2025 (6) TMI 1449 - AT - Income Tax

Compensation for compulsory land acquisition under NHAI Act taxable as short-term capital gain, Section 10 exemption denied

Sharda Devi Kedia Versus The Income Tax Officer-2 (1), Bhilai (C.G.)

The ITAT Raipur dismissed the appellant's claim for exemption under Section 10 on compensation received for compulsory land acquisition under NHAI Act, ... Amount received on compulsory acquisition of land chargeable to tax as short term capital gain - addition rejecting the claim of appellant and denying exemption u/s.10 - Whether amount received by the assessee on compulsory acquisition of her land under NHAI Act, 1956 is taxable under the Income Tax Act, 1961? - HELD THAT:- We find that a similar issue had come up before the Tribunal for adjudication in the case of M/s. Heritage Buildcon Pvt. Ltd. [2023 (8) TMI 1018 - ITAT RAIPUR] wherein after relying upon a host of judicial pronouncements a/w. CBDT Circular No.36/2016, dated 25.10.2016, it was held that the compensation received on acquisition of the lands of the assessee company under NHAI Act, 1956 i.e. an enactment falling under the “Fourth Schedule” of the RFCTLARR Act, 2013, as per Section 96 r.w.s. 105(1) of RFCTLARR Act, 2013 r.w. OM dated 06.06.2019 of the CBDT, the compensation received by the assessee company was not exempt under RFCTLARR Act, 2013. As the lands in question had been acquired by the State Government under the NHAI Act, 1956 i.e. an enactment specified in the “Fourth Schedule”, therefore, on a conjoint reading of Section 96 r.w. Section 105(1) of the RFCTLARR Act, 2013, as had been deliberated by us at length hereinabove in the case of M/s. Heritage Buildcon Pvt. Ltd. & Ors Vs. Pr. CIT (supra), the assessee could not be conferred with any right of exemption of income-tax on acquisition of her lands. Accordingly, finding no infirmity in the view taken by the CIT(Appeals), we uphold his order. Thus, the Ground of appeal No.1 raised by the assesse is dismissed. The core legal questions considered in this appeal are:1. Whether the amount received by the assessee on compulsory acquisition of land under the National Highways Authority of India (NHAI) Act, 1956, which falls under the 'Fourth Schedule' of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 (RFCTLARR Act), is exempt from income tax under Section 96 of the RFCTLARR Act, 2013Rs.2. Whether the compensation received on compulsory acquisition of land qualifies as short-term capital gain (STCG) or long-term capital gain (LTCG) under the Income-tax Act, 1961 (the Act)Rs.3. Whether the land in question is agricultural land, thereby attracting exemption under Section 10(37) of the Income-tax Act, 1961Rs.Issue-wise Detailed Analysis1. Taxability of Compensation Received on Compulsory Acquisition of Land under NHAI Act, 1956Legal Framework and Precedents: Section 96 of the RFCTLARR Act, 2013 provides exemption from income tax on any award or agreement made under the Act, except those made under Section 46. Section 105(1) of the RFCTLARR Act excludes the application of the Act to enactments specified in the 'Fourth Schedule,' which includes the NHAI Act, 1956. Section 105(3) contemplates that certain provisions relating to determination of compensation and rehabilitation may apply to Fourth Schedule enactments but only upon notification by the Central Government. The Central Government, by an order dated 28.08.2015 (S.O. 2368(E)), extended the provisions relating to compensation determination, rehabilitation, and infrastructure amenities to the Fourth Schedule enactments, but this extension is limited to those aspects and does not include exemption from income tax under Section 96.The CBDT's OM dated 06.06.2019 clarifies that Section 96 exemption does not apply to cases where acquisition is under the Fourth Schedule enactments, including the NHAI Act, 1956. CBDT Circular No.36/2016 clarifies that compensation exempt under Section 96 of RFCTLARR Act is not taxable under the Income-tax Act, 1961, but this applies only to acquisitions under the RFCTLARR Act and not to Fourth Schedule enactments.Judicial precedents cited by the assessee were examined but found distinguishable on facts, particularly because they did not deal with acquisitions under Fourth Schedule enactments.Court's Interpretation and Reasoning: The Tribunal, relying on the above statutory provisions, government orders, and circulars, held that the exemption under Section 96 of the RFCTLARR Act does not extend to compensation received under the NHAI Act, 1956, as it is a Fourth Schedule enactment. The exemption from income tax under Section 96 is limited to awards or agreements made under the RFCTLARR Act itself, excluding Section 46 cases, and does not apply to acquisitions governed by the Fourth Schedule enactments.The Tribunal also rejected the assessee's reliance on the Ministry of Rural Development's order (S.O. 2368(E)) and CBDT Circular No.36/2016, clarifying that these do not confer income tax exemption under Section 96 for Fourth Schedule enactments.Application of Law to Facts: The lands in question were acquired under the NHAI Act, 1956, a Fourth Schedule enactment. No notification under Section 105(3) extending Section 96 exemption to Fourth Schedule enactments was issued. Hence, the exemption under Section 96 could not be claimed by the assessee. The compensation received was therefore taxable under the Income-tax Act, 1961.Treatment of Competing Arguments: The assessee argued