Tax exemption for compulsory acquisition compensation upheld under land acquisition law and section 10(37).

Compensation received for compulsory acquisition of agricultural land under the National Highways Act was treated as exempt from tax, as the record showed it was acquisition compensation rather than agricultural income wrongly reported in the return. The Tribunal applied section 10(37) of the Income-tax Act and section 96 of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013, with CBDT Circular No. 36 of 2016, and noted that the benefit of the later land acquisition regime extends to acquisitions under the National Highways Act, 1956. The amount was therefore not taxable as income from other sources, while the statutory interest component had also been treated as exempt in the proceedings below.

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Issues: Whether compensation received on compulsory acquisition of agricultural land under the National Highways Act was exempt from tax and could not be assessed as income from other sources.

Analysis: The assessee received compensation together with statutory interest for acquisition of agricultural land for widening of a national highway. The compensation amount had been wrongly shown in the return as exempt agricultural income, but the record established that it was in fact compensation for compulsory acquisition. The Tribunal noted that the lower authorities had accepted the interest component as exempt and had taxed only the original compensation. It relied on the statutory exemption under section 10(37) of the Income-tax Act and on section 96 of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013, as clarified by CBDT Circular No. 36 of 2016. The Tribunal also took note of the legal position that the benefit of the later land acquisition regime extends to acquisitions under the National Highways Act, 1956.

Conclusion: The compensation received for compulsory acquisition of the land was not taxable as income from other sources and was entitled to exemption.

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