2025 (8) TMI 38 - AT - Income Tax

Interest on enhanced compensation under Section 28 Land Acquisition Act is taxable as income from other sources

Jai Bhagwan Versus Income Tax Officer Income Tax Building Gurugram

The ITAT Delhi held that interest on enhanced compensation awarded under section 28 of the Land Acquisition Act is taxable as income from other sources, ... Taxability of interest on the enhanced compensation awarded u/s 28 of the Land Acquisition Act - Enunciation of the applicable law - income from other sources - Scope of amendment brought by the Finance (2) Act, 2009 HELD THAT:- As decided in Inderjit Singh Sodhi [2024 (4) TMI 408 - DELHI HIGH COURT] The 2010 amendment was a conscious departure by the Legislature from the earlier position and the said departure holds good law, as on date. There is no question with respect to the vires of the amendment before us or regarding any ambiguity in the language of the amendment. The only concern is regarding the enunciation of the applicable law and we hold the same to unequivocally mean that interest, whether on compensation or on enhanced compensation, shall be considered as income from other sources and shall be exigible to income We, accordingly, answer the substantial question of law which has arisen in the instant appeal in affirmative and in favour of the Revenue. We, thus, hold that the ITAT has erred in relying upon the decision of Ghanshyam [2009 (7) TMI 12 - SUPREME COURT] ignoring the changes brought about by Finance (No.2) Act, 2009, which came into effect in the year 2010 - Appeal of the assessee is, dismissed. ISSUES: Whether interest received on enhanced compensation under Section 28 of the Land Acquisition Act, 1894 is taxable as income from other sources under the Income Tax Act, 1961.Whether the interest on delayed payment of compensation/enhanced compensation is exempt under Section 10(37) of the Income Tax Act.Impact of the Finance (No.2) Act, 2009 amendments (Sections 56(2)(viii), 57(iv), and 145A(b)) on the taxability of interest received on compensation/enhanced compensation.Whether the decisions of the Hon'ble Supreme Court in CIT vs. Ghanshyam (HUF) and related cases continue to apply post the 2010 amendments.Whether the interest income should be assessed on receipt basis or on accrual basis.Whether penalty proceedings under Section 271(1)(c) are justified for concealment of income relating to interest on enhanced compensation. RULINGS / HOLDINGS: The interest received on enhanced compensation under Section 28 of the Land Acquisition Act is taxable as 'income from other sources' under the Income Tax Act, 1961, effective from 01.04.2010, following the introduction of Sections 56(2)(viii), 57(iv), and 145A(b) by the Finance (No.2) Act, 2009.The interest on delayed payment of compensation/enhanced compensation is not exempt under Section 10(37) of the Income Tax Act, as it does not form part of the compensation for acquisition of agricultural land but is a separate revenue receipt.The amendments brought by the Finance (No.2) Act, 2009 represent a 'conscious departure by the Legislature' and hold good law, rendering prior Supreme Court decisions like CIT vs. Ghanshyam (HUF) inapplicable to the post-amendment period.The interest income is taxable in the year of receipt as per Section 145A(b) of the Income Tax Act.The Assessing Officer's addition of undisclosed interest income on enhanced compensation is upheld, with allowance of 50% deduction under Section 57(iv).Penalty proceedings under Section 271(1)(c) are justified due to concealment of particulars of income relating to interest on enhanced compensation. RATIONALE: The Court applied the statutory framework of the Income Tax Act, 1961, particularly Sections 56(2)(viii), 57(iv), and 145A(b), introduced by the Finance (No.2) Act, 2009 effective from 01.04.2010, which explicitly tax interest received on compensation or enhanced compensation as income from other sources.Pre-amendment judicial precedents, including the Supreme Court's decision in CIT vs. Ghanshyam (HUF), were considered superseded by the legislative amendments, which clarified the tax treatment of such interest income.The Court relied on binding precedents from the Hon'ble Punjab & Haryana High Court and recent decisions of the Hon'ble Delhi High Court and ITAT benches, which uniformly held that interest on enhanced compensation is taxable under income from other sources.The Court emphasized the plain, simple, and unambiguous language of the amended provisions, rejecting any need for external aids in interpretation and confirming the taxability of interest income in the year of receipt.The Court recognized the legislative intent to treat interest on delayed or enhanced compensation distinctly from capital gains or exempt compensation, thereby affirming the revenue's position and the Assessing Officer's additions.No dissent or doctrinal shift was noted; the ruling affirmed the prevailing legal position post the 2009 amendment.