Case Law Details
Karnail Singh Vs ITO (ITAT Chandigarh)
The Chandigarh Bench of the Income Tax Appellate Tribunal (ITAT) dismissed the assessee’s appeal for Assessment Year 2018-19 and upheld the addition of ₹80,15,899/- made by the Assessing Officer on account of interest received on enhanced compensation. The Tribunal held that such interest was taxable under the provisions of the Income Tax Act as amended by the Finance Act, 2009.
The assessee, an individual, had filed his return of income on 25.07.2018 declaring a total income of ₹78,64,420/-. The assessee stated that he was an agriculturist whose agricultural land had been compulsorily acquired by the Government. According to the assessee, the amount received under Section 28 of the Land Acquisition Act, 1894 formed part of the compensation and was exempt under Section 10(37) of the Income Tax Act, 1961. The assessee further submitted that he had disclosed income of ₹1,60,31,799/- and had claimed a deduction of 50%, asserting that he was not fully aware of the provisions of the Income Tax Act. He maintained that the amount received by way of interest was not liable to tax.
The Assessing Officer rejected the assessee’s contention and held that the amount received as interest on enhanced compensation was taxable under Section 56(2)(viii) of the Act under the head “Income from Other Sources”. Accordingly, the amount was brought to tax.
The assessee challenged the assessment order before the Commissioner of Income Tax (Appeals). Before the CIT(A), it was argued that the amount received under Section 28 of the Land Acquisition Act was in the nature of compensation and not interest, and therefore qualified for exemption under Section 10(37). Reliance was placed on the judgments of the Supreme Court in CIT v. Ghanshyam (HUF) and Union of India v. Hari Singh & Others, as well as various decisions of the Chandigarh Bench of the Tribunal.
The CIT(A), however, upheld the assessment order. It was observed that after the insertion of Section 56(2)(viii) and Section 145B(1) by the Finance Act, 2009, interest received on compensation or enhanced compensation had been specifically made taxable under the head “Income from Other Sources” in the year of receipt. Consequently, the addition made by the Assessing Officer was confirmed.
Aggrieved by this decision, the assessee preferred an appeal before the Tribunal. Although none appeared on behalf of the assessee during the hearing, the Tribunal considered the arguments raised in the appeal records. The assessee’s stand remained that the amount received under Section 28 of the Land Acquisition Act retained the character of compensation and was exempt under Section 10(37).
The Departmental Representative relied upon the orders of the lower authorities and submitted that the issue had already been decided by the Chandigarh Bench of the Tribunal in Shri Ajay Kumar v. ITO & Others. In that decision, the Tribunal had examined the provisions of Sections 56(2)(viii), 57(iv), and 145B, and held that interest received on compensation or enhanced compensation is taxable under the head “Income from Other Sources”. The Tribunal had further held that the only deduction available in such cases is the statutory deduction of 50% under Section 57(iv).
After considering the material available on record, the Tribunal noted that the issue involved in the present appeal was identical to the one decided in Shri Ajay Kumar v. ITO & Others. The Tribunal observed that the earlier decision had also considered the judgments of the Supreme Court in Ghanshyam (HUF) and Hari Singh, and had concluded that the amendments introduced by the Finance Act, 2009 governed the issue and supported the Revenue’s stand.
Respectfully following the coordinate bench decision, the Tribunal upheld the order of the CIT(A) and confirmed the addition of ₹80,15,899/- under Section 56(2)(viii) of the Act. Accordingly, the appeal filed by the assessee was dismissed.
FULL TEXT OF THE ORDER OF ITAT CHANDIGARH
This is an appeal filed by the Assessee against the order of the Ld. CIT(A), Siliguri dt. 26.09.2025 for the Assessment Year 2018-19.
2. In the present appeal Assessee has raised the following grounds:
1. That the order dated 09 2 025, passed under section 250 by the Ld Commissioner of Income Tax (Appeals), Addl./JCIT(A)-1, Siliguri in Appeal No. ITBA/NFAC/S/250/2025-26/1081226213(1) is contrary to law and facts of the case.
2. That in the facts and circumstances of the case, the Ld. Commissioner of Income Tax (Appeals) gravelly erred in upholding the addition of Rs. 80,15,899./- made by the ld. Assessing Officer whereas the amount of Rs. 80,15,899 is part of compensation which is exempt under Section 10(37) of the Income Tax Act, 1961.
3. That the appellant craves to add, amend OR alter any ground of appeal before OR at the lime of hearing of appeal, with the permission of the Honourable Income Tax Appellate Tribunal, Chandigarh.
