No Income Tax on Compensation Paid for Govt Acquired Land: Kerala HC [Read Judgment]

Income Tax - Acquired Land - Compensation - Taxscan

The Kerala High Court ruled that, Income Tax cannot be charged on Compensation paid for Acquired land.

The petitioner is the absolute owner, titleholder of land to the extent of 7.33 cents with three shop rooms, and a residential building in Ernakulam District. The market value of the land on announcement of Smart City Project, Metro Rail Project and MonoRail Project increased many folds. Out of the aforementioned land, about 1.32 Ares (3.26 cents) of land with a building of 1500 Sq. Ft. had been taken for expansion of Road. The Land Acquisition Officer fixed the value as Rs.10,48,269/- and the improvements at Rs.3,864/-.

The Petitioner approached the High Court against the assessment order and demand notice whereby the Assessing Officer, after undertaking the assessment order brought the case of the petitioner under scrutiny and issued a notice under Section 143 (1) of the Income Tax Act, 1961. In the result thereof, the petitioner received a show-cause notice.

The Petitioner brought to the fact that the aforementioned compensation can be exempted under Section 96 of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation, and Resettlement Act, 2013 as it would not fall within the mischief of Section 54F of the Income Tax Act, 1961. In support of the aforementioned contention, reliance has been laid to Circular No.36/2016 dated 25.08.2016 whereby the Central Board of Direct Taxes issued a clarification that if the land is non-agricultural, it would not be taxable as per the provisions of the Income-tax Act, 1961.

The Petitioner also contended that, the assessment order and the demand notice are whole without jurisdiction, malicious and not sustainable in the eyes of law.

While quashing the Assessment Order and demand notice, Justice Amit Rawal observed that, “the petitioner and the acquisition authority, for the purpose of coming out the way development, had in unison agreed to acquire and give the land on the basis of certain conditions in fixing the market value. Petitioner, in lieu, thereof received 80% of the amount, i.e., Rs.43,51,786/-“.

Justice Amit Rawal also observed that, “the language of Section 96 of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013, do not leave any doubt in the mind that if the land is either acquired or the result of an agreement, it could not fall within the mischief of Income Tax Act, in other words, the exemption is liable to be granted”.

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