Compulsory acquisition compensation under the land acquisition law remains exempt, even when land is stock in trade.

Compensation received on compulsory acquisition of land under the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 is treated as exempt under section 96, even where the land is held as stock in trade by a partnership firm. The scope of section 96, read with CBDT Circular No. 36/2016, clarifies that such compensation is not taxable under the Income-tax Act merely because a specific exemption is not found in that Act. The fact that the land was stock in trade and the recipient was a firm does not change the exemption where the acquisition is under the 2013 Act.

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Issues: Whether compensation received on compulsory acquisition of land held as stock in trade by a partnership firm was exempt from income tax under section 96 of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013, notwithstanding the Assessing Officer's reliance on section 10(37) of the Income-tax Act, 1961.

Analysis: The dispute turned on the scope of section 96 of the 2013 land acquisition law and CBDT Circular No. 36/2016. The compensation was received under the 2013 Act on compulsory acquisition and did not fall within section 46 of that Act. The earlier denial based on section 10(37) was not accepted as decisive, because the Board circular clarified that compensation exempted under section 96 would not be taxable under the Income-tax Act even where the Act itself did not contain a specific exemption for such compensation. The fact that the land was held as stock in trade and that the assessee was a firm did not alter the operation of section 96 in the context of compulsory acquisition under the 2013 Act.

Conclusion: The compensation received by the assessee was held to be exempt from income tax under section 96 of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013, and the addition was deleted.

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