Income Tax Appellate Tribunal

Sh. Paramjeet Singh, Karnal vs. Assistant Commissioner of Income Tax, Karnal

MANU/ID/0327/2021

16.04.2021

Direct Taxation

When land is agricultural land, no tax is payable, when the compensation/enhanced compensation is received by assessee

The assessee is agriculturist, his land was acquired by the Government and he received total compensation of Rs. 2,56,29,932 from land acquisition officer which includes interest on enhanced compensation of Rs. 1,08,62,416. The assessee filed his Income Tax Return declaring Income of Rs.1,50,000 claiming refund of Rs. 1,08,62,416. The Return so filed has been processed under Section 143(1) of the Income Tax Act, 1961 (IT Act).

The proceedings were initiated under Section 147 of the IT Act and notice under Section 148 was issued as the assessee claimed interest of Rs. 1,08,62,416 received on enhanced compensation exempt under Section 10(37) of the IT Act. The Assessing officer while making the assessment disallowed 50% of the Interest received on enhanced compensation and accordingly added Rs. 54,31,208 to the Income of the assessee. Being aggrieved by the assessment order, the assessee filed appeal before the CIT(A). The CIT(A) dismissed the appeal of the assessee.

It is submitted that, Hon'ble Supreme Court in case of CIT vs. Ghansyam HUF held that, interest awarded under Section 28 of the Land Acquisition Act is capital receipt and is nothing but an accretion to the value of compensation. Thus, it is part and parcel of the compensation, hence, is not taxable. No order has been passed on objection raised for re-opening of assessment under Section 147 of the Act. It is submitted that, the additions made by the Assessing Officer is not valid and are not sustainable.

It is pertinent to note that, the assessee's land was acquired by the Government and he received total compensation of Rs. 2,56,29,932 from land acquisition officer which include interest on enhanced compensation of Rs. 1,08,62,416 and assessee claimed this interest received on enhanced compensation exempt under Section 10(37) of the IT Act. From the perusal of the order of the CIT(A), it can be seen that, the CIT(A) has not given a separate finding as to why the Assessing Officer is justified in making an addition. The capital receipt unless specifically taxable under Section 45 of IT Act under the head capital gain, in principle, is outside the scope of income chargeable to tax and cannot be taxed as income unless it is in the nature of Revenue receipt or specifically brought within the ambit of income by way of specific provision of the IT Act. Thus, the interest received on compensation/enhanced compensation to the assessee is nothing but a capital receipt and the addition is against the law.

This issue has been decided by the Hon'ble Apex Court in case of Union of India Vs. Hari Singh wherein it is held that, on agricultural Land, no tax is payable, when the compensation/enhanced compensation is received by the assessee as the land was agricultural land. The compensation was received in respect of agricultural land belonging to the assessee which had been acquired by the government. The CIT(A) has not taken cognizance of the decision of the Apex Court in case of Hari Singh. The ratio of the said decision is applicable in the present case. Thus, the appeal of the assessee is allowed.

Tags : Assessment Additions Legality

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