The Income Tax Appellate Tribunal (ITAT), Delhi bench, while allowing an appeal filed by an assessee, an individual, held that no income tax can be levied on the interest received on enhanced compensation from the government towards the compulsory acquisition of land since the same shall be treated as capital receipt and exempted under section 10(37) of the Income Tax Act, 1961.
Coming to the facts of the case, the Government acquired the land of the assessee for a compensation of Rs. 2,56,29,932/-. The amount include interest on enhanced compensation of Rs. 1,08,62,416/-. While filing the return for the relevant year, the assessee claimed this interest received on enhanced compensation exempt under Section 10(37) of the Income Tax Act, 1961.
However, the Assessing Officer while making the assessment disallowed 50% of the Interest received on enhanced compensation and accordingly added Rs. 54,31,208/-to the Income of the assessee u/s 143(3) 148 of the Income Tax Act. The order was later confirmed by the first appellate authority.
While allowing the second appeal by the assessee, the division bench of the Tribunal consisting Judicial Member Suchitra Kamble and Accountant Member R K Panda found that the CIT(A) has not given a separate finding as to why the Assessing Officer is justified in making an addition.
“The capital receipt unless specifically taxable u/s 45 under the head capital gain, in principle, is outside the scope of income chargeable to tax and cannot be taxed as income unless it is in the nature of Revenue receipt or specifically brought within the ambit of income by way of specific provision of the Income Tax Act. Thus, the interest received on compensation/enhanced compensation to the assessee is nothing but a capital receipt and the addition is against the law. This issue has been decided by the Hon’ble Apex Court in case of Union of India Vs. Hari Singh (Civil Appeal No. 15041/2017 order dated 15th September 2017) wherein it is held that on agricultural Land no tax is payable when the compensation/enhanced compensation is received by the assessee as the land was agricultural land,” the Tribunal observed.
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