NHAI Acquisition Interest Is Part of the Exempt Award: Section 96 Overrides Taxability u/s 56(2)(viii)

Vinod Prabhudayal Agrawal Vs ITO (ITAT Pune)

NHAI Acquisition Interest Is Part of the Exempt Award: Section 96 Overrides Taxability u/s 56(2)(viii)

The Pune Bench of the Income Tax Appellate Tribunal considered the tax treatment of interest received on enhanced compensation arising from compulsory acquisition of rural agricultural land by the National Highways Authority of India (NHAI) for Assessment Year 2018-19. The assessee, an individual and legal heir of late Mrs. Rama Vinod Agrawal, had received total compensation of Rs.2,52,35,936/-, comprising compensation of Rs.1,88,91,675/- and interest of Rs.63,44,261/- under section 28 of the Land Acquisition Act, 1894. TDS of Rs.6,34,427/- had been deducted from the interest amount. The assessee claimed the receipt as exempt, relying, inter alia, on section 10(37) of the Income-tax Act and section 96 of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 (RFCTLARR Act).

During assessment proceedings, the Assessing Officer accepted the compensation component as exempt but treated 50% of the interest received as income from other sources under section 56(2)(viii), after allowing the 50% deduction contemplated by section 57(iv), resulting in an addition of Rs.31,72,131/-. The CIT(A)/NFAC upheld the assessment. The assessee contended before the Tribunal that the interest awarded under section 28 of the Land Acquisition Act formed part of enhanced compensation and that section 96 of the RFCTLARR Act, which provides exemption from income tax in respect of qualifying awards or agreements, applied to the compulsory acquisition.

The assessee relied upon several judicial precedents concerning compulsory acquisition, the RFCTLARR Act and the character of interest awarded under section 28 of the Land Acquisition Act. These included decisions concerning compensation received under the National Highways Act, the scope of section 96 of the RFCTLARR Act, CBDT Circular No.36 of 2016 and the applicability of the RFCTLARR Act to acquisitions covered by the Fourth Schedule. The Revenue, on the other hand, relied upon the order of the CIT(A)/NFAC and submitted that interest received on compensation or enhanced compensation was specifically taxable in the year of receipt.

The assessment order itself relied upon the statutory provisions dealing with taxation of interest on compensation or enhanced compensation. It referred to section 56(2)(viii), section 57(iv) and section 145A and relied upon the Punjab and Haryana High Court decision in Mahender Pal Narang vs. Central Board of Direct Taxes, in which the post-amendment tax treatment of such interest was considered. The Tribunal reproduced and considered the statutory scheme and the authorities relied upon by the lower authority.

The Tribunal thereafter examined the exemption claim in the context of the RFCTLARR Act. It considered the decision in Yash Travels and Tours (P.) Ltd. and relied upon the proposition that compensation received on compulsory acquisition under the RFCTLARR Act could qualify for exemption under section 10(37) read with section 96. It also considered the Chhattisgarh High Court ruling in Sanjay Kumar Baid, the Supreme Court decision in NHAI Vs P. Nagaraju’s alias Cheluvaiah & Others, the Delhi Tribunal decision in Mange Ram Vs PCIT, and other authorities concerning the applicability of section 96 to land acquired under the National Highways Act.

The Tribunal further considered M/s. Balaji Developers, Parasnath Vinimay Pvt. Ltd. Vs. CPC, M/s. Ganga Developers, PCIT Vs. Durgapur Projects Ltd., BMRCL Vs. Sri Balaji Corporate Services and Harry Township Ltd. The decisions addressed, among other matters, the exemption under section 96, the effect of the amended section 105(3) of the RFCTLARR Act, the applicability of the Act to acquisitions under enactments in the Fourth Schedule, and the effect of CBDT Circular No.36 of 2016. The Tribunal also considered the decision of the Bombay High Court in Tukaram Kana Pawara concerning TDS from compensation awarded under the National Highways Act.

On the facts, the Tribunal found that the land had been compulsorily acquired by NHAI under section 3A of the National Highways Act, 1956 and that the compensation was received during FY 2015-16, after the amendment to section 105(3) of the RFCTLARR Act with effect from 01.01.2015. It held that, in the circumstances discussed in the order, there was no requirement of a notification for claiming the exemption. The Tribunal concluded that the exemption under section 96 was available and that the compensation received upon compulsory acquisition by NHAI was exempt.

Ultimately, the Tribunal held that the CIT(A)/NFAC was not justified in sustaining the addition of interest of Rs.31,72,130/- made under section 56(2)(viii). It set aside the order of the CIT(A)/NFAC and directed the Assessing Officer to delete the addition. The appeal filed by the assessee was accordingly allowed. The order was pronounced in the open Court on 15th September, 2026.

Cases Discussed

• CIT Vs. Ghanshyam (HUF), [2009] 315 ITR 1 (SC)
• Mahender Pal Narang Vs Central Board of Direct Taxes
• Movaliya Bhikhubhai Balabhai Vs. ITO, (2016) 388 ITR 343 (Guj.)
• Yash Travels and Tours (P.) Ltd. Vs. ITO
• Sanjay Kumar Baid Vs ITO
• NHAI Vs. P. Nagaraju’s alias Cheluvaiah & Others, (2022) 15 SCC 1
• Mange Ram Vs PCIT
• M/s. Balaji Developers Vs. ITO
• Parasnath Vinimay Pvt. Ltd. Vs CPC
• DCIT Vs. M/s. Ganga Developers
• PCIT Vs. Durgapur Projects Ltd.
• BMRCL Vs. Sri Balaji Corporate Services, PCIT and Ors.
• Nagpur Improvement Trust Vs. Vithal Rao and Others, (1973) 1 SCC 500
• Harry Township Ltd. Vs. ACIT
• Madaparambil Varkey Varghese Vs ACIT
• Tukaram Kana Pawara Vs Project Director Project Implementation Unit
• I.T.C. Ltd. Vs. CCE, [2004] 7 SCC 591

FULL TEXT OF THE JUDGMENT/ORDER OF ITAT, PUNE BENCH

This appeal filed by the assessee is directed against the order dated 24.03.2025 of the Ld. CIT(A) / NFAC, Delhi relating to assessment year 2018-19.

