2023 (8) TMI 1018 - AT - Income Tax

ITAT upholds order disallowing tax exemption for NHAI-acquired lands

M/s. Heritage Buildcon Pvt. Ltd., M/s. Raipur Realty Pvt. Ltd., M/s. Food Health Pvt. Ltd. Versus The Pr. Commissioner of Income Tax, Raipur-1 (C.G.)

The Income Tax Appellate Tribunal (ITAT) upheld the Principal Commissioner of Income Tax's (Pr. CIT) order under Section 263, determining that the ... Revision u/s 263 - Tax liability of award received by the assessee company on the acquisition of its lands under the NHAI Act, 1956 - absence of notification issued by the Central Government in terms of subsection (3) to Section 105 of the RFCTLARR Act, 2013 - AO had summarily accepted the assessee’s claim of exemption concerning capital gain on the transfer of the lands, therefore, the same had rendered his order as erroneous in so far as it was prejudicial to the interest of the revenue - as per CIT Section 10 (37) is not applicable in case of the company assessee as it applies to individual and HUF only HELD THAT:- Confining our adjudication to the entitlement of the assessee company for claiming exemption from income tax under the RFCTLARR Act, 2013, we are of a firm conviction, in terms of our observations recorded hereinabove, that the provisions contemplating an exemption from income tax on any award received under RFCTLARR Act, 2013 in light of the overriding effect of Section 105(1)(5) r.w. OM dated 06.06.2019 issued by the CBDT would not be available to the assessee company. AR has misconstrued the order above, i.e., S.O 2368 (E) dated 28.08.2015, which has a limited scope of extending the benefits available to the land owners under the RFCTLARR Act, 2013 to similarly placed land owners whose lands were acquired under the 13 enactments specified in the “Fourth Schedule,” i.e., those concerning the determination of compensation in accordance with First Schedule, rehabilitation and resettlement in accordance with Second Schedule and infrastructure amenities in accordance with Third Schedule. CBDT Circular No.36/2016 clarifies is that the compensation received on compulsory acquisition of agricultural land and non-agricultural land under the RFCTLARR Act, 2013 would be similarly placed, AND that if the compensation received on compulsory acquisition of land is exempt u/s. 96 of the RFCTLARR Act, 2013, the same would not be taxable even if there is no specific exemption provision for such compensation in the Income Tax Act, 1961. Once again, we are unable to comprehend how the CBDT Circular No. 36/2016 which is absolutely in a different context /subject matter, would advance the claim of the assessee company that the compensation received on the acquisition of its lands under the NHAI Act, 1956 would be exempt u/s. 96 of the RFCTLARR Act, 2013. We are of the considered view that the absence of notification issued by the Central Government in terms of subsection (3) to Section 105 of the RFCTLARR Act, 2013, would though have a bearing on the application of the provisions of the Act relating to the determination of compensation in accordance with First Schedule, rehabilitation and resettlement in accordance with Second and Third Schedule, in the case of a person whose lands are acquired under the 13 enactments specified in the “Fourth Schedule”; but the same cannot be so construed that it confers any right of exemption under Section 96 of the RFCTLARR Act, 2013 to an assessee from levy of income tax on the compensation received by him on acquisition of his land under the 13 enactments specified in the “fourth schedule”. As observed by the Pr. CIT, and rightly so, as the A.O had grossly erred in law and facts of the case in construing the provisions of the RFCTLARR Act, 2013 while framing assessment in the case of the assessee company, and had summarily accepted its aforesaid claim for exemption from tax, therefore, the same had rendered the order passed by him u/s. 143(3) as erroneous in so far it was prejudicial to the interest of the revenue u/s. 263 of the Act. Decided against assessee. Issues Involved:1. Jurisdiction of the Principal Commissioner of Income Tax (Pr. CIT) under Section 263 of the Income Tax Act, 1961.2. Eligibility of the assessee company for exemption under Section 10(37) of the Income Tax Act, 1961.3. Applicability of exemption under Section 96 of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 (RFCTLARR Act) for lands acquired under the National Highway Authority of India Act, 1956 (NHAI Act).Summary:1. Jurisdiction of the Pr. CIT under Section 263:The Pr. CIT, Raipur-1, invoked Section 263 of the Income Tax Act, 1961, setting aside the assessment order framed under Section 143(3) dated 10.10.2019, on the grounds that it was erroneous and prejudicial to the interest of the revenue. The Pr. CIT observed that the Assessing Officer (A.O.) had failed to appreciate the provisions of the RFCTLARR Act, 2013, and had erroneously accepted the assessee's claim for exemption of capital gain on the transfer of lands acquired under the NHAI Act, 1956.2. Eligibility for Exemption under Section 10(37):The Pr. CIT noted that Section 10(37) of the Income Tax Act, 1961, which provides exemption for capital gains arising from the transfer of agricultural land, applies only to individual and Hindu Undivided Family (HUF) assessees. Since the assessee is a private limited company, it was not entitled to claim an exemption under this provision. Additionally, the Pr. CIT highlighted that the land must have been used for agricultural purposes for two years preceding the transfer, which was not satisfied in this case.3. Applicability of Exemption under Section 96 of the RFCTLARR Act:The Pr. CIT held that the exemption under Section 96 of the RFCTLARR Act, 2013, was not applicable to the assessee company as its lands were acquired under the NHAI Act, 1956, which is an enactment specified in the 'Fourth Schedule' of the RFCTLARR Act. The Pr. CIT referred to Section 105(1) of the RFCTLARR Act, which excludes the applicability of the Act's provisions to the enactments specified in the Fourth Schedule, except for the determination of compensation, rehabilitation, and resettlement as per the First, Second, and Third Schedules. The Pr. CIT also relied on the CBDT Notification dated 06.06.2019, which clarified that Section 96 of the RFCTLARR Act does not apply to acquisitions under the Fourth Schedule enactments.Conclusion:The ITAT upheld the Pr. CIT's order under Section 263, agreeing that the A.O. had erred in law and facts by accepting the assessee's claim for exemption. The Tribunal affirmed that the compensation received by the assessee company on the acquisition of its lands under the NHAI Act, 1956, was not exempt from income tax under Section 96 of the RFCTLARR Act, 2013, and that Section 10(37) was not applicable to the company. The appeals filed by the assessee companies were dismissed.