The Income Tax Appellate Tribunal (ITAT), Delhi Bench held that no Tax payable on compensation for acquisition of agricultural land by the state government.
The assessee, Nariender Kumar filed the return declaring the income of Rs.12,250 and agriculture income of Rs.3,50,000. The Assessing Officer assessed the income at Rs.42,88,380 thereby making addition of Rs. 42,88,380 relating to compensation and interest received under section 28 of the Land Acquisition Act, 1894 and taxing the same as per Section 56(2)(viii) as it is coming to 50% of the actual interest of Rs.85,32,259.
Being aggrieved by the assessment order, the assessee filed appeal before the CIT(A). The CIT(A) dismissed the appeal of the assessee.
The assessee submitted that the Supreme Court in case of CIT Vs. Ghanshyam Das (HUF), held that interest awarded under section 28 of the Land Acquisition Act is a capital receipt and the same is an accretion to the value of compensation and hence it is part and parcel of compensation. Thus, taxability of such interest is of capital nature and should be included to consideration received for the purpose of computation of capital gain under section 45 of the Income Tax Act, 1961.
The assessee submitted that 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.
The assessee urged that the interest received on compensation to the assessee is nothing but a capital receipt and the addition is against the law.
The coram of R.K.Panda and Suchitra Kamble noted that the assessee had received Rs. 1.42 crore on account of enhanced compensation of land acquisition, which included compensation of Rs. 56.90 lakhs and interest of Rs. 85.32 Lakhs. The Assessing Officer had made an addition of Rs. 42.66 Lakhs being 50% of interest of Rs. 85.32 lakhs u/s 56(2)(viii) r.w. Section 57(iv) of the Income Tax Act, 1961.
The tribunal said that the capital receipt unless specifically taxable under section 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.
“The interest received on compensation to the assessee is nothing but a capital receipt and the addition is against the law. From the perusal of the order of the CIT(A), it can be seen that the CIT(A) has not given a separate finding as to why the Assessing Officer is justified in making the addition,” the Tribunal, while allowing the appeal of the assessee said.
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