2. Facts of the case, in brief, are that the assessee is an individual and filed her return of income for the impugned assessment year on 06.08.2018 declaring total income of Rs.49,79,080/-. The case was selected for limited scrutiny assessment under the E-assessment Scheme, 2019 on the following issues:

S. No.	Issues
i.	Income from Other Sources
ii.	Share Capital / Other Capital

3. Accordingly, statutory notice u/s 143(2) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) and notice u/s 142(1) were issued and served on the assessee in response to which the assessee furnished the requisite details. During the course of assessment proceedings the Assessing Officer asked the assessee to explain the interest received on enhanced compensation amounting to Rs.53,27,648/- and Rs.10,16,613/- respectively received from NHAI on compulsory acquisition of agricultural land which has been claimed as exempt. The assessee explained that she has received the compensation on compulsory acquisition of rural agricultural land by NHAI who have paid the enhanced compensation with interest of Rs.2,52,35,936/- (compensation of Rs.1,88,91,675/- and interest of Rs.63,44,261/-) after deducting TDS of Rs.6,34,427/-. Accordingly, the additional compensation received was claimed as exempt u/s 10(37) of the Act. So far as the interest received on enhanced compensation is concerned, relying on various decisions it was submitted that since the interest was received u/s 28 of Land Acquisition Act, 1894 on compulsory acquisition of agricultural land, the same is a capital receipt.

4. However, the Assessing Officer was not satisfied with the arguments advanced by the assessee and made addition of Rs.31,72,131/- as income from other sources u/s 56(2)(viii) of the Act by observing as under:

4. Submissions of the assessee are verified carefully. Sub-clause (iii) of Section 10(37) provides for exemption of capital gain arising from transfer of agricultural land by way of compulsory acquisition from taxation. However, as per the provisions of Sec.56(2)(viii), income by way of interest received on compensation referred to in sub-section 1 to section 145B substituted w.e.f 01/04/2017 by the Finance (No.2) Act, 2019 for “clause (b) of section 145A”, interest received by an assessee on compensation or on enhanced compensation, as the case may be, is chargeable to tax under the head income from other sources after allowing 50% of the amount as deduction u/s 57(iv). The interest received is deemed to be income of the year in which it is received as per the provisions of Section 145A(b). Relevant provisions are reproduced hereunder:

“Section 10(37)(iii)

Incomes not included in total income.

Sec. (37) in the case of an assessee, being an individual or a Hindu undivided family, any income chargeable under the head “Capital gains” arising from the transfer of agricultural land, where—

*** *** ***

(iii) such transfer is by way of compulsory acquisition under any law, or a transfer the consideration for which is determined or approved by the Central Government or the Reserve Bank of India;

Section 56(2)(viii) (inserted by Finance (No.2) Act 2009 w.e.f. 1-4-2010.

Income from other sources.

Sec.56. (2) In particular, and without prejudice to the generality of the provisions of sub-section (1), the following incomes, shall be chargeable to income-tax under the head “Income from other sources”, namely :—

*** *** ***

(viii) income by way of interest received on compensation or on enhanced compensation referred to in clause (b) of section 145A;

Section 57(iv)(inserted by Finance (No.2) Act 2009 w.e.f. 1-4-2010

Deductions.

Sec.57. The income chargeable under the head “Income from other sources”

shall be computed after making the following deductions, namely:—

*** *** ***

(iv) in the case of income of the nature referred to in clause (viii) of sub-section (2) of section 56, a deduction of a sum equal to fifty per cent of such income and no deduction shall be allowed under any other clause of this section.

Section 145A (inserted by Finance (No.2) Act 2009 w.e.f. 1-4-2010.

Method of accounting in certain cases.

Sec.145A. Notwithstanding anything to the contrary contained in section 145,—

*** *** ***

(b) interest received by an assessee on compensation or on enhanced compensation, as the case may be, shall be deemed to be the income of the year in which it is received.”

5. Above are the specific and unambiguous provisions relating to taxation of interest received on compensation or enhanced compensation. Section 56(2)(viii) clearly provides that interest received on compensation or enhanced compensation referred to in clause (b) of section 145A would be chargeable under the head “Income from other sources.” Section 57 provides for deduction of income chargeable under the head “Income from other sources” and clause (iv) provides that for income referred to in clause (viii) of sub-section (2) of section 56, there would be deduction of fifty per cent. Section 145 provides for accounting method. Clause (b) of section 145A provides that interest received on compensation or enhanced compensation shall be deemed to be income for the year in which it is received.

6. Contention of the assessee is that the interest received on enhanced compensation under section 28 of the Land Acquisition Act, 1894 is a capital receipt to be taxed as per provisions of section 45(5)(c). The assessee relied upon various case laws in support of his contention. However, contention of the assessee is not acceptable. The whole scheme of taxability of interest on compensation / enhanced compensation has undergone a sea-change with the insertion of clause (viii) of section 56(2), clause (iv) of sec.57 and sec. 145A/145B. The decisions quoted by the assessee were prior to the insertion of these provisions into statute and in an entirely different context that is on enhanced compensation only but did not on interest amount paid and is accordingly distinguishable.

