Interest received on Enhanced Compensation during Land Acquisition is not Taxable: ITAT [Read Order]

While granting exemption under section 10(37) of the Income Tax Act to the assessee, the Delhi bench of the Income Tax Appellate Tribunal (ITAT) has held that the interest received on enhanced compensation under section 28 of the Land Acquisition Act is part of compensation and hence is not taxable.

During the relevant year, the NFAC issued notice under section 251(2) to the assessee, Shri Pranav Saranand observed that land does not fall under the parameter of agricultural land and further, the interest on enhanced compensation u/s 28 of the Land Acquisition Act is taxable as “Income from Other Sources.”

The assesseecontended that the interest on enhanced compensation under section 28 of the Land Acquisition Act in respect of agricultural land also partakes the character of a compensation and, therefore, he is entitled for compensation under section 10(37) of the Act.

According to the provisions of Land Acquisition Act, when the land is acquired the Collector may be directed to pay interest on excess compensation to the landowner under section 28 of the Land Acquisition Act which is by the order of the Court and for the period the till excess compensation is deposited in the court.

The Tribunal bench comprising Shri Amit Shukla, Judicial Member and Shri Pradip Kumar Kedia, Accountant Member observed thatthere are divergent views on this taxability of interest on the enhanced compensation awarded under section 28 of the Land Acquisition Act wherein the Hon’ble Punjab & Haryana High Court has consistently taking a view that it is an income to be treated under the head ‘income from other sources’.

“The Hon’ble Gujarat High Court has decided this issue in favour of the assessee following the decision of Hon’ble Supreme Court in the case of Ghanshyam (supra). Since the AO of the present case falls under the jurisdiction of Hon’ble Delhi High Court, therefore following the dictum that, if one High Court is infavour of the assessee, then in absence of any jurisdictional High Court, that should be followed in favour of the assessee. Thus, ratio of Hon’ble Punjab & Haryana High Court may not have any binding precedent. Thus, the interest on the enhanced compensation u/s 28 of the Land Acquisition Act is not taxable,” the Tribunal said.

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