Compensation for compulsory land acquisition on national highway projects treated as exempt from income tax, including related interest

Delay in filing the appeal was condoned after the Tribunal accepted the family medical explanation and noted the Supreme Court's Covid-19 limitation extension. On the tax issue, compensation received for compulsory acquisition of land for widening a national highway was treated as exempt, following coordinate bench precedent and a CBDT circular clarifying that compensation exempt under the special acquisition statute does not become taxable under the Income-tax Act merely because no separate exemption provision exists. The related interest component was also treated as part of the exempt compensation package, so the addition on that account failed.

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Issues: (i) Whether the delay in filing the appeal deserved to be condoned. (ii) Whether compensation received for compulsory acquisition of land acquired for widening of a national highway was exempt from tax, and whether the related interest component was taxable.

Issue (i): Whether the delay in filing the appeal deserved to be condoned.

Analysis: The delay was explained by medical in the family and the Tribunal also took note of the limitation extension ordered by the Supreme Court during the Covid-19 period. The explanation was found satisfactory and the appellant was not viewed as deriving any benefit from the delay.

Conclusion: The delay was condoned and the appeal was admitted.

Issue (ii): Whether compensation received for compulsory acquisition of land acquired for widening of a national highway was exempt from tax, and whether the related interest component was taxable.

Analysis: The Tribunal found the facts to be identical to earlier coordinate bench decisions where compensation for land acquired by the National Highways Authority of India had been held exempt. It noted that the acquisition was for a highway project, the compensation was received after the relevant commencement date under the land acquisition regime, and the CBDT circular clarified that compensation exempt under the special acquisition statute would not be taxable under the Income-tax Act even if no separate exemption provision existed. The Tribunal followed the earlier binding coordinate bench view and treated the compensation as exempt. The related receipt was also covered by the same reasoning as part of the compensation package.

Conclusion: The compensation was held exempt from income tax and the addition made on that account could not stand; the assessee succeeded on this issue.

Final Conclusion: The appeal was allowed, with the assessee obtaining relief on both the condonation aspect and the substantive taxability dispute.

Ratio Decidendi: Compensation received for compulsory acquisition under the special land acquisition regime applicable to national highway acquisitions, once clarified by a binding CBDT circular and supported by the statutory exemption framework, is not taxable under the Income-tax Act.

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