A division bench of the Ahmedabad ITAT, in a recent ruling, held that the interest received on enhanced compensation for land compulsorily acquired under the Land Acquisition Act is not subject to income tax under the head ‘capital gain’ under the provisions of the Income Tax Act, 1961.
Before the High Court, the assessee relied on the order of the Tribunal in the case of Sakarben K. Patel vs. ITO, in which a similar issue was concluded in favour of the assessee.
In that case, the bench relied on the Gujarat High Court decision in the case of Movaliya Bhikubhai Balabhai Vs. ITO wherein the Court observed that “the interest awarded under section 28 of the Land Acquisition Act, as admittedly the interest in this case is, is an accretion to enhanced compensation and is required to be treated as consideration on transfer which can be brought to tax as capital gains. In the present case, the land transferred is an agricultural land and, therefore, it cannot be taxed as capital gains since the agricultural land will fall outside the ambit of ‘asset’.”
Based on the above decisions, the Tribunal allowed the second appeal filed by the assessee.
Read the full text of the Order below.