7. However, in the case of Mahender Pal Narang vs. Central Board of Direct Taxes, New Delhi [2020] 120 taxmann.com 400 (Punjab & Haryana), the Hon’ble High Court of Punjab & Haryana, after considering the decision of Apex Court in Ghanshyam (HUF)’s case, categorically held that interest received on compensation or enhanced compensation under Land Acquisition Act, 1894 is to be treated as ‘income from other sources’ and not under head ‘capital gains.’ Relevant paragraphs of the judgment are reproduced hereunder:

“8. Section 45 of the 1961 Act deals with capital gains. By Finance Act, 1987, sub-section (5) was inserted in Section 45 and as per its clause (b), the enhanced compensation shall be chargeable under the head “Capital gains” of the previous year in which the amount is received by the assessee. This issue came up before Apex Court in Ghanshyam’s case (supra). Considering Sections 45(5) and 155(16) of the 1961 Act, it was held that enhanced compensation received under the 1894 Act may be received in multiple Stages but the same is to be treated as “deemed income” at the time when it is received and is to be taxed on receipt basis. It was further held, the fact that enhanced compensation is in dispute and the withdrawal is conditional will not make a difference. While dealing with the said issue, it was held that interest on enhanced value of landforms part of compensation and is exigible to tax in the year of receipt whereas interest on delayed payment of enhanced compensation is income in a different nature.

9. The scheme with regard to chargeability of interest received on compensation and enhanced compensation has undergone a sea change with the insertion of sections 56(2)(viii) and 57(iv) of the 1961 Act. Section 56 deals with income from other sources and a specific provision has been inserted by way of sub-section 2(viii), whereby the interest received on compensation or enhanced compensation, as referred to in clause (b) to section 145A has been included under the head ‘Income from other sources’. In clause (iv) to section 57, deduction of fifty per cent is provided on interest received on compensation or enhanced compensation.

10. In view of the amendments, the decision of Apex Court in Ghanshyam’s case (supra) does not come to the rescue of the petitioner to claim that interest received under section 28 of the 1894 Act is to be treated as compensation and to be dealt with under “Capital gains”. The fact that there is no amendment carried out under section 10(37) of the 1961 Act will not change the position. Section 10 deals with deductions and sub-section (37) thereof deals with capital gains arising from transfer of agricultural land. It nowhere provides as to what is to be included under the head “Capital gains”. The argument raised is not well founded.

11. Learned counsel has relied on Circular No. 5 of 2010 by merely reading

clause 46.1. The said clause talks about undue hardship being caused as arrears of interest being taxable on accrual basis. Clause 46.2 states that Section 145A is amended to overcome the difficulty, by deeming the income for the year in which it is received. Clause 46.3 has been ignored in which section 56(2)(viii) is dealt with that interest on compensation or on enhanced compensation referred to in clause (b) of section 145A shall be assessed as “income from other sources”.

12. Gujarat High Court in Movaliya Bhikhubhai Balabhai’s case (supra) while dealing with deduction of tax at source relying upon Circular No. 5 of 2010 held that amendment to the provisions of the 1961 Act by Finance Act, 2010 Act was not in connection with the decision of Supreme Court in Ghanshyam’s case (supra) but to mitigate the hardship caused by the decision of Supreme Court in Rama Bai’s case (supra). It was held that interest under section 28 of the 1894 Act continues to par take the character of compensation and will not fall within the ambit of expression “interest”. In view of discussion above, we with utmost respect are not in agreement with the view taken by Gujarat High Court. There is another aspect, i.e. the language of sections 56(2)(vili) and 57(iv) of the 1961 Act is plain, simple and unambiguous. There is no scope of taking outside aid for giving an interpretation to newly inserted sub-sections and clauses. Supreme Court in I.T.C. Ltd. v. CCE [2004] 7 SCC 591 held as under:

“23. …….These decisions exemplify the general rule of statutory construction that words have to be construed strictly according to their ordinary and natural meaning, particularly when the statute is a fiscal one irrespective of the object with which ‘the provision was introduced. Ofcourse, if there is ambiguity in the statutory language, reference may be made to the legislative intent to resolve the ambiguity. But if the statutory language is unambiguous then that must be given effect to. The legislature is deemed to intend and mean what it says. The need for interpretation arises only when the words used in the statute are, on their own terms ambivalent and do not manifest the intention of the legislature.”

13. In view of the above, it is held that the interest received on compensation or enhanced compensation is to be treated as “income from other sources” and not under the head “Capital gains”.

8. In view of the specific provisions of law and decision of the Hon’ble High Court as discussed above, the interest received by the assessee on the compensation / enhanced compensation is required to brought to tax under the head income from other sources u/s 56(2)(viii) of the Act. Accordingly, 50% of the interest received on enhanced compensation of Rs.63,44,261/- is treated as income from other sources u/s 56(2)(viii) of the Act.

5. In appeal, the Ld. CIT(A) / NFAC upheld the action of the Assessing Officer.

6. Aggrieved with such order of the Ld. CIT(A) / NFAC the assessee is in appeal before the Tribunal by raising the following grounds:

1. Appellant contends that the interest on enhanced compensation on compulsory acquisition of agricultural lands of Rs.63,44,261/-, awarded by the District Collector Dhule and the Arbitrator, National Highway Authority, Dhule NH-6 on 10/08/2017 is exempt from payment of Income Tax, as per provisions of section 96 of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013; which overrides the provisions of the Income Tax Act, 1961.

Alternatively, and without prejudice to the above Ground of Appeal

2. The learned CIT(A), NFAC erred in law and on facts in sustaining the addition made by the learned AO, of Rs.31,72,131/- u/s 56(2)(viii) of the ITA, 1961 (after granting 50% deduction of Rs.31,72,130/- u/s 57(iv) of the ITA, 1961) for interest received on enhanced compensation on compulsory acquisition of agricultural lands, instead of appellant’s claim of exemption u/s 10(37) of the ITA, 1961.

3. The learned CIT(A), NFAC and the learned AO erred in law and on facts in not appreciating that the interest received by appellant u/s 28 of the Land Acquisition Act, 1894 forms part of enhanced compensation, as held by the Honourable Supreme Court in the case of CIT Vs. Ghanshyam (HUF)-315 ITR 1 and therefore exempt u/s 10(37) of the ITA, 1961.

4. The learned CIT(A), NFAC and the learned AO erred in law and on facts in treating interest received on enhanced compensation as taxable, by relying on the amendments made by the Finance (No.2) Act, 2009; to section 56(2)(viii), 57(iv) and 145A of the ITA, 1961. The learned I-T Authorities ought to have appreciated that the said amendments were brought in to mitigate the hardship caused due to the decision of the Honourable Supreme Court in the case of Rama Bai Vs. CIT 181 ITR 400 and will not change the nature of interest received on enhanced compensation u/s 28 of the Land Acquisition Act, 1894, which is exempt u/s 10(37) of the ITA, 1961.

