Land acquisition compensation exemption under section 96 cannot be taxed merely because it was wrongly disclosed in the return.

Compensation for compulsory acquisition under the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 was held exempt from income tax under section 96 because the acquisition fell within the Act and outside section 46; the exemption was not confined to agricultural land. The mistaken disclosure of the compensation as capital gains in the original return, and the failure to file a revised return, did not make the exempt amount taxable. Tax authorities must assess liability according to law and cannot levy tax on income exempt under statute merely on a technical plea. The exempt compensation was therefore not includible in total income.

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Issues: (i) Whether compensation received on compulsory acquisition of land under the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 was exempt from income tax under section 96 of that Act, even though the land was residential and not agricultural. (ii) Whether the compensation could be taxed merely because the assessee had inadvertently disclosed it as capital gain in the original return and had not filed a revised return.

Issue (i): Whether compensation received on compulsory acquisition of land under the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 was exempt from income tax under section 96 of that Act, even though the land was residential and not agricultural.

Analysis: The acquisition took place after the commencement of the 2013 Act. Section 96 exempts from income tax any award or agreement made under the Act, except in the case covered by section 46. The assessee's case did not fall within section 46. The exemption under section 96 is wider than the exemption under section 10(37) of the Income-tax Act, 1961, and is not confined to agricultural land. The Board's circular clarified that compensation exempted under section 96 is not taxable under the Income-tax Act, 1961.

Conclusion: The compensation was exempt from income tax under section 96 of the 2013 Act and was not includible in the assessee's total income.

Issue (ii): Whether the compensation could be taxed merely because the assessee had inadvertently disclosed it as capital gain in the original return and had not filed a revised return.

Analysis: An assessee cannot be taxed on income that is not exigible to tax merely because it was mistakenly shown in the return. The assessing authority is bound to act in accordance with law and cannot levy tax on exempt income on a technical plea that no revised return was filed. Article 265 bars levy or collection of tax except by authority of law. The binding circular and the statutory exemption required the authorities to ignore the mistaken disclosure.

Conclusion: The mistaken disclosure did not justify taxation of the exempt compensation, and the assessee was entitled to relief.

Final Conclusion: The exemption under section 96 prevailed, the capital gain shown in the original return was not taxable, and the assessee succeeded on the substantive challenge while the connected appeal became academic.

Ratio Decidendi: Where compensation for land acquisition is exempt under section 96 of the land acquisition statute, tax authorities must not assess it to tax merely because the assessee mistakenly included it in the return or did not file a revised return.

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