Income Tax cannot be levied on Compensation received from Compulsory Acquisition of Land: ITAT [Read Order]

The Vishakhapatnam bench of the ITAT, comprising Shri Duvvuru Rl Reddy, Judicial Member & Shri S Balakrishnan, Accountant Member has held that the department cannot impose income tax on the amount of compensation received on account of compulsory acquisition of land under RFCTLARR Act.

The assessee, an individual, doing his finance business, filed return of income for the A.Y.2016-17 declaring income of Rs.48,78,230/-. The Commissioner invoked his revisional jurisdiction under section 263 of the Income Tax Act, 1961 by observing that the assessee received an amount of Rs.1,33,88,000/- towards compulsory acquisition of land. The said amount was credited to assessee’s HDFC bank account and the same was given as loan to RM/s SB Developers. According to the Commissioner, as the compensation received attracts the provisions of section 45(5) of the Act, the same needs to be taxed as capital gain and the Assessing Officer (AO) has not examined this issue to bring the said amount under ‘long term capital gains’.

The assessee contended that the assessee had received compensation amount of Rs.1,33,88,000/- under the RFCTLARR (Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement) Act, 2013 towards compulsory acquisition of land. The assessee further relied on the CBDT circular dated 25.10.2016, wherein, it is clearly mentioned that income tax shall not be levied on any award or agreement made under RFCTLARR Act.

The Tribunal observed that the assessee had received compensation of Rs.1,33,88,000/- under compulsory acquisition of land under RFCTLARR Act.

“Therefore, after considering the above said provision, if any compensation received under RFCTLARR Act, income tax shall not be levied on any award or agreement. We have also perused the land acquisition proceedings and the lands were acquired under RFCTLARR Act. Therefore, as per the CBDT Circular and as per section 96 of RFCTLARR Act, income tax shall not be levied. We are of the firm view that the compensation amount which was received by the assessee for an amount of Rs.1,33,88,000/- should not be suffered for capital gains tax. Therefore, we set aside the order passed by the Ld.Pr.CIT u/s 263 as erroneous. Hence, we allow the appeal of the assessee,” the Tribunal said.

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