5. Appellant craves leave to add/alter/modify/amend/delete all/any of the Grounds of Appeal

7. The Ld. Counsel for the assessee at the outset filed the following chart giving the chronology of events with respect to the acquisition of land at Kundane, Dhule, admeasuring 8700 sq. mtrs:

Date	Legal position	Events w.r.t. Land at Kundane, Dhule, admeasuring 8700 Sq Meters	PB Reference
27-10-2011		Officials under Competent Authority issued Notification u/s 3A of The NHA 1956 for land acquisition	138
10-09-2013		Final award declared by Competent Authority under NHA 1956 stipulating consideration of Rs. 335 PSM for Agricultural lands of Appellant	138
26-09-2013	RFCTLARR 2013 act received assent of President of India. As per Section 105(1), RFCTLARR was not to apply to enactments specified in Schedule-4 (which includes NHAI). As per Section 105(3), RFCTLARR was to apply to enactments in Schedule-4, if Central Govt issues a notification to that effect within 12 months…
27-09-2013	RFCTLARR 2013 act published in official gazette
29-10-2013		Notification of land acquisition u/s 3D of the NHA 1956 published	101
26-12-2013		Intimation given by Land Acquisition Officer that, land at Gat No. 22 will be acquired for consideration of Rs. 38,25,170 after taking it’s possession on 2/1/2014 at 11 AM in morning	134
01-01-2014	RFCLARR 2013 became operational
02-01-2014		Stipulated date for taking possession and then, extending consideration for compulsory acquisition	134
13-01-2014		Possession of land extended by “A” to NHA authorities	145
16-01-2014		Receipt of Rs. 38,25,170 (after TDS @ 10%) as “consideration” @ Rs. 335 per Sq. Mtr.
31-12-2014	1st ordinance of GOVT of India stipulating that, RFCTLARR will apply to NHA proceedings from 1/1/2015
03-04-2015	2nd ordinance repeals 1st ordinance and says that, RFCTLARR to apply to NHA proceedings from 1/1/2015
30-05-2015	3rd ordinance repeals 2nd ordinance and says that, RFCTLARR to apply to NHA proceedings from 1/1/2015
28-08-2015	Order passed by GOI saying that RFCTLARR 2013 provisions to apply to NHA proceedings from 1/1/2015 (…ordinance legislated…)
10-08-2017		District Collector, Dhule & Arbitrator of NHA, extended enhanced compensation of Rs. 2,07,28,933 @ Rs. 1,665 per Sq. Mtr. and interest of Rs. 53,27,648 @ 9% paid on enhanced compensation from 13/1/2014 (i.e. date of possession) to 30/9/2017	135 to 142
03-10-2017		Notice of the NHA authorities determining the enhanced compensation along-with interest of Rs. 2,12,61,698	143 to 145
28-11-2017		Notice of the NHA authorities for implementing the order for enhance compensation	146
02-12-2017		Letter to Bank for payment of net enhance compensation of Rs. 2,07,28,933/- including interest and after deducting TDS	147 to 149
02-12-2017		Amount of Rs. 2,07,28,933/- credited in “a” HDFC Bank A/c	151

8. Referring to the decision of the Visakhapatnam Bench of the Tribunal in the case of Gangunaidu Sabbavarapu vs. ITO reported in (2025) 176 taxmann.com 300 (Visakhapatnam – Trib.), he submitted that the Tribunal in the said decision has held that the compensation received by the assessee on compulsory acquisition of his agricultural land under National Highways Act, 1956 would be exempt from levy of income tax. The Tribunal in the said decision has further held that Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 (in short ‘RFCTLARR’) applies to all the lands acquired whether agricultural land or non-agricultural land.

9. Referring to the decision of the Nagpur Bench of the Tribunal in the case of Yash Travels and Tours (P.) Ltd. vs. ITO reported in (2026) 184 taxmann.com 711 (Nagpur-Trib.), he submitted that the Tribunal in the said decision has held that the compensation received on compulsory acquisition of land under RFCTLARR Act is exempt from tax as per CBDT Circular No.36 of 2016. Since the assessee had received compensation on compulsory acquisition of its land for extension of National Highway along with interest and TDS was deducted only on interest component, the Tribunal held that the entire compensation was to be allowed as exemption under section 10(37) read with section 96 of RFCTLARR Act.

10. Referring to the following decisions copies of which are placed in the case law compilation, he submitted that RFCTLARR Act applies to the amount of compensation and interest etc:

i. M/s. Raipur Realty Pvt. Ltd. vs. ITO vide ITA No.241/RPR/2024 order dated 08.10.2025 for assessment year 2017-18

ii. Shri Satish Kumar & Another vs. ITO vide ITA Nos.1182 & 1183/Chd/2019 order dated 31.08.2021 for assessment year 2015-16

iii. Tukaram Kana Pawara (Deceased) through legal heirs vs. The Project Director Project Implementation Unit & The Competent Authority and Deputy Collector reported in 186 taxmann.com 485 (Bom)

iv. ACIT vs. M/s. SV Global Mill Ltd vide ITA No.2684/CHNY/2019 order dated 28.01.2021 for assessment year 2016-17

v. DCIT Sh Ram Gopal vide ITA No.397/CHD/2019 order dated 30.05.2022 for assessment year 2015-16

11. Referring to the decision of the Patna Bench of the Tribunal in the case of Dharmavir Kumar vs. DC/ACIT vide ITA No.70/PAT/2025 order dated 09.12.2025 for assessment year 2016-17 and the decision of the Delhi Bench of the Tribunal in the case of Harry Township Ltd. vs. ACIT reported in (2025) 172 taxmann.com 278 (Delhi-Trib.), he submitted that the Tribunal in the above decisions has held that RFCTLARR exemption applies for the year of receipt, irrespective of year of notification even prior to the commencement of RFCTLARR.

