Compensation for compulsory land acquisition may be tax-exempt, but exemption claim still needs factual verification before assessment.

Compensation received for compulsory acquisition of agricultural land for a national highway project was treated as eligible for exemption in principle, because CBDT guidance states that compensation exempt under section 96 of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 is not taxable under the Income-tax Act. The exemption claim, however, required factual verification, as the record showed that the Assessing Officer had not examined the relevant documents and facts. The matter was therefore remanded for assessment-stage scrutiny of the exemption claim.

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Issues: Whether compensation received for compulsory acquisition of agricultural land under the land acquisition regime was exempt from income tax and, if so, whether the matter required verification by the Assessing Officer.

Analysis: The assessee's land was acquired for a national highway project and compensation was received for that compulsory acquisition. The CBDT circular relied upon clarified that compensation exempt under section 96 of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 is also not taxable under the Income-tax Act, 1961. The record indicated that the Assessing Officer had not examined the exemption claim on the requisite facts and documents, so the claim needed factual verification at the assessment stage.

Conclusion: The compensation was treated as eligible for exemption in principle, but the issue was sent back to the Assessing Officer for examination. The appeal succeeded in the sense that the assessee obtained remand relief.

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