Interest received on delayed Compensation for Compulsory Land Acquisition exempted from Income Tax: ITAT [Read Order]

The Income Tax Appellate Tribunal (ITAT) Chennai, has ruled that interest received by the assessee towards delayed payment of compensation for compulsory acquisition of land is akin to compensation for compulsory acquisition of land, which is exempt from Income Tax by virtue of Section 96 of Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement (RFCTLARR) Act 2013.

The Assessee, Global Mill Ltd., is engaged in the business of real estate development, filed its return of income for the assessment year 2016-17 on 16.10.2016 admitting total income of Rs.2,24,20,210/-. During the period, the assessee company has received interest on delayed payment of compensation for compulsory acquisition of land from Special Land Acquisition Officer, Bangalore underRFCTLARR Actamounting to Rs.12,25,98,815/-.

The assessee had credited interest income in to the profit &loss account but while filing return of income in the statement of total income claimed exempt from tax towards interest received under RFCTLARR Act 2013, on the ground that as per Section 96 of the said Act, any compensation or award for compulsory acquisition of land including interest if any is not liable to tax. The case was taken up for scrutiny and during the course of assessment proceedings, the Assessing Officer (AO) on the basis of information furnished by the assessee was of the opinion that, any interest received by the assessee from the Special Land Acquisition Officer under RFCTLARR Act 2013, is not compensation paid for acquisition of land but interest for delayed payment of said compensation which is in the nature of interest liable to be taxed u/s.56(2)(viii) read with 145A(b) of the Income Tax Act, 1961 and hence, there is no merit in the arguments taken by the assessee, that as per RFCTLARR Act 2013, any compensation or award received for compulsory acquisition of land is exempt from tax.

The ITAT bench comprising of Vice President Mahavir Singh and Accountant Member G. Manjunatha while dismissing the appeal of the revenue held, “. . .  we are of the considered view that interest received by the assessee towards delayed payment of compensation for compulsory acquisition of land is akin to compensation for compulsory acquisition of land, which is exempt from Income Tax by virtue of Section 96 of RFCTLARR Act 2013. The ld.CIT(A) after considering relevant facts has rightly deleted additions made by the AO towards interest u/s.56(2)(viii) of the IT Act. There is no error in the finding recorded by the ld.CIT(A) and hence, we are inclined to uphold the order of the CIT(A) and dismiss the appeal filed by the Revenue.”