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AI Drafter - (New and Powerful) ✕ Generate professional replies, appeals, opinions to Show Cause Notices, assessment orders, audit objections, and other legal communications using TaxTMI's AI Drafter.
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Issues: (i) Whether the Principal Commissioner validly assumed revisional jurisdiction under section 263 of the Income-tax Act, 1961 in respect of the reassessment order. (ii) Whether interest received under section 28 of the Land Acquisition Act, 1894 on enhanced compensation for compulsory acquisition of agricultural land is taxable under section 56(2)(viii) read with section 145B(1) of the Income-tax Act, 1961, and not exempt under section 10(37).
Issue (i): Whether the Principal Commissioner validly assumed revisional jurisdiction under section 263 of the Income-tax Act, 1961 in respect of the reassessment order.
Analysis: The reassessment order was found to be passed without proper inquiry into the applicable statutory position and binding precedent on the taxability of interest on enhanced compensation. The order was therefore treated as both erroneous and prejudicial to the interests of the Revenue, bringing it within the scope of revisional interference under section 263, including Explanation 2 to section 263(1).
Conclusion: The assumption of revisional jurisdiction was upheld and is in favour of the Revenue.
Issue (ii): Whether interest received under section 28 of the Land Acquisition Act, 1894 on enhanced compensation for compulsory acquisition of agricultural land is taxable under section 56(2)(viii) read with section 145B(1) of the Income-tax Act, 1961, and not exempt under section 10(37).
Analysis: The amended scheme of sections 56(2)(viii), 57(iv), and 145B(1) treats interest on compensation or enhanced compensation as income chargeable under the head "Income from other sources" in the year of receipt. The exemption in section 10(37) extends only to compensation arising from compulsory acquisition and does not cover interest on such compensation. On that basis, the claim of exemption was held to be unsustainable.
Conclusion: The interest on enhanced compensation was held taxable under section 56(2)(viii) read with section 145B(1), and the exemption claim under section 10(37) failed, in favour of the Revenue.
Final Conclusion: The revisional order was sustained because the assessment had been made without proper inquiry into the tax treatment of interest on enhanced compensation, and such interest was held to be taxable as income from other sources.
Ratio Decidendi: After the 2010 amendment, interest on compensation or enhanced compensation is separately taxable as income from other sources on receipt basis and is outside the exemption for compensation under section 10(37); an assessment order ignoring this position can be revised under section 263 if it is erroneous and prejudicial to the Revenue.
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