The Pune Bench of Income Tax Appellate Tribunal (ITAT) has held that the interest granted by court order on enhanced compensation on land acquisition from the date of possession till the date of judgement would not be taxable.
The assessee, Sanjay Bhimrao Patil an individual filed a return and claimed refund on account of Tax Deducted at Source (TDS). The said return was processed under Section 143(1) of the Income Tax Act 1961. Under scrutiny, AO found that the assessee had received an amount from Special Land Acquisition Officer on account of enhanced compensation on compulsory acquisition of agricultural land belonging to the assessee and interest on enhanced compensation vide order dated 22-04-2008 on the file of Civil Judge.
The assessee contended thatinterest under Section 28 of the L.A. Act were exempted from tax and only amount granted under Section 34 of the L.A. Act wastaxable. The AO was of the opinion that 50% of the interest received on enhanced compensation would be taxable under amended provisions under Section 56 w.e.f. 01-04-2010.
Shah on behalf of the assessee submitted that, that the interest under Section 28 would be a part of compensation and Interest under Section 28 would be a part of enhanced value of land and interest under Section 34 was only for delay in making payment after the compensation was determined.
Further, submitted that the interest under Section 28 of the Land Acquisition Act was unlike interest under Section 34, was an accretion to the value, and it was a part of enhanced compensation or consideration, which was not the case with interest under Section 34 of the Act referring to Rupesh Rashmikant Shah case.
M.G. Jasnani, on behalf of the revenue, submitted that the law laid down by the Hon’ble High Court of Bombay in the case of Rupesh Rashmikant Shah would not be applicable to the facts on hand as the Hon’ble High Court held the charging of interest on compensation/enhanced compensation of motor accident case was not taxable which was a pure question of law.
The Division Bench of Inturi Rama Rao, (Accountant Member) and S.S. Viswanethra Ravi, (Judicial Member) allowed the appeal and held that the interest granted by the reference Court u/s. 28 of the Land Acquisition Act from the date of possession of land till the date of judgement of High Court was an accretion of the value of the land acquired.
Following the decision of Hon’ble Jurisdictional High Court of Bombay in the case of Rupesh Rashmikant Shah (supra), the Bench held that the interest received u/s. 28 of the Land Acquisition Act would not fall within the ambit of the expression interest as envisaged u/s. 145A(b) of the Act.
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