Sushila Maruti Mhatre Vs ITO (ITAT Pune)
The Pune ITAT has held that interest received u/s 28 of the Land Acquisition Act on compulsory acquisition of agricultural land is nothing but part of the enhanced compensation itself and therefore cannot be taxed as “interest income” u/s 56(2)(viii) of the Income-tax Act.
The assessee, a housewife, had received compensation relating to agricultural land situated at Village Bokadvira, Taluka Uran, Raigad, which had been compulsorily acquired by the Government way back in 1986 for the New Bombay Project. Pursuant to enhancement ordered by the Civil Court, the assessee received additional compensation along with interest u/s 28 of the Land Acquisition Act.
While the AO accepted exemption for the enhanced compensation and solatium u/s 10(37), he nevertheless taxed 50% of the interest component by invoking Sections 56(2)(viii), 57(iv) and 145A(b), treating it as taxable interest income.
The Tribunal, however, relied heavily on the landmark Supreme Court ruling in CIT v. Ghanshyam (HUF) where it was categorically held that interest u/s 28 is an accretion to compensation and forms part of the compensation itself, unlike interest u/s 34.
The ITAT also followed the Gujarat High Court ruling in Movaliya Bhikhubhai Balabhai and reiterated that even after the amendments introduced from 01.04.2010, interest received u/s 28 of the Land Acquisition Act does not fall within the ambit of taxable “interest” contemplated under Section 145A.
Relying further on the Bombay High Court decision in Rupesh Rashmikant Shah and earlier Pune Tribunal rulings, the ITAT concluded that the impugned amount retained the character of compensation for compulsory acquisition of agricultural land and therefore remained fully exempt.
Consequently, the addition of ₹43.82 lakh was deleted. Since the quantum addition itself failed, the Tribunal also deleted the penalty u/s 271(1)(c) and observed that the assessee had made a full disclosure in the return itself and there was absolutely no concealment of income.
FULL TEXT OF THE ORDER OF ITAT PUNE
