Interest on compensation u/s 28 of Land Acquisition Act, 1894 is taxable – ITAT

Interest on compensation u/s 28 of Land Acquisition Act, 1894 is taxable income u/s u/s 56(2)(viii) rws 57(iv) of the Act – ITAT

In a recent judgment, the Hon’ble ITAT has held that Interest received u/s 28 of Land Acquisition Act, 1894 is taxable income u/s u/s 56(2)(viii) rws 57(iv) of the Act

ABCAUS Case Law Citation:
ABCAUS 3971 (2024) (04) ITAT

Important Case Laws relied upon:
Asst. CIT v. Saurashtra Kutch Stock Exchg. Ltd. [2008] 305 ITR 227 (SC)
P.V. Kurien v. CIT [1962] 46 ITR 288 (Ker)
CIT vs. Ghanshyam (HUF) [2009] 315 ITR 1 (SC)
Sham Lal Narula (Dr.) v. CIT [1964] 53 ITR 151 (SC)
Punjab Distilling Industries Ltd. vs. CIT [1965] 57 ITR 1 (SC)

In the instant case, the assessee had challenged the order passed by the CIT(A) in dismissing the appeal contesting the order under section 154 of the Income Tax Act, 1961 (the Act).

The appellant assessee received an additional compensation including interest in respect of his share in agricultural land sold by him along with others. The assessee claimed exemption u/s 10(37) of the Act on compensation income and allowed in the relevant assessment for that year.

However. while accepting the assessee’s claim, like-wise, for the current year, the Assessing Officer (AO) brought to tax 50% of the interest u/s 56(2)(viii) rws 57(iv) of the Act vide assessment u/s 143(3).

The assessee moved a rectification application u/s 154 of the Act claiming that interest was received u/s 28 of the Land Acquisition Act, 1894 (LAA) as held as part of the compensation by the Hon’ble Apex Court and hence thus, exempt u/s. 10(37) of the Act.

However, the same did not find favour with the AO, in whose opinion there was no mistake in his order; the assessment being in accordance with the provisions of law.

This view was reiterated in first appeal by the CIT(A).

The Tribunal noted that there was nothing on record to exhibit that the interest received by the assessee falls u/s. 28 of LAA; the assessee on the last occasion came up with certificate

by the Office of the Special Tahsildar for the purpose, which was found invalid as the same was after the date of assessment, so that it could not form part of the record.

The Tribunal further observed that the assessee relied upon the Apex Court judgment that held that only interest u/s 28, as opposed to interest u/s 34, as part of compensation and, thus, capital in nature.

The Tribunal stated that without doubt, inasmuch a decision by the Apex Court is declaratory of the law of the land, any decision inconsistent therewith is, to that extent, liable to be regarded as mistaken and amended. However, the Tribunal opined that this, however, would not detain it inasmuch as it becomes clear on a plain reading of section 28 of LAA which, along with section 34 thereof, the same pertains to interest on delayed payment of enhanced compensation, as opposed to section 34 interest, which relates to delayed payment of the initial award, held as compensatory and, thus, liable to tax as income, i.e., in terms of the decision of Hon’ble Supreme Court.

The Tribunal further noted that Sections 56(2)(viii) and 57(iv) came on the statute w.e.f. 01.04.2010, i.e., AY 2010-11 onwards. The decision relied upon by the assessee was for AY 1999-00. The said decision by the Hon’ble Apex Court thus has no bearing on the said provisions, invoked by the AO in bringing the impugned interest to tax.

The Tribunal opined that it is only where a Constitutional Court declares the same as ultra vires the Act (i.e., on a view that interest u/s. 28 of LAA is capital in nature), that would entitle the assessing authority to disregard the same.

The Tribunal also observed that the Hon’ble Apex Court as per it’s Constitutional Bench decision explained that there is no conflict between a receipt being capital in nature and, by fiction of law, an income chargeable to tax under the Act.

The Tribunal opined that in view of the decision of the Constitutional Bench, the nature of the receipt as capital, which is the purport of the decision of would not per se preclude interest from being, at the same time, subject to tax.

The Tribunal further observed that the decision of larger bench of Hon’ble Supreme Court was not referred to in it’s later decision which was relied upon by the assessee in which the Apex Court held the provisions of s. 28 and 34 of LAA as analogous, i.e., compensatory, and, thus, not part of compensation.

The Tribunal opined that the decision of the Hon’ble High Court in holding that interest on enhanced compensation as capital in nature, was negated by the Hon’ble Court.

The Tribunal held that even de hors s. 56(2)(viii), applied by the AO, it may not be possible to say that interest u/s. 28 of LAA is not income, much less of it being regarded as so by him as ‘mistaken’, liable to be rectified u/s 154

In the result, the assessee’s appeal was dismissed.

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