2025 (8) TMI 184 - AT - Income Tax

Interest under Section 28 of Land Acquisition Act is part of enhanced compensation and exempt under Section 10(37) Income Tax Act

The ITAT Delhi allowed the assessee's appeal, holding that the interest component under section 28 of the Land Acquisition Act, 1894, granted by the ... Interest component of land acquisition compensation u/s 28 of the Land Acquisition Act, 1894, while invoking section 57(iv) r.w.s. 56(1) (a) r.w.s. 145A(b) of the Act - DR vehemently argued that the instant issue is no more res integra in light of Mahender Pal Narang [2020 (3) TMI 1115 - PUNJAB AND HARYANA HIGH COURT] as well as Inderjit Singh Sodhi HUF [2024 (4) TMI 408 - DELHI HIGH COURT] wherein the department has succeeded before their lordships that the impugned interest component ought to be assessed as income from 'other' sources only. HELD THAT:- This tribunal's recent decision in Pawan Kumar Vs. PCIT [2024 (1) TMI 1077 - ITAT DELHI] distinguished the said case law of revenue as held that interest under section 28 of Land Acquisition Act, 1894 granted by the court is an integral part of enhanced compensation and exempt under section 10(37) of the Act in case of the assessee. Assessee appeal allowed. ISSUES: Whether the interest component received under section 28 of the Land Acquisition Act, 1894 as part of enhanced compensation is taxable as 'income from other sources' under section 56(1)(a) r.w.s. 57(iv) and 145A(b) of the Income Tax Act, 1961 or exempt as capital receipt under section 10(37) of the Income Tax Act.Whether the Assessing Officer's order assessing the interest component without making elaborate discussion amounts to an erroneous order under section 263 of the Income Tax Act.Whether the insertion of sections 145A, 145B, 56(2)(viii), and 57(iv) by the Finance (No. 2) Act, 2009 changed the character of interest under section 28 of the Land Acquisition Act from capital receipt to revenue receipt.Whether the revisional jurisdiction under section 263 can be invoked solely on the basis of an audit objection without independent application of mind.The impact and binding nature of the Punjab & Haryana High Court decision in Mahender Pal Narang vs. CBDT and its dismissal of SLP by the Supreme Court on the taxability of interest under section 28 of the Land Acquisition Act. RULINGS / HOLDINGS: The interest received under section 28 of the Land Acquisition Act is 'an integral part of enhanced compensation' and is exempt under section 10(37) of the Income Tax Act; it does not constitute income from other sources as held by the Hon'ble Supreme Court in CIT vs. Ghanshyam HUF (2009) and affirmed in subsequent decisions.The Assessing Officer's order, although lacking elaborate discussion, was not erroneous or prejudicial to the interest of Revenue since proper enquiries were made and the explanation of the assessee was accepted; mere absence of detailed discussion does not render the order erroneous under section 263.The insertion of sections 145A, 145B, 56(2)(viii), and 57(iv) by the Finance (No. 2) Act, 2009 was intended to nullify the effect of the Supreme Court's ruling in Rama Bai vs. CIT regarding the year of taxation of interest income and did not alter the character of interest under section 28 from capital receipt to revenue receipt.The revisional jurisdiction under section 263 cannot be exercised solely on the basis of audit objection without independent application of mind, as held by the Hon'ble Punjab & Haryana High Court and Hon'ble Delhi High Court.The decision of the Punjab & Haryana High Court in Mahender Pal Narang vs. CBDT is distinguishable and not binding precedent since the Supreme Court dismissed the SLP in limine without detailed reasons; reliance on this decision to override the Supreme Court's ruling in Ghanshyam HUF is misplaced. RATIONALE: The Court applied the legal framework under the Income Tax Act, 1961, specifically sections 10(37), 28 of the Land Acquisition Act, and the amendments introduced by the Finance (No. 2) Act, 2009 (sections 145A, 145B, 56(2)(viii), and 57(iv)).Precedents relied upon include the Hon'ble Supreme Court decision in CIT vs. Ghanshyam HUF (2009) which held that interest under section 28 is part of capital receipt forming enhanced compensation exempt under section 10(37), and subsequent affirmations in Hari Singh and other cases.The Court distinguished the Punjab & Haryana High Court decision in Mahender Pal Narang, emphasizing that dismissal of SLP in limine by the Supreme Court does not constitute binding precedent, and noting that the Supreme Court's later decisions affirm the Ghanshyam HUF ratio.The Court underscored that the amendments by the Finance Act, 2009 were aimed at addressing taxability timing issues (accrual vs. receipt) as per Rama Bai case, and not to convert capital receipts into revenue receipts.The Court reaffirmed the principle that revisional powers under section 263 cannot be invoked merely on audit objections without independent assessment of the facts and law, citing authoritative decisions on the limits of such jurisdiction.