2024 (8) TMI 1607 - AT - Income Tax

Interest on Enhanced Land Acquisition Compensation Taxable Under Sections 56(2)(viii) and 145B(1), Exemption Under Section 10(37) Denied

The ITAT Delhi held that interest received on enhanced compensation for land acquisition is taxable under section 56(2)(viii) read with section 145B(1) of ... Interest received on enhanced compensation on acquisition of land - exemption u/s 10(37) or exigible to tax under the 'income from other sources' in view of amendment w.e.f 01.04.2010 in the provisions of section 56(2)(viii) and 57(iv) of the Act - HELD THAT:- We are of the considered view that the language in section 56(2)(viii) and 145B(1) are plain, simple and unambiguous and that the correct legal position is that the interest received during the year on enhanced compensation under section 28 of the Land Acquisition Act, 1894 is exigible to tax u/s 56(2)(viii) r.w.s 145B(1). Assessee’s claim of the same as exempt u/s 10(37) of the Act is unsustainable as the provisions of section 10(37) deals with ‘compensation’ only and not “interest on compensation or enhanced compensation”. Thus, we hold that the CIT(A)’s order to recompute the interest on enhanced compensation in accordance with section 56(2)(viii) r.w.s. 145B(1) and allowing deduction u/s 57(iv) needs no interference. Appeal of assessee dismissed. ISSUES: Whether the interest received under section 28 of the Land Acquisition Act on enhanced compensation for acquisition of land is exempt under section 10(37) of the Income Tax Act or taxable as income from other sources under section 56(2)(viii) read with section 145B(1) of the Income Tax Act after the 2010 amendment.Whether the deduction under section 57(iv) of the Income Tax Act is applicable on such interest income. RULINGS / HOLDINGS: The interest received under section 28 of the Land Acquisition Act on enhanced compensation is not exempt under section 10(37) of the Income Tax Act but is taxable as income from other sources under section 56(2)(viii) read with section 145B(1), following the legislative amendment effective from 01.04.2010.The deduction of fifty percent of such income under section 57(iv) of the Income Tax Act is applicable and must be allowed in computing taxable income from such interest.The earlier Supreme Court decision in Ghanshyam Das HUF, which held that interest under section 28 is part of enhanced compensation and exempt under section 10(37), is not applicable post the 2010 amendment and therefore cannot be relied upon to claim exemption. RATIONALE: The Court examined the provisions of the Land Acquisition Act, 1894, specifically sections 28 and 34, distinguishing between interest on enhanced compensation (section 28) and interest on delayed payment of compensation (section 34).Prior to 2010, Supreme Court rulings (e.g., Sham Lal Narula and Ghanshyam Das HUF) treated interest under section 28 as part of enhanced compensation for capital gains purposes, exempt under section 10(37).However, the Finance (No. 2) Act, 2009, effective from 01.04.2010, amended the Income Tax Act by inserting section 56(2)(viii) and section 145B(1), expressly taxing interest received on compensation or enhanced compensation under the head 'Income from other sources'.The Court relied on authoritative decisions of the Delhi High Court (Inderjit Singh Sodhi (HUF)) and Punjab & Haryana High Court (Mahender Pal Narang, Puneet Singh) which held that the 2010 amendment represents a conscious legislative departure from earlier law, making such interest taxable as income from other sources.The Court noted that the deduction under section 57(iv) was introduced concomitantly to allow a 50% deduction on such income, affirming its applicability.The Court rejected reliance on ITAT decisions favoring exemption based on pre-amendment Supreme Court rulings, holding that those decisions did not consider the 2010 statutory changes and are therefore not good law.The Court affirmed the concurrent findings of the Assessing Officer and CIT(A) that the interest income is taxable under section 56(2)(viii) read with section 145B(1), and the exemption claim under section 10(37) is unsustainable.