Compensation With Interest Received Up To The Date Of Land Acquisition Is Taxable Under The Head "Capital Gains": ITAT

The two-member bench of Amit Shukla (Judicial Member) and Gagan Goyal (Accountant Member) has observed that the interest paid to the assessee for any delay in payment of the compensation from the date of acquisition of the property should be taxed under the head "Income from other sources".

The appellant/assessee is a 1/3rd share holder in the plot of land in question. He received a total award of Rs. 72,01,91,805. It comprises an award amount of Rs. 27,87,29,307 and an interest amount of Rs. 44,14,62,498. The assessee's share of the total of Rs. 72,01,91,805 was Rs. 24,00,63,935. Out of Rs. 24, 00, 63, 935, A.O treated Rs. 14, 71, 54,166 as interest on award amount and chargeable to tax under the head income from other sources.

The property had been in the possession of the Ministry of Defence since 1942. It was acquired by the government by notification under Section 4 of the Land Acquisition Act. The defence state officer withdrew the acquisition and had specifically taken note of Section 48 of the Land Acquisition Act in regards to the liability of the government towards the appellant. The appellant challenged the withdrawal of acquisition before the Bombay High Court through a writ petition. It was clearly established that the appellant did not have any right to receive any sum. The appellant received compensation for the complete extinguishment of her right, title, and interest in the land only pursuant to the order of the court.

The assessee appealed before the CIT(Appeal). The assessee contended that while nomenclature is of interest, it is only a component of compensation and thus subject to taxation under the head capital gains.

The CIT(A) observed that the part of the compensation termed as "interest" in the High Court Order is nothing but the market value of the property transferred subsequent to the High Court/Supreme Court order. In other words, the "interest" merely represents the additional compensation payable to the appellant to effect the transfer at the fair market value as on the date of transfer/relinquishment. There was no compensation for the property determined/ascertained by the appellant by right of sum, except till the order of the Bombay High Court/Supreme Court.

The CIT(A) directed the AO to ascertain the quantum of interest received by the appellant on compensation up to the date of land acquisition by the MoD/SLAO pursuant to the Supreme Court order and tax it under the head "Capital Gain". The balance interest paid to the appellant for any delay in payment of the compensation, from the date of acquisition of the property in pursuance of the High Court/Supreme Court order, should be taxed under the head "Income from Other Sources".

The ITAT upheld the order of the CIT(A).

Case Title: Leila Advani Versus ACIT

Citation: ITA No. 2270/Mum/2016

Dated: 18/07/2022

Counsel For Appellant: Tapas Mishra

Counsel For Respondent: Shailja Rai

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