2020 (4) TMI 918 - AT - Income Tax

Interest Income Under Section 28 of Land Acquisition Act Exempt from Taxation as Part of Land Value

The Appellate Tribunal ruled in favor of the assessee, concluding that the interest income received under section 28 of the Land Acquisition Act, 1894, is ... Receipt of interest on enhanced compensation - AO held that interest on enhanced compensation is taxable u/s 56(2)(viii) and after allowing a deduction of sum equal to 50% of interest received, as per the provisions of Section 57(1)(v) remaining amount was added to the total income of the assessee - whether amount received be treated u/s 28 of the Land Acquisition Act, 1894 or u/s 34 of Land Acquisition Act, 1894 and taxable u/s 56(2)(viii) ? - HELD THAT:- We have gone through the record and perused the judgment of MB Bala Bhai [2016 (5) TMI 488 - GUJARAT HIGH COURT], Ramabai [1989 (11) TMI 2 - SUPREME COURT], Jagmal Singh .[2018 (9) TMI 1468 - ITAT DELHI], Sh. Amarchand Gupta [2019 (8) TMI 1424 - ITAT DELHI] and also the cases relied by the revenue viz. Jagmal Singh and Others [2016 (3) TMI 733 - PUNJAB & HARYANA HIGH COURT], Manjeet Singh Vs Union of India [2014 (12) TMI 1298 - SC ORDER]. We have also perused the judgment of Ghanshyam [2009 (7) TMI 12 - SUPREME COURT] . The Hon’ble Apex Court held that interest paid on the excess amount u/s 28 of Land Acquisition Act, 1894 depends upon a claim by the person whose land is acquired whereas interest u/s 34 is for delay in making payment. Interest u/s 28 is a part of the enhanced value. The Hon’ble Supreme Court has categorically held that interest u/s 34 is only for delay in making payment after the compensation amount is determined. In the instant case before us, the compensation has been increased by the order of the Hon’ble High Court, hence, the amount received by the assessee being the compensation received u/s 28 of Land Acquisition Act, 1894, the same is exempt u/s 10(37) of the Income Tax Act, 1961. Appeal of the assessee is allowed. The present appeal before the Appellate Tribunal concerns the taxation of interest income received by the assessee as part of compensation for the acquisition of agricultural land under the Land Acquisition Act, 1894. The key issues raised by the assessee in the appeal include challenging the assessment completed under section 144 of the Income Tax Act, 1961 and contesting the addition of Rs. 92,04,773 as interest income by the Assessing Officer. The Tribunal's analysis primarily revolves around determining whether the interest received falls under section 28 or section 34 of the Land Acquisition Act, 1894, and consequently, its taxability under section 56(2)(viii) of the Income Tax Act, 1961.The Tribunal delves into the legal framework and precedents, citing judgments such as MB Bala Bhai Vs ITO, Ramabai Vs CIT, and cases from the Delhi Tribunal. Notably, the Tribunal references the distinction made by the Hon'ble Supreme Court between interest under section 28, which forms part of the enhanced value of the land, and interest under section 34, which pertains to delay in payment post determination of compensation. The Tribunal aligns with the Supreme Court's interpretation that interest under section 28 is exempt under section 10(37) of the Income Tax Act, 1961 when received as part of the compensation increase ordered by the court.In conclusion, the Tribunal rules in favor of the assessee, allowing the appeal and holding that the interest income received under section 28 of the Land Acquisition Act, 1894 is exempt from taxation under section 10(37) of the Income Tax Act, 1961. The judgment emphasizes the distinction between interest under section 28 and section 34, affirming that the former is integral to the enhanced value of the land and not subject to tax.