2013. Section 96 of that Act provides that no income tax shall be levied on any award or agreement made under the Act except under section 46. Section 3(i) of the Act defines the cost of acquisition to include compensation, enhanced compensation and interest payable thereon. The CBDT circular clarifies that compensation exempt under section 96 of the RFCTLARR Act, 2013 is not taxable under the Income-tax Act, 1961. In this statutory setting, the receipt was treated as part of the compensation package under the special land acquisition law and not as taxable interest under section 56(2)(viii). The earlier view under the pre-2014 regime was held inapplicable.
Conclusion: The interest was not taxable under section 56(2)(viii) of the Income-tax Act, 1961 and the deletion of the addition was upheld.
Ratio Decidendi: Where a special land acquisition statute expressly exempts awards or agreements from income tax and defines compensation to include interest on delayed payment, such interest assumes the character of exempt compensation and cannot be separately taxed as income from other sources.
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