The Bench of Income Tax Appellate Tribunal (ITAT) enhanced the compensation with interest for acquisition of agricultural land exempted under section 10(37) of Income Tax Act, 1961.
Manjeet Sing and Parvesh Kumar Sharma, the assessees filed the return of income declaring total income of Rs.3,26,91,026/- received from LAO as interest being claimed as exempt under section 10(37) of the Income Tax Act, 1961.
The assessee was owner of agricultural land and the same was taken under compulsory acquisition by the Government of Haryana. The assessee claimed the entire enhanced compensation inclusive of interest as residual part of compulsory acquisition of agricultural land and claimed it as exempted u/s 10(37).
However, the assessing officer did not accept the contention of the assessee and held that the interest income as taxable income under the head “income from other sources under section 56(2) (viii) of the Income Tax Act, 1961.
The CIT (A) relied on the provisions of the Income Tax Act,1961 of Section 56 amended vide Finance Act, 2009 and the income by the way of interest received on compensation or enhanced compensation referred to in clause (b) of Section 145A.
The section 10(37) of Income Tax Act provides that the capital gain would not be chargeable to tax in case of an individual or HUF if agricultural land is compulsorily acquired under any law and the consideration of which is approved by the Central Government or RBI and received on or after 01-04-2004.
The Coram comprising the accountant Member Dr. B. R. R. Kumar and the judicial member Sh. Yogesh Kumar US observed that in the case of Ghanshyam (HUF), the Supreme Court equated the interest received under section 28 of LA with compensation.
It was held that the interest is accretion to the value of compensation and hence it is a part of compensation . The appeals of the assessees were allowed.
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