Interest on Enhanced Compensation forms Part of Compensation, Exempted from Income Tax u/s 10(37) and RFCTLARR Act: ITAT [Read Order]

The Chennai bench of the Income Tax Appellate Tribunal (ITAT) ruled that interest on enhanced compensation can be considered as part of compensation.

The tribunal held that those interests can also be exempted under 10(37) and need not be considered as taxable income under Section 56(2)(viii) of the Income Tax Act.

The assessee, Veeraswamy Jotheeswaran, is an individual. For the assessment year 2018-19, the assessee did not file the return of income within the due date prescribed. The Department had information that the assessee had received compensation for land acquisition of Rs. 58,49,228/- during the relevant assessment year 2018-19 from the Special District Revenue Officer, National Highway Authority of India (NHAI).

Since no return of income was filed by the assessee, the AO initiated proceedings under Section 148 of the Act and notice under Section 148A(b) of the Income Tax Act was issued on by In response to the notice issued under Section 148 of the Income Tax Act, the assessee filed the return of income on admitting total income of Rs.2,79,480/- after claiming exemption under Section 10(37) of the Income Tax Act.

On perusal of the replies filed by the assessee, the AO noticed that the assessee had received enhanced compensation of Rs. 93,28,713/-, which included interest on the enhanced compensation amounting to Rs. 35,99,509/-.

The AO noticed that interest on enhanced compensation was not offered for taxation. The AO completed the assessment wherein he treated 50% of such interest income as taxable under Section 56(2)(viii) of the Income Tax Act. Therefore, a sum of Rs.17,99,975/- was treated as ‘income from other sources’.

The Tribunal observed that the same issues were covered in favour of the assessee by two orders of the Chennai Bench of the Tribunal, namely, Malini vs. ACIT and Devaraya Pillai Subramanian vs. ITO, which had followed the Hon’ble Kerala High Court judgment in the case of Anvar Ali Poolakkodan vs. ITO.

The tribunal also observed that compensation received in respect of award or agreement which has been exempted from levy of income-tax vide section 96 of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 (RFCTLARR Act, 2013) shall also not be taxable under the provisions of the Income-tax Act even if there is no specific provision of exemption for such compensation in the Income-tax Act, 1961.

The Tribunal quoted the case of Malini vs. ACIT, which, on identical facts, had held that interest received on enhanced compensation for compulsory acquisition of land is akin to the compensation for compulsory acquisition of land, which is exempt from taxation by virtue of section 96 of the RFCTLARR Act. The Chennai bench observed the following —

“9. There is no dispute that the assessee has received

interest on enhanced compensation on compulsory acquisition of

agricultural land for the assessment year under consideration. The ld.

Counsel for the assessee has brought to our notice about the provisions

of section 96 of Right to Fair Compensation and Transparency in Land

Acquisition, Rehabilitation and Resettlement Act, 2013 [RFCTLARR

Act, 2013] says that no income tax or stamp duty shall be levied on

award or agreement made under this Act except under section 46 and

no person claiming under any such award or agreement shall be liable

to pay any fee for a copy of the same. Therefore, according to section 96

of RFCTARR Act, 2013, the interest received towards delayed payment

of compensation for compulsory acquisition of land is exempted from

income tax by virtue of enactment of the RFCTARR Act. Therefore,

the interest awarded by the authority on the enhanced compensation on

compulsory acquisition of land is part of the compensation and hence,

not taxable under the Income Tax Act by virtue of provisions containing

under section 10(37) of the Act.”

The single-member bench of George George K (Vice-President), based on the judicial pronouncements, held that interest received on enhanced compensation partakes the character of compensation, which is entitled to exemption under Section 10(37) of the Income Tax Act as well as the RFCTLARR Act.

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