The New Delhi Bench of the Income Tax Appellate Tribunal ( ITAT ) ruled that the compensation received under Section 28 of the Land Acquisition Act is taxable under section 56(2)(viii) r.w.s 145B(1) of the Income Tax Act, 1961.
Bhim Singh, the assessee received an interest amount of Rs. 1,05,75,310 under Section 28 of the Land Acquisition Act as part of enhanced compensation for acquiring agricultural land. The assessee filed his income tax return declaring Rs. 6,07,140 as a total income for the assessment year 2019-20 and claimed the interest amount as an exemption under section 10(37) of the Income Tax Act.
Regrettably, the assessing officer did not accept this exemption due to the absence of documentary evidence and added the interest amount to the assessee’s taxable income under Section 69A of the Income Tax Act, treating it as unexplained money. The assessee appealed against the AO’s order before the Commissioner of Income Tax (Appeals) CIT(A).
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The CIT(A) ruled that the interest amount was taxable under “income from other sources” as per section 56(2)(viii) read with section 145B(1), but allowed a deduction of 50% under section 57(iv). The assessee was not satisfied with this decision.
The assessee appealed before the ITAT, New Delhi against the CIT(A)’s order. The assessee’s legal representative Vinod Arora relied on various Supreme Court rulings, notably Ghanshyam Das HUF where the court held interest under Section 28 on enhanced compensation unlike interest under section 34 on compensation is an accretion of the land value hence it is part of enhanced compensation.
The revenue legal representative Amit Katoch relied on various rulings such as Punjab & Haryana High Court and Delhi High Court that held post-amendment to Section 56(2)(viii) and Section 145B(1) of the Income Tax law, enhanced compensation is taxable as “income from other sources”.
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The two-member bench comprising Challa Nagendra Prasad (Judicial Member) and Naveen Chandra ( Accountant Member ) observed that the Supreme Court ruling in the case of Ghanshyam Das HUF was in 2009 before the amendment. In 2010, the parliament amended clause (viii) of sub-section 2 to section 56 and section 145(B) of the Income Tax Act to bring the interest on compensation or enhanced compensation as taxable as “income from other sources.”
The tribunal clarified that the decision cited by the assessee is no longer applicable. Thus, the tribunal upheld CIT(A)’s decision and dismissed the assessee’s appeal.
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