2023 (2) TMI 459 - AT - Income Tax

Assessing Officer's Addition Deemed Unjustified - Interest Not Taxable

The Tribunal held that the addition made by the Assessing Officer under Section 56(2)(viii) of the Income Tax Act was unjustified due to insufficient ... Taxability of Interest income - interest received u/s. 28 of Land Acquisition Act, 1894 - Income from other sources - addition u/s. 56(2)(viii) - whether the interest u/s. 28 of the Land Acquisition Act is taxable or not being part and parcel of compensation? - AO in the present case proceeded to allow 50% deduction u/s. 57(iv) and brought to tax remaining 50% u/s. 56(2)(viii) of the Act which is evident from the computation - HELD THAT:- AO simply proceeded on the premise that the amendments to provisions u/s. 145A which bears the heading method of accounting in certain cases, section 145A(b) provides that notwithstanding anything to the contrary contained in section 145, interest received by an assessee on compensation or on enhanced compensation shall be deemed to be the income of the year in which it is received read with section 56(2)(viii) of the Act which provides income by way of interest on compensation or on enhanced compensation referred to in sub-section (1) of section 145B of the Act shall be chargeable to income tax under the head “Income from other sources”. Therefore, we hold that the interest granted by the reference Court u/s. 28 of the Land Acquisition Act from the date of possession of land till the date of judgment of High Court is an accretion of the value of the land acquired, not chargeable to tax. Thus, we reject the arguments that the principle laid down in the context of motor accident claims is not applicable to the present facts of the case. Therefore, respectfully following the decision of Hon’ble Jurisdictional High Court of Bombay in the case of Rupesh Rashmikant Shah [2019 (8) TMI 518 - BOMBAY HIGH COURT] we hold the interest received u/s. 28 of the Land Acquisition Act would not fall within the ambit of the expression interest as envisaged u/s. 145A(b) of the Act, further, hold that the amendment by way of substitution of section 145A by Finance (No. 2) Act, 2009 w.e.f. 01-04-2010 and amendment by way of insertion of clause (iii) in section 56(2) by Finance Act, 2009 would have no applicability to the facts of the present case and in view of the same the order of CIT(A) in confirming the order of AO is not justified. Thus, ground Nos. 1 and 2 raised by the assessee are allowed. Issues Involved:1. Justification of the addition made by the AO under Section 56(2)(viii) of the Income Tax Act.2. Taxability of interest received under Section 28 of the Land Acquisition Act, 1894.Issue-wise Detailed Analysis:1. Justification of the Addition Made by the AO under Section 56(2)(viii) of the Income Tax Act:The assessee, an agriculturist, had their land compulsorily acquired and filed a return of income declaring a total income of Rs. Nil, along with a claim for a refund of TDS amounting to Rs. 16,80,040/-. The AO issued a notice under Section 148, requesting the assessee to file a return of income. The AO assessed that the assessee received enhanced compensation and interest on compensation, which was liable to tax under the amended provisions of Section 56 of the Act effective from 01-04-2010, and Section 145A of the Act. The AO concluded the reassessment under Section 144, determining the total income of the assessee at Rs. 76,36,540/-, which included the interest on compensation. However, the AO's reassessment lacked concrete details regarding the acquisition, compensation, and interest payments. The CIT(A) confirmed the AO's order without providing detailed reasoning or considering the relevant facts and circumstances of the case. The Tribunal found that the AO and CIT(A) did not justify the addition made under Section 56(2)(viii) due to the absence of relevant facts and details.2. Taxability of Interest Received under Section 28 of the Land Acquisition Act, 1894:The primary issue was whether the interest received under Section 28 of the Land Acquisition Act was taxable as part of the compensation. The Tribunal noted that the interest under Section 28 is part of the enhanced value of land and is exempt from tax, as per the Supreme Court's decision in CIT Vs. Ghanshyamdas (HUF). The Tribunal referred to various case laws, including the decisions of the Supreme Court and High Courts, which held that interest under Section 28 is an accretion to the value of the land and forms part of the compensation, thus not chargeable to tax. The Tribunal also considered the amendments to Sections 145A and 56(2) of the Act, concluding that these amendments did not apply to the interest received under Section 28. The Tribunal held that the interest granted by the reference court under Section 28 from the date of possession of land till the date of the judgment of the High Court is not chargeable to tax. Consequently, the Tribunal rejected the arguments of the Revenue and allowed the assessee's appeal.Conclusion:The Tribunal concluded that the addition made by the AO under Section 56(2)(viii) was not justified due to the lack of relevant details and facts. Furthermore, the interest received under Section 28 of the Land Acquisition Act was held to be part of the compensation and not chargeable to tax, following the Supreme Court's decision in Ghanshyamdas (HUF) and other relevant case laws. The appeal of the assessee was allowed.