12. Referring to the decision of Hon’ble Chhattisgarh High Court in the case of Sanjay Kumar Baid vs. ITO reported in (2025) 480 ITR 259 (Chhattisgarh), he drew the attention of the Bench to the following head note:

“Where assessee received certain amount as compensation on account of compulsory acquisition of his agricultural land from NHAI under National Highways Act, 1956, since section 96 of RFCTLARR Act providing for exemption from income tax, stamp duty and fees would also be applicable to land acquired under Act of 1956, assessee would not be liable to pay income tax on amount of compensation paid to him.”

13. Referring to the decision of the Coordinate Bench of the Tribunal in the case of M/s. Balaji Developers vs. ITO vide ITA No.375/PUN/2024 order dated 24.03.2025 for assessment year 2016-17, he submitted that the Tribunal in the said decision has held that the compensation received by the assessee firm from acquisition of land held by it, is exempt from income tax in terms of section 96 of RFCTLAAR Act, 2013.

14. Referring to the decision of the Delhi Bench of the Tribunal in the case of Harry Township Ltd. vs. ACIT (supra), he submitted that the Tribunal in the said decision has held that the compensation received by the assessee on compulsory acquisition of both commercial and agricultural land was eligible for exemption from income tax.

15. Referring to the decision of the Amritsar Bench of the Tribunal in the case of Surinder Kumar vs. ITO reported (2024) 116 ITR (T) 529 (Amritsar-Trib.), he submitted that the Tribunal in the said decision has held that the compensation received by the assessee out of compulsory acquisition of land under National Highways Act was exempt from income tax by virtue of section 96 of RFCTLARR Act, 2013 and clarificatory circular No.36/2016, dated 25-10-2016.

16. Referring to the decision of Hon’ble Bombay High Court, Aurangabad Bench in the case of Tukaram Kana Pawara (Deceased) through legal heirs vs. The Project Director Project Implementation Unit & The Competent Authority and Deputy Collector in Writ Petition No.914 of 2026 and batch of other Writ Petitions order dated 06.05.2026 has held that no deduction of TDS is permissible from the compensation awarded under the arbitral award passed u/s 3G(5) of the national Highways Act, 1956, having regard to the provisions of section 96 of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013.

17. Referring to the decision of the Chennai Bench of the Tribunal in the case of ACIT vs. M/s. SV Global Mill Ltd (supra), he submitted that the Tribunal in the said decision has held that the interest received by the assessee for delayed payment of compensation for compulsory acquisition of land is akin to compensation for compulsory acquisition of land, which is exempt from Income Tax by virtue of section 96 of RFCTLARR Act 2013.

18. Referring to the decision of the Chandigarh Bench of the Tribunal in the case of DCIT vs. Sh Ram Gopal (supra), he submitted that the Tribunal in the said decision has upheld the decision of the Ld. CIT(A) holding that the entire receipt on land acquisition was covered by RFCTLARR Act, 2013.

19. Relying on various other decisions, copies of which are placed in the paper book, he submitted that the interest received by the assessee on account of compulsory acquisition of land is exempt from income tax. He accordingly submitted that the order of the Ld. CIT(A) / NFAC be set aside and the grounds raised by the assessee be allowed.

20. The Ld. DR on the other hand heavily relied on the order of the Ld. CIT(A) / NFAC. He submitted that the law is very specific and unambiguous that the interest received on compensation or enhanced compensation shall be deemed to be income of the year in which it is received. She accordingly submitted that the order of the Ld. CIT(A) / NFAC be upheld and the grounds raised by the assessee be dismissed.

21. We have heard the rival arguments made by both the sides, perused the orders of the Assessing Officer and the Ld. CIT(A) / NFAC and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the assessee in the instant case has received enhanced compensation of Rs.2,52,35,936/- i.e. compensation of Rs.1,88,91,675/- and interest of Rs.63,44,261/- u/s 28 of Land Acquisition Act, 1894 on compulsory acquisition of rural agricultural land by NHAI. The NHAI has deducted TDS of Rs.6,34,427/- from the interest amount. The assessee claimed the entire amount of Rs.2,52,35,936/- as capital receipt and exempt from tax. The claim of the assessee that the interest awarded u/s 28 of Land Acquisition Act, 1894 is nothing but an accretion to the value of the compensation and hence it is part and parcel of compensation itself was rejected by the Assessing Officer, the reasons of which have already been reproduced in the preceding paragraphs. The Assessing Officer accordingly brought to tax the interest received by the assessee on compensation / enhanced compensation and allowed 50% deduction and treated the balance 50% as income from other sources u/s 56(2)(viii) of the Act. We find in appeal the Ld. CIT(A) / NFAC upheld the action of the Assessing Officer. It is the submission of the Ld. Counsel for the assessee that not only the compensation but the statutory interest on such compensation for compulsory acquisition of agricultural land for national highways is exempt from tax u/s 10(37) r.w.s. 96 of RFCTLARR Act and as per CBDT Circular No.36 of 2016.

22. There is no dispute to the fact that the land in question has been acquired by NHAI and the assessee has received the compensation of Rs.1,88,91,675/- and interest of Rs.63,44,261/-. While the Assessing Officer accepted the amount of compensation as exempt but he brought to tax 50% of the interest received at Rs.63,44,261/- i.e. Rs.31,72,131/- as income from other sources by invoking the provisions of section 56(2)(viii) of the Act.

