Land acquisition compensation exemption extends to compulsory acquisition awards, and supported salary and donation claims were allowed.

Compensation and interest received on compulsory acquisition of land were treated as exempt from income-tax under section 96 of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013, as clarified by CBDT Circular No. 36/2016. The exemption was applied notwithstanding that the assessee did not claim relief under section 10(37) of the Income-tax Act, because the special statute grants a wider exclusion for awards under the land acquisition law. Salary expenditure was allowed on the basis of bank transfers, ledger accounts and books, and donation expenditure was also sustained where the material supported the claim, including appellate consideration of deduction under section 80G(5).

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Issues: (i) Whether compensation and interest received on compulsory acquisition of land were exempt from income-tax under section 96 of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 read with CBDT Circular No. 36/2016. (ii) Whether disallowance of salary expenditure and donation expenditure was justified.

Issue (i): Whether compensation and interest received on compulsory acquisition of land were exempt from income-tax under section 96 of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 read with CBDT Circular No. 36/2016.

Analysis: Section 96 of the special land acquisition statute provides that no income-tax shall be levied on awards or agreements made under that enactment, except those covered by section 46. The CBDT circular clarifies that the exemption is wider than the exemption available under the Income-tax Act, 1961 and applies to compensation received for compulsory acquisition of land, including in cases where no specific exemption is available under the Income-tax Act. The assessee had not claimed exemption under section 10(37) of the Income-tax Act, 1961, but under the special statute and the circular.

Conclusion: The addition made by the Assessing Officer on this account was not sustainable and the deletion by the Commissioner (Appeals) was upheld.

Issue (ii): Whether disallowance of salary expenditure and donation expenditure was justified.

Analysis: The salary payments were supported by bank transfers, ledger accounts and books of account. The donation amounts had already been added back in computation, and the Commissioner (Appeals) also accepted the fresh claim for deduction under section 80G(5) after verifying the supporting material. No infirmity was found in the factual appreciation or the allowance of the claim.

Conclusion: The disallowances were not justified and the Commissioner (Appeals) was in deleting them.

Final Conclusion: The revenue's challenge to the deletions failed on all issues, and the assessment additions were not restored.

Ratio Decidendi: Where a special enactment expressly exempts land acquisition awards from income-tax and the CBDT clarifies that such exemption extends under the Income-tax Act, the compensation cannot be taxed merely because the assessee does not fall within a narrower exemption clause of the Income-tax Act; a fresh deduction claim may also be entertained at the appellate stage if supported by record.

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