Land acquisition compensation exemption under RFCTLARR Act defeats capital gains tax and section 263 revision

Compensation received for compulsory acquisition of land under the RFCTLARR Act, 2013 is exempt from income-tax, because section 96 bars levy of income-tax and stamp duty on awards or agreements under the Act except where section 46 applies. CBDT Circular No. 36/2015 was also relied on to confirm that such compensation is not taxable unless the statutory exception is attracted. On the stated facts, the acquisition did not fall within section 46, so the amount was not chargeable as capital gains. The revisionary order under section 263 was therefore unsustainable and was set aside.

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Issues: Whether the revisionary order under section 263 of the Income-tax Act, 1961 was sustainable where compensation received for compulsory acquisition of land under the RFCTLARR Act, 2013 was claimed to be exempt from income-tax and not chargeable as capital gains.

Analysis: The compensation amount arose from compulsory acquisition of land under the RFCTLARR Act, 2013. The Court noted that CBDT Circular No. 36/2015 dated 25.10.2016 clarifies that income-tax is not leviable on awards or agreements made under the RFCTLARR Act, except those covered by section 46. The Court also considered section 96 of the RFCTLARR Act, 2013, which provides that no income-tax or stamp duty shall be levied on any award or agreement made under the Act except under section 46. On the facts, the acquisition was not shown to fall within the exception under section 46, and therefore the compensation was not liable to capital gains tax.

Conclusion: The revision under section 263 was not justified and was liable to be set aside.

Final Conclusion: The assessee succeeded, and the assessment revision directed by the Principal Commissioner did not survive.

Ratio Decidendi: Compensation received under the RFCTLARR Act, 2013 for land acquisition is exempt from income-tax except where the statutory exception applies, and a section 263 revision cannot stand when the assessed amount is not chargeable to tax.

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