23. We find the Nagpur Bench of the Tribunal in the case of Yash Travels and Tours (P.) Ltd. vs. ITO (supra) while deciding an identical issue has held that since the assessee has received the compensation on compulsory acquisition of its land for extension of National Highway along with interest and TDS was deducted only on interest component, the entire compensation was to be allowed as exemption under section 10(37) read with section 96 of RFCTLARR Act. The relevant observations of the Tribunal read as under:

“6. We have considered the rival submissions of both the parties and have gone through the orders of lower authorities carefully. We have also deliberated on various case laws and the documents filed by assessee. We find that while filing return of income the assessee wrongly claimed compensation and interest thereon as exempted agricultural income. However, during assessment, the assessee furnished sufficient evidence to substantiate the fact that in fact the assessee has received compensation on compulsory acquisition of their land with interest. We find that the land of assessee was acquired for extension of National Highway No. 7 from Nagpur to Hyderabad. Copy of award passed by Additional Commissioner, Nagpur is on record. We find that along with the amount of award, the assessee received statutory interest. As per operative part of award dated 09.10.2013, the assessee company was awarded Rs.12,78,58,500/- for acquisition of 1.23 Hectare of their lands. Out of which the assessee was already received Rs. 98,39,991/-. The assessee was also allowed 10% additional amount of total compensation i.e. is Rs.1,27,85,850/- as per Section 3-G(2) of National Highway Act-1956. The assessee was further allowed interest @ 9.00% per annum on the enhanced compensation w.e.f. from date of notification under section 3-D of National Highway Act i.e. from 01.06.2011. As per working of interest up to 31.07.2022, which is available at page No. 27, the interest on compensation is Rs. 13,14,58,380/-. Thus, the assessee received total amount of Rs. 26.22 Crore as per payment voucher, copy of which is available at page No. 27 of paper Book. The lower authorities allowed interest amount of Rs. 13.14 Crore as exempt, on which TDS was made by Disbursing Authority. Such amount of interest on which TDS is made, is clearly discernible at page No. 56 of PB (copy of Form-26 AS). However, the amount of original compensation of Rs. 13.08 Crore was treated as income from ‘other sources’. The treatment of such amount of compensation as income from ‘other sources’ is erroneous. We find that CBDT in its Circular No.36 of 2016 directed that that compensation received on compulsory acquisition of land under RFCTLAAR Act is exempt from levy of tax. It was also directed that section 96 of RFCTLAAR Act is wider in scope than the tax exemption provided under existing Income Tax Act.

7. The Hon’ble Chhattisgarh High Court in Sanjay Kumar Baid vs ITO (supra) held that where assessee received certain amount as compensation on account of compulsory acquisition of his agricultural land from NHAI under National Highways Act, 1956, since section 96 of RFCTLARR Act providing for exemption from income tax, stamp duty and fees would also be applicable to land acquired under Act of 1956, assessee would not be liable to pay income tax on amount of compensation paid to him. We also find that Hon’ble High Court in para -16 of its order referred the decision of Supreme Court in NHAI Vs P. Nagaraju’s alias Cheluvaiah & Others (2022) 15 SCC-1, wherein it has been clearly held that the benefits available to the landowners under the RFCTLARR Act are to be also available to similarly placed landowners whose lands are acquired under the 13 enactments specified in the Fourth Schedule including the Act of 1956 and further held that all aspects contained in Sections 26 to 28 of the RFCTLARR Act for determination of compensation will also be applicable notwithstanding Sections 3-J and 3-G(7)(a) of the Act of 1956 (NHAI Act).

8. We further find that recently the coordinate bench of Delhi Tribunal in Mange Ram Vs PCIT (2026) 183 taxmann.com 424 (Delhi-Trib) also held that where interest received under section 28 of Land Acquisition Act on enhanced compensation formed part of enhanced value of land and retained its capital character, it was not taxable as income from other sources notwithstanding amendments introduced by Finance (No. 2) Act, 2009. Thus, in view of the aforesaid factual and legal discussion, we direct the assessing officer to allow exemption of entire amount of compensation of Rs.13.08 Crore. In the result, the grounds of appeal raised by the assessee are allowed.”

24. We find the Hon’ble Chhattisgarh High Court in the case of Sanjay Kumar Baid vs. ITO (supra) has held that section 96 of RFCTLARR Act providing for exemption from income tax, stamp duty and fees would also be applicable to land acquired under Act of 1956, assessee would not be liable to pay income tax on amount of compensation paid to him. The relevant observations of the Hon’ble High Court read as under:

“18. In view of the above-stated legal position, it is held that once compensation is determined under the provisions of the RFCTLARR Act, as a necessary corollary, the benefits flowing from the provisions of the said Act, including exemptions from income tax, stamp duty and fees contemplated under Section 96 of the RFCTLARR Act, would also have to be made applicable. If the benefit flowing from Section 96 is not given to the land-losers whose lands have been acquired under the Act of 1956, it would mean that the land-losers under the enactments specified in the Fourth Schedule are subjected to discrimination and this would be against the intent of the Union of India in issuing the 2015 Order and it would be contrary to the principles of law laid down by the Supreme Court in Tarsem Singh’s (1) case (supra), Tarsem Singh’s (2) case (supra) and P. Nagaraju alias Cheluvaiah’s case (supra). More particularly, Section 103 of the RFCTLARR Act makes it clear that the provisions of the RFCTLARR Act are in addition to and not in derogation of any other law.

19. For the foregoing reasons, we are of the considered opinion that Section 96 of the RFCTLARR Act providing for exemption from income tax, stamp duty and fees would also be applicable to the land acquired under the Act of 1956 and to the compensation paid by the NHAI and consequently, the assessee would not be liable to pay income tax on the amount of compensation paid to him against the acquisition of his land under the Act of 1956. Consequently, the substantial question of law is answered in favour of the assessee and against the Revenue and it is held that the compensation received against acquisition of land from the NHAI is not exigible to tax under Section 96 of the RFCTLARR Act.

20. In view of the above, the Assessing Officer is directed to pass consequential order in light of the substantial question of law answered herein-above.”

25. We find the Coordinate Bench of the Tribunal in the case of M/s. Balaji Developers vs. ITO (supra) while deciding an identical issue has observed as under:

“11. We have heard the rival contentions and perused the record placed before us. The sole grievance of the assessee is that the ld.CIT(A) erred in confirming the action of the AO by denying the exemption for the amount at Rs.2,74,48,078/- received by the assessee from NHAI for acquisition of the land held by the assessee firm as stock in trade. We note that during the course of assessment proceedings when the assessee referred to the provisions of section 96 of the RFCTLAAR Act, 2013 along with referring to the CBDT Circular No.36/2016 dated 25.10.2016 for claiming exemption, ld. AO denied the claim solely on the ground that the assessee is not eligible for exemption because the same is available only to individuals and HUFs.