3. Briefly stated, the facts of the case are that the assessee is an individual. The assessee had filed his return of income on 25.07.2018 and declared a total income of Rs.78,64,420/-. The assessee had submitted that he is an agriculturist and agricultural land of the assessee was compulsorily acquired by the Government. The assessee received interest u/s 28 of Land Acquisition Act, 1882 which is exempt u/s 10(37) of the Income Tax Act, 1961. The assessee had claimed that he had shown income of Rs.1,60,31,799/- and deduction of 50% was claimed as he was not aware of the Income Tax Act, 1961. The assessee has further submitted that the interest received by him is not liable to tax.
4. The Assessing Officer did not accept the contention of the assessee. The AO held that the interest received on enhanced compensation was taxable under section 56(2)(viii) of the Act under the head “Income from Other Sources”.
5. Against the order of the AO the assessee went in appeal before the Ld. CIT(A).
5.1 Before the Ld. CIT(A), the assessee reiterated that the interest received under section 28 of the Land Acquisition Act was part of compensation and therefore exempt under section 10(37) of the Act. Reliance was placed upon the judgments of Hon’ble Supreme Court in Ghansh yam (HUF) and Union of India Vs. Hari Singh & Others. The assessee also relied upon various decisions of Chandigarh Bench of the Tribunal.
5.2 The Ld. CIT(A), after considering the submissions of the assessee, upheld the action of the Assessing Officer. The Ld. CIT(A) observed that after insertion of section 56(2)(viii) and section 145B(1) by the Finance Act, 2009, interest received on compensation or enhanced compensation is specifically taxable under the head “Income from Other Sources” in the year of receipt.
5.3 The Ld. CIT(A), therefore, confirmed the addition made by the Assessing Officer.
6. Against the order of the Ld. CIT(A) the assessee preferred an appeal before the Tribunal.
7. None appeared on behalf of the assessee. However, the case of the assessee is that the amount received under section 28 of the Land Acquisition Act is in the nature of compensation and not interest and therefore exempt under section 10(37) of the Act. Reliance was placed upon the judgments of Hon’ble Supreme Court in CIT Vs. Ghanshyam (HUF) and Union of India Vs. Hari Singh & Others. It was argued that the issue is squarely covered in favour of the assessee.
8. Per contra, the Ld. DR relied upon the orders of the lower authorities. The Ld. DR submitted that the issue is now squarely covered against the assessee by the decision of Chandigarh Bench of the Tribunal in the case of Shri Ajay Kumar Vs. ITO & Others in ITA No.463/Chd/2023 and connected matters.
8.1 The Ld. DR submitted that the Tribunal in the aforesaid decision has considered the entire statutory scheme including sections 56(2)(viii), 57(iv) and 145B of the Act and has held that interest received on enhanced compensation is taxable under the head “Income from Other Sources” after allowing statutory deduction of 50% under section 57(iv) of the Act.
8.2 It was further submitted that the legal grounds raised by the assessee are devoid of merit as the assessee had duly participated in the reassessment proceedings and no prejudice has been demonstrated.
9. We have heard the submission of the ld. DR and perused the material available on record.
9.1 The primary issue involved in the present appeal relates to taxability of interest received on enhanced compensation under section 28 of the Land Acquisition Act.
9.2 We find that an identical issue has been considered by the Coordinate Chandigarh Bench of the Tribunal in the case of Shri Ajay Kumar Vs. ITO & Others in ITA No.463/Chd/2023 and connected matters. In the said decision, the Bench, after considering the provisions of sections 56(2)(viii), 57(iv) and section 145B of the Act as amended by Finance Act, 2009, held that interest received on compensation or enhanced compensation is taxable under the head “Income from Other Sources” and only deduction permissible is the statutory deduction of 50% under section 57(iv) of the Act.
9.3 The Bench in the said decision also considered the judgments of Hon’ble Supreme Court in the cases of Ghanshyam (HUF) and Hari Singh and thereafter concluded that after the statutory amendments brought by the Finance Act, 2009, the issue stands covered in favour of the Revenue.
9.4 Respectfully following the aforesaid decision of the Coordinate Bench in the case of Shri Ajay Kumar Vs. ITO & Others (supra), we uphold the order of the Ld. CIT(A) confirming the addition of Rs.80,15,899/- made by the Assessing Officer under section 56(2)(viii) of the Act.
10. In the result, appeal of the Assessee is dismissed.
Order pronounced on 02nd June,2026.
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