Land acquisition compensation exemption applies to solatium and interest under the RFCTLARR Act and CBDT circular

Compensation received for compulsory acquisition of land was treated as exempt from income-tax where the acquisition fell within the RFCTLARR Act and the payment was covered by section 96 as extended by CBDT Circular No. 36/2016. The analysis treated Schedule 1 as including additional compensation and solatium within the compensation package, and also applied the exemption to interest and related receipts. It was noted that tax authorities are bound by CBDT circulars. Accordingly, the compensation, including solatium and interest, was held not taxable and the addition made by the Assessing Officer was not sustained.

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Issues: Whether compensation received on compulsory acquisition of land, including solatium and interest, was exempt from tax under the RFCTLARR Act and the CBDT circular.

Analysis: The acquired land was held to fall within the RFCTLARR Act. The compensation was received from an entity covered by that Act, and Schedule 1 was treated as showing that compensation includes additional compensation and solatium. The exemption under section 96 of the RFCTLARR Act, as extended by CBDT Circular No. 36/2016, was applied. It was also noted that tax authorities are bound by CBDT circulars, and the compensation covered by sections 105 and 106 of the RFCTLARR Act was treated as exempt from income-tax.

Conclusion: The compensation, including solatium and interest, was held to be not taxable, and the addition made by the Assessing Officer was not sustained.

Ratio Decidendi: Where land acquisition compensation is covered by the RFCTLARR Act and falls within the exemption contemplated by section 96 read with the applicable CBDT circular, the entire compensation package, including solatium and related receipts, is exempt from income-tax.

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