for exemption under Section 96 and relied on CBDT Circular No.36/2016 and various judicial pronouncements. The Tribunal distinguished these precedents on facts and held that none dealt with Fourth Schedule enactments. The revenue's position, supported by statutory provisions, government orders, and CBDT clarifications, was upheld.Conclusion: The compensation received by the assessee under the NHAI Act, 1956 is taxable under the Income-tax Act, 1961 and not exempt under Section 96 of the RFCTLARR Act, 2013.2. Classification of Capital Gains as Short-Term or Long-TermLegal Framework: Section 2(42A) of the Income-tax Act defines a short-term capital asset as one held for not more than 36 months immediately preceding the date of transfer. Capital gains arising from transfer of such asset are short-term capital gains (STCG), taxable under Section 45 of the Act.Court's Reasoning: The lands were purchased in 2014 and acquired by the government in 2016, within 36 months of purchase. Therefore, the compensation received on acquisition is treated as proceeds from transfer of short-term capital assets.Key Evidence and Findings: The purchase and acquisition dates were undisputed. The assessment order detailed the calculation of STCG by deducting cost of acquisition and stamp duty from compensation amount.Application of Law to Facts: The Tribunal upheld the classification as STCG, as the holding period was less than 36 months. No evidence was produced to dispute this.Treatment of Competing Arguments: The assessee did not contest the holding period or classification before the Tribunal. The revenue's calculation and classification were accepted.Conclusion: The compensation received on compulsory acquisition of land is taxable as short-term capital gains under the Income-tax Act, 1961.3. Nature of Land and Applicability of Exemption under Section 10(37) of the Income-tax ActLegal Framework: Section 10(37) provides exemption from capital gains arising from compulsory acquisition of agricultural land situated in specified urban limits, subject to conditions including actual agricultural use for two years preceding transfer.Court's Interpretation and Reasoning: The Tribunal found that the land was originally agricultural but was diverted for residential use prior to acquisition. The assessee acquired the land from poor farmers through a power of attorney, at low prices, and subsequently changed its use to non-agricultural to claim higher compensation.The Tribunal relied on judicial precedents which hold that mere classification as agricultural land in revenue records or sale deeds is not decisive. Actual use for agricultural purposes at or about the relevant time is the critical test. The land in question was not used for agriculture for a reasonable period prior to transfer, and the intention to use it agriculturally was lacking.Key Evidence: Purchase deeds, SDO's order, and material on record showed change of land use from agricultural to residential before acquisition.Application of Law to Facts: Since the land was not agricultural at the time of compulsory acquisition, exemption under Section 10(37) did not apply.Treatment of Competing Arguments: The assessee claimed exemption under Section 10(37) but failed to discharge the onus of proving agricultural use. The revenue's findings on land use were accepted.Conclusion: The land was non-agricultural at the time of acquisition; hence, exemption under Section 10(37) was not available.Significant Holdings'Section 96 of the RFCTLARR Act, 2013 provides that no income tax or stamp duty shall be levied on any award or agreement made under this Act, except under section 46. However, Section 105(1) of the RFCTLARR Act excludes the application of the Act to enactments specified in the Fourth Schedule, which includes the NHAI Act, 1956. The exemption under Section 96 is not applicable to compensation received under Fourth Schedule enactments.''The CBDT's OM dated 06.06.2019 clarifies that the benefit of Section 96 exemption would not be applicable for cases where land acquisition is undertaken as per enactments specified in the Fourth Schedule of the RFCTLARR Act.''The exemption under Section 10(37) of the Income-tax Act, 1961 is available only if the land was used for agricultural purposes during the two years immediately preceding the date of transfer. Mere classification of land as agricultural in revenue records or sale deeds is not conclusive; actual use is the decisive factor.''Where the land has been diverted for non-agricultural purposes prior to acquisition, exemption under Section 10(37) is not available.''The compensation received on compulsory acquisition of land held for less than 36 months is taxable as short-term capital gains under the Income-tax Act, 1961.''The absence of notification under Section 105(3) of the RFCTLARR Act, 2013, extending the benefits of the Act to Fourth Schedule enactments, means that the exemption under Section 96 cannot be claimed in such cases.'Final determinations:- The compensation received on compulsory acquisition of land under the NHAI Act, 1956 is taxable under the Income-tax Act, 1961 and not exempt under Section 96 of the RFCTLARR Act, 2013.- The land was non-agricultural at the time of acquisition; hence, exemption under Section 10(37) of the Income-tax Act, 1961 is not available.- The compensation is taxable as short-term capital gains as the holding period was less than 36 months.- The assessee's appeal is dismissed on merits.