ITAT Allows Income Tax Deduction On Interest Received From Enhanced Compensation Against Compulsory Acquisition Of Agricultural Land
Mariya Paliwala
31 July 2023 12:45 PM IST
The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has allowed the income tax deduction on interest received from enhanced compensation for the compulsory acquisition of agricultural land.The bench of C.M. Garg (Judicial Member) has observed that the interest received by the assessee on enhanced compensation under Section 28 of the Land Acquisition Act, being part of the...
The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has allowed the income tax deduction on interest received from enhanced compensation for the compulsory acquisition of agricultural land.
The bench of C.M. Garg (Judicial Member) has observed that the interest received by the assessee on enhanced compensation under Section 28 of the Land Acquisition Act, being part of the enhanced compensation, shall be treated as tax-free in the case of an individual under Section 10(37) if the transfer is of agricultural land.
The assessee challenged the order of the CIT (A), NFAC, by which it upheld the action of the A.O., not deleting the addition made for interest received on enhanced compensation on account of compulsorily acquired agriculture land.
The assessee contended that the Interest awarded to the landowner on enhanced compensation on compulsory acquisition of his Agricultural Land as per Section 28 of the Land Acquisition Act, 1894, is only an accretion to the value of land and not in the nature of interest. It is liable to be treated as per the provisions of Section 45(5) read with Section 10(37) of the Income Tax Act, 1961, and if the Original compensation is taxable, then it will also be taxable, and if the original compensation is exempt on account of compulsorily acquiring agricultural land, then it will also be exempt.
The assessee relied on the CBDT Circular dated October 25, 2016, which clarified that the compensation received in respect of an award or agreement that has been exempt from levy of income tax shall also not be taxable under the provisions of the Income Tax Act, 1961, even if there is no specific provision for exemption for compensation in the Income Tax Act.
The tribunal noted that the land of the assessee had been acquired long ago under the old Land Acquisition Act; therefore, the CBDT Circular regarding the acquisition of land under Section 96 of the new Land Acquisition Act is not applicable.
The court directed the AO to allow a deduction under Section 10(37) to the assessee on the entire amount of interest received on enhanced compensation.
Case Title: Virender Rathee Versus ITO
Case No.: ITA No. 693/Del/2023
Date: 07/07/2023
Counsel For Appellant: Pawan Chhikara
Counsel For Respondent: Om Parkash
