Tax exemption for compulsory acquisition compensation upheld under land acquisition law and CBDT circular guidance.

Compensation received for compulsory acquisition of land was treated as exempt from income tax where the award fell within section 96 of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013. The CBDT circular stated that compensation covered by that provision is not taxable under the Income-tax Act, 1961, and that no distinction is drawn between agricultural and non-agricultural land. Following an earlier order on identical facts, the addition made by the Assessing Officer and sustained by the Commissioner (Appeals) was held unjustified.

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Issues: Whether compensation received on compulsory acquisition of land under the land acquisition regime was exempt from income tax and whether the addition sustained by the lower authorities was justified.

Analysis: The appeal turned on the applicability of the exemption under section 96 of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013. The CBDT circular clarified that compensation received in respect of awards or agreements exempted under that provision would not be taxable under the Income-tax Act, 1961, and that no distinction was to be drawn between agricultural and non-agricultural land. The matter was treated as covered by an earlier order on identical facts, and the departmental representative did not dislodge that position.

Conclusion: The compensation received for compulsory acquisition was held exempt from income tax, and the addition made by the Assessing Officer and sustained by the Commissioner (Appeals) was not justified.

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