The Income Tax Appellate Tribunal (ITAT)of the Mumbai bench held that the amount paid for land enhancement is capital expenditure and can avail deduction under section 48 of the Income Tax Act,1961.
The assessee, Leila Advani filed a return of income on 28.09.2011 declaring total income at Rs. 3,81,39,318/-. The appellant received the compensation under compulsory acquisition of her plot whichconsists of an interest component on the originally awarded amount where he has 1/3rd share of the property and the consideration awarded along with the interest component was offered as sales consideration and was declared under the head business income.
The assessee’s property was acquired by the Government by notification under section 4 of the land acquisition Act by the SLAO which was later withdrawn and had specifically taken note of Section 48 of the land acquisition act in regards to the liability of the government towards the appellant. The appellant received compensation for the complete extinguishment of her right, title and interest in the said land only under the said order of the court.
The assessee agreed to enhance the land with Mr Kishore Manusukhan and the assessee had agreed in the original joint venture agreementto pay Mr Kishore Manusukhani 20% of the profit of the development venture or as the case may be 20% of the sales considerations if the property was to be disposed of without any development.
It was observed that the amount of 4, 80, 12,787/- paid for enhancement of land is an inextricable part of the whole transaction and allowable u/s 48and A.O. was directed to delete the disallowance while computing the income of the assessee.
The Tribunal comprising Shri Amit Shukla, judicial member and Shri Gagan Goyal, accountant memberconcluded that “the interest paid to the assessee for any delay in payment of the compensation from the date of acquisition of the property in pursuance to Hon’ble Supreme Court order, the same should be taxed under the head “Income from other sources” and compensation with interest received by the assessee up to the date of land acquired pursuant to the Hon’ble Supreme Court order should be taxed under the head “Capital Gains”.”
The appeal of the assessee was allowed while the appeal by revenue was dismissed. The assessee was represented by Sh. Tapas Mishra and the revenue was represented by Smt. Shailja Rai.
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