Mahender Malik Vs ITO (ITAT Delhi)
Interest u/s 28 on Land Acquisition Treated as Part of Compensation, Not “Other Sources”; Addition Deleted
The dispute concerned taxability of interest received under section 28 of the Land Acquisition Act on enhanced compensation for compulsory acquisition of agricultural land. The Revenue sought to assess this amount as “income from other sources” under sections 56(2)(viii) and 57(iv), relying on High Court rulings such as Mahender Pal Narang.
The Tribunal held that interest awarded under section 28 is fundamentally different from interest under section 34. Section 28 interest represents accretion to the value of the land and is an integral part of enhanced compensation, whereas section 34 interest is merely for delay in payment. Following the Supreme Court judgment in CIT v. Ghanshyam (HUF) and its later affirmation in UOI v. Hari Singh, such section 28 interest partakes the character of compensation itself.
Since the underlying compensation for compulsory acquisition of agricultural land is exempt under section 10(37), the interest component under section 28, being part of that compensation, also enjoys the same exemption and cannot be separately taxed as “other sources”.
The Tribunal also clarified that the amendments introducing sections 56(2)(viii), 57(iv) and section 145A were intended to address timing of taxation of interest (as per Rama Bai), not to change the nature of section 28 interest from capital to revenue. The Punjab & Haryana High Court ruling in Mahender Pal Narang was distinguished as having been rendered without noticing the later Supreme Court decisions reaffirming Ghanshyam (HUF).
Adopting the detailed reasoning of its earlier coordinate bench decision, the Tribunal accepted the assessee’s claim and deleted the impugned addition.
Accordingly, the appeal of the assessee was allowed and the section 28 interest was held not taxable as income from other sources
FULL TEXT OF THE ORDER OF ITAT DELHI
Mahender Malik Vs ITO (ITAT Delhi)
This assessee’s appeal for assessment year 2018-19, arises against the Commissioner of Income Tax (Appeals)/National Faceless Appeal Centre [in short, the “CIT(A)/NFAC”], Delhi’s DIN and order no. ITBA/NFAC/S/250/2024-25/1069269047(1), dated 30.09.2024 involving proceedings under section 154 of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’).
