Interest on enhanced land compensation under section 28 Land Acquisition Act not taxable as income

ITAT Pune held that interest granted under section 28 of Land Acquisition Act on enhanced compensation from date of possession until HC judgment constitutes part of compensation and is not taxable. The tribunal ruled that such interest represents accretion of land value rather than taxable interest under sections 145A(b) and 56(2)(viii). Following Bombay HC precedent, amendments to sections 145A and 56(2) were deemed inapplicable. The AO's addition under section 56 was deleted, and CIT(A)'s confirmation was overturned. Assessee's grounds were allowed.

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Issues Involved:

1. Delay in filing the appeal.
2. Taxability of interest received under Section 28 of the Land Acquisition Act.
3. Application of Section 56(2)(viii) of the Income Tax Act.
4. Applicability of judicial precedents and amendments to Section 145A and Section 56(2) of the Income Tax Act.

Detailed Analysis:

1. Delay in Filing the Appeal:

The appeal was filed with a delay of 40 days. The assessee filed an affidavit explaining the reasons for the delay. After perusal of the record and hearing both parties, it was found that the reasons stated by the assessee were bona fide, which genuinely prevented the assessee from filing the appeal in time. Therefore, the delay of 40 days was condoned.

2. Taxability of Interest Received under Section 28 of the Land Acquisition Act:

The assessee received an amount of Rs. 2,10,45,467/- from the Special Land Acquisition Officer, Udgir, on account of enhanced compensation for compulsory acquisition of agricultural land and interest on enhanced compensation. The assessee contended that the amounts received as solatium and interest under Section 28 of the Land Acquisition Act are exempt from tax, relying on the decision of the Hon'ble High Court of Punjab and Haryana in the case of Haryana State Industrial Development Corp. The AO, however, did not accept this submission and held that 50% of the interest received on enhanced compensation is taxable under the amended provisions of Section 56 w.e.f. 01-04-2010, relying on the decision of the Hon'ble Supreme Court in the case of Bikram Singh.

The CIT(A) upheld the AO's decision, relying on the cases of Bikram Singh, Manjeet Singh (HUF), and Balasaheb Raosaheb Bidwe. The assessee challenged this before the Tribunal, arguing that the interest under Section 28 is part of the compensation, as reiterated by the Hon'ble Supreme Court in the case of Ghanshyam (HUF).

3. Application of Section 56(2)(viii) of the Income Tax Act:

The AO and CIT(A) held that the interest received under Section 28 of the Land Acquisition Act is taxable under Section 56(2)(viii) of the Income Tax Act. The Tribunal, however, noted that the Hon'ble Supreme Court in Ghanshyam (HUF) held that interest under Section 28 is part of the enhanced compensation and not taxable as income. The Tribunal also referred to various other judgments, including those of the Hon'ble High Court of Bombay and Gujarat, which supported the view that interest under Section 28 is part of the compensation and not taxable.

4. Applicability of Judicial Precedents and Amendments to Section 145A and Section 56(2) of the Income Tax Act:

The Tribunal referred to several judicial precedents, including the decisions of the Hon'ble Supreme Court in Ghanshyam (HUF) and Bikram Singh, and the Hon'ble High Courts of Bombay and Gujarat. The Tribunal observed that the amendments to Section 145A and the insertion of Section 56(2)(viii) were not intended to override the judicial precedents that held interest under Section 28 as part of the compensation. The Tribunal concluded that the interest received under Section 28 of the Land Acquisition Act is not taxable as income under the amended provisions of the Income Tax Act.

Conclusion:

The Tribunal allowed the appeal of the assessee, holding that the interest received under Section 28 of the Land Acquisition Act is part of the compensation and not taxable as income. The Tribunal also held that the amendments to Section 145A and Section 56(2)(viii) do not apply to the interest received under Section 28, following the judicial precedents set by the Hon'ble Supreme Court and High Courts. The decision of the CIT(A) was reversed, and the grounds raised by the assessee were allowed.

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