12. Before us, ld. DR has referred to the decision of Coordinate Bench of the Tribunal in the case of Jagdish Arora vs. ITO (supra) contending that compensation received from NHAI is not covered in section and section 105 of 96 of the RFCTLAAR Act, 2013 and the assessee is not eligible for exemption. We further notice that the ld. AO has denied the exemption solely on the ground that the assessee is not an individual or HUF as referred in section 10(37) of the Act which means that if the assessee had been an individual or HUF then the claim of exemption would have been allowed by the AO. We note that the Special Bench in the case of Mahindra & Mahindra Ltd. Vs. DCIT reported in (2009) 122 TTJ 577 (Mum) (Special Bench), Coordinate Bench in the case of Ericsson AB vs. DCIT reported in (2012) 19 ITR 341 (Delhi Trib) and this Tribunal in the case of Bharatnagar Buildcon LLP vs. CIT reported in (2023) 203 ITD 539 (Pune) and Kasat Paper & Pulp vs. ACIT reported in (2000) 74 ITD 455 (Pune) held that Departmental Representative cannot be permitted to improve the case of the AO by justifying the addition on a new ground. Ld. DR can only support the order of the AO on the grounds on which the additions have been made. Therefore, we are not inclined to admit the new contentions putforth by the ld. DR before this Tribunal for the first time.

13. Now coming the main issue raised in the instant appeal, we find that the issue stands covered squarely in favour of the assessee by plethora of judgments. We notice that the Coordinate Bench Kolkata in the case of Parasnath Vinimay Pvt. Ltd. Vs. CPC in ITA No.151/Kol/2023 dated 06.07.2023 has allowed the claim of exemption made by the assessee for acquisition of land by the Central Government very much relying on section 96 of the RFCTLAAR Act, 2013 as well as CBDT Circular No.36/2016 dated 25.10.2016 referred (supra). While arriving at this decision, reliance was placed by the decision of Coordinate Bench Mumbai in the case of DCIT vs. M/s.Ganga Developers in ITA No.2328/Mum/2021 dated 12.10.2022. The finding of the Tribunal in case of Parasnath Vinimay Pvt. Ltd. Vs. CPC (supra) read as follows:

“6. We have heard rival contentions and perused the material placed before us. The sole grievance of the assessee is that the Id. CIT(A) has erred in not providing exemption of Rs.41,51,828/- as gains arising on account of acquisition of agricultural land by the Central Government. We notice that the assessee held land in rural area located at Dist. Purnea in Bihar. Compensation of Rs.42,62,880/- was awarded by the central government towards acquisition of assessee’s land and after deduction of tax at source net amount of Rs.38,40,192/-was received by the assessee” which was duly deposited in the State Bank of India on 12/11/2016. Though the compensation received is Rs.42,66,880/-but the ld. Assessing Officer has mentioned the amount at Rs.41,16,069/-. We are here to deal with the issue that whether the alleged sum is exempt from tax. The ld. Counsel for the assessee has referred to the following CBDT Circular issued on 25/10/2016:-

“Government of India
Ministry of Finance
Department of Revenue Central Board of Direct Taxes

ITA.II division, North Block, New Delhi,

the 25th of October, 2016

Subject: Taxability of the compensation received by the land owners for the land acquired under the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and (‘RFCTLAARAct’)-reg.-Resettlement Act, 2013

1. Under the existing provisions of the Income-tax Act, 1961 (‘the Act’), an agricultural land which is not situated in specified urban area, is not regarded as a capital asset. Hence, capital gains arising from the transfer (including compulsory acquisition) of such agricultural land is not taxable. Finance (No. 2) Act, 2004 inserted section 10(37) in the Act from 01.04.2005 to provide specific exemption to the capital gains arising to an Individual or a HUF from compulsory acquisition of an agricultural land situated in specified urban limit, subject to fulfilment of certain conditions. Therefore, compensation received from compulsory acquisition of an agricultural land is not taxable under the Act (subject to fulfilment of certain conditions for specified urban land).

2. The RFCTLARR Act which came into effect from 1st January, 2014, in section 96, inter alia provides that income-tax shall not be levied on any award or agreement made (except those made under section 46) under the RFCTLARR Act. Therefore, compensation received for compulsory acquisition of land under the RFCTLARR Act (except those made under section 46 of RFCTLARR Act), is exempted from the levy of income-tax.

3. As 110 distinction has been made between compensation received for compulsory acquisition of agricultural land and non-agricultural land in the matter of providing exemption from income-tax under the RFCTLARR Act, the exemption provided under section 96 of the RFCTLARR Act is wider in scope than the tax-exemption provided under the existing provisions of Income-tax Act, 1961. This has created uncertainty in the matter of taxability of compensation received on compulsory acquisition of land, especially those relating to acquisition of non-agricultural land. The matter has been examined by the Board and it is hereby clarified that compensation received in respect of award or agreement which has been exempted from levy of income-tax vide section 96 of the RFCTLARR Act shall also not be taxable under the provisions of Income-tax Act, 1961 even if there is no specific provision of exemption for such compensation in the Income-tax Act, 1961.

4. The above may be brought to the notice of all concerned.

5. Hindi version of the order shall follow.”

8. Further before us ld. Counsel for the assessee, referring to the compensation advice bearing number 245/2016-17 has contended that, the said land as a rural agricultural land. In the above CBDT Circular in para 2, reference is made to Section 96 and 46 of the RFCTLAAR Act. For adjudication of the issue we will go through these two sections also:-

“96. Exemption from income-tax, stamp duty and fees.-No income tax or stamp duty shall be levied on any award or agreement made under this Act, except under section 46 and no person claiming under any such award or agreement shall be liable to pay any fee for a copy of the same.

