Interest on enhanced compensation for Land Acquisition taxable on accrual basis

Interest on enhanced compensation for Land Acquisition taxable on accrual basis as per law laid down by Hon’ble Supreme Court

ABCAUS Case Law Citation:
ABCAUS 2512 (2018) 09 ITAT

Important Case Laws Cited/relied upon by the parties:
M/s Rama Bai vs CIT

By the instant appeal was filed by the assessee against the order of the Commissioner of Income Tax (Appeals).

The assessee was an individual and derived income from business. The assessee had initially received compensation towards land acquisition. When the matter was carried in appeal before the Hon’ble high court, the compensation was enhanced and the assessee along with enhanced compensation, received interest for the period of 17 years.

The Assessing Officer, during the relevant assessment year, brought to tax the entire interest.  The CIT(A) confirmed the action of the AO.

Aggrieved the assessee was in appeal before the Tribunal.

The assessee submitted that the entire interest cannot be brought to tax in the relevant year but for the interest accrued during the year. The assessee relied on the decision of the Hon’ble Supreme Court and requested interest which is accrued during the current financial year only had to be brought to tax on an accrual basis.

The Department relied on section 145A of the Income Tax Act, 1961 (the Act).

The Tribunal observed that the Hon’ble Supreme Court held that interest on enhanced compensation under the Land Acquisition Act could not be taken to have accrued on the date of the order of the Court granting enhanced compensation but had to be taken as having accrued year after year from the date of delivery of possession of the lands till the date of such order.

The Tribunal opined that the judgment of the Hon’ble Supreme Court is binding and hence accordingly the interest income earned should be spread over the period of years, for which it has been granted.

Accordingly, the Tribunal directed the AO to compute only that interest on accrual basis in the impugned assessment year and restrict the addition to that count only.

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