Deduction u/s 57(iv) allowed despite assessee was engaged in business of real estate

Deduction u/s 57(iv) allowable against Interest received on enhanced compensation for land acquisition despite assessee engaged in business of real estate.

ABCAUS Case Law Citation:
ABCAUS 3728 (2023) (05) ITAT

In the instant case, the assessee had challenged the order passed by the CIT(A) in in rejecting the claim of 50% deduction u/s 57(iv) of the Income Tax Act, 1961 (the Act) in respect of interest on enhanced compensation by treating the same under the head “Profit and Gains of Business & Profession” as against “Income from Other Sources”.

The appellant assessee was a real estate developer company. In the return of income it claimed a deduction @ 50% under Section 57(iv) of the Act, in respect of interest received on enhanced compensation for acquisition of land by the Government.

The Assessing Officer (AO) disallowed the claim of deduction u/s 57(iv) of the Act, on ground that as the appellant was in the business of real estate, the interest income arising from compulsory acquisition of property is taxable under the head PGBP and not income from other sources.

Hence, the Assessing Officer accordingly held that as the interest income was not chargeable to tax U/s 56, the claim of deduction u/s 57(iv) of the Act was not admissible.  

The CIT(A) upheld the order of the Assessing Officer. Against which the assessee was in appeal before the ITAT.

The assessee submitted that the impugned disallowance of claim of deduction u/s 57(iv) was misconceived and without proper appreciation of the specific provision of Section 56(2)(viii) read with Section 57(iv) of the Act.  

It was further submitted that the fact that the assessee was engaged in the business of real estate was neither relevant nor will override the specific provision of section.

The Tribunal observed that section 56(2)(viii) provides that interest on enhanced compensation has to be taxed under the head “Income from other source. The ITAT agreed with the assessee in that the deduction u/s 57(iv) is to be allowed and the ground on which revenue  authorities disallowed the claim being the assessee engaged in business is of no relevance.

The Tribunal opined that in view of the overriding provision of Section 56(2)(viii) read with Section 57(iv) of the Act, the assessee was entitled to the statutory deduction of 50% U/s 57(iv) of the Act. 

Accordingly, the Tribunal set aside the orders of the authorities below and decided the issue in favour of the Assessee.

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