46. Provisions relating to rehabilitation and resettlement to apply in case of certain persons other than specified persons. –

(1) Where any person other than a specified person is purchasing land through private negotiations for an area equal to or more than such limits, as may be notified by the appropriate Government, considering the relevant State specific factors and circumstances, for which the payment of Rehabilitation and Resettlement Costs under this Act is required, he shall file an application with the District Collector notifying him of (a) intent to purchase; (b) purpose for which such purchase is being made; (c) particulars of lands to be purchased.

(2) It shall be the duty of the Collector to refer the matter to the Commissioner for the satisfaction of all relevant provisions under this Act related to rehabilitation and resettlement.

(3) Based upon the Rehabilitation and Resettlement Scheme approved by the Commissioner as per the provisions of this Act, the Collector shall pass individual awards covering Rehabilitation and Resettlement entitlements as per the provisions of this Act.

(4) No land use change shall be permitted if rehabilitation and resettlement is not complied with in full.

(5) Any purchase of land by a person other than specified persons without complying with the provisions of Rehabilitation and Resettlement Scheme shall be void ab initio: Provided that the appropriate Government may provide for rehabilitation and and shall also fix the limits or ceiling for the said purpose.

(6) If any land has been purchased through private negotiations by a person on or after the 5th day of September, 2011, which is more than such limits referred to in sub-section (1) and, if the same land is acquired within three years from the date of commencement of this Act, then, forty per cent. of the compensation paid for such land acquired shall be shared with the original land owners. Explanation.-

For the purpose of this section, the expression –

(a) original land owner refers to the owner of the land as on the 5th day of September, 2011;

(b) -specified persons includes any person other than –

(i) appropriate Government;

(ii) Government company;

(iii) association of persons or trust or society as registered under the Societies Registration Act, 1860 (21 of 1860), wholly or partially aided by the appropriate Government or controlled by the appropriate Government.”

9. Now going through the above provisions, so far as the section 46 is concerned, the said section can come into operation only if any person other than a specified person is purchasing land through person private negotiations for an area equal to or more than such limits, as may be notified by the appropriate Government, considering the relevant State, specific factors and circumstances. However, in the instant case, there is no private negotiation on the part of the assessee and it is purely a case where the rural agricultural land held by the assessee has been acquired by the central government and the compensation to the assessee has been given under the RFCTLAAR Act. Now going through Section 96 of the RFCTLAAR Act, the same provides exemption from income tax, stamp duty and fees on any award or agreement, made except those covered u/s 46 of the RFCTLAAR Act (which we have already held to be not applicable on the assessee).

10. Now after dealing with Section 96 of the RFCTLAAR Act, and going to the CBDT circular referred supra, we notice that no distinction has been made between the compensation received for compulsory acquisition of agricultural land and non-agricultural land in the matter of providing exemption from income tax under the RFCTLAAR Act, the exemption provided u/s 96 of the Act is wider in scope than the tax exemption provided in the existing provisions of the Income Tax Act. This clearly indicates that since the assessee company has received compensation under the RFCTLAAR Act and the case of the assessee does not fall under section 46 of the RFCTLAAR Act, no income tax is leviable on the award received on the compulsory acquisition of agricultural land. Our view is further supported by the decision of the Mumbai bench of the ITAT in the case of M/s. Ganga Developers (supra), wherein also the assessee is a partnership firm (not an individual or HUF) and the compensation was received on 24/08/2013 and this Tribunal after referring to the CBDT circular referred supra and section 96 of the RFCTLAAR Act, held that the sum received by the assessee is not taxable under the Income Tax Act. Relevant part of the said order is extracted below:-

010. On careful perusal of the award dated 5/8/2016, it is clear that according to rule 18 (3) of the rights to fair compensation and transparency in land acquisition, rehabilitation and resettlement rules 2014 the Commissioner has granted approval to this award. The award was also passed after the land acquisition act 1984 stood repealed from 1/1/2014 which has been replaced by the right to fair compensation and transparency in land acquisition, rehabilitation and resettlement act of 2013.

011. The provisions of Section 24 of the act clearly provides that that when no award u/s 11 of the said land acquisition act has been made, then all the provisions of the new act relating to the determination of compensation shall apply. It also excludes where the award is already been made u/s 11 of that act and for that particular purpose only the old act continue to apply. In this case the award has been made on 5/8/2016. Therefore the new act shall apply.

012. According to Section 96 of that act income tax shall not be levied on any award agreement made Under that act except as provided u/s 46 of that act. This award/agreement is not u/s 46 of that act. Therefore the income arising in the form of compensation shall be governed by the provisions of Section 96 of the act. Accordingly the income is not chargeable to income tax.

013. Further the issue is squarely covered in favour of the assessee by the decision of the honourable Kerala High Court in Vishwanatha MV Chief Commissioner 116 Taxmann.com 894, honourable Andhra Pradesh High Court in case of C Nand Kumar 88 taxmann.com 526 as well as circular number 36/2016 dated 25/10/2016 which clarified in paragraph number 3 of the act that compensation received in respect of award agreement which is been exempted from levy of income tax as per provisions of Section 96 of that act shall also not be taxable Under the provisions of the income tax act.

014. As the learned CITA has carefully considered all the above judgement as well as the provision of new law and the old law of acquisition of land and therefore held that sum received by the assessee is not taxable, cannot be found fault with. Accordingly we confirm the order of the learned CIT appeal of the AO.” A and dismiss ground number 1 of the 11. As the facts the case on hand are identical to the facts of the case law discussed above, we thus respectfully following the decision of the Co-ordinate Bench Mumbai in case of M/s. Ganga Developers (supra), and under the given facts and circumstances of the case are inclined to hold that the alleged sum of compensation received by the assessee is exempt from Income tax. Thus, the finding of the Id. CIT(A) is set aside and the effective Ground Nos. 1 to 6 raised by the assessee are allowed.”

14. We also note take note of the judgment of Hon’ble Calcutta High Court in the case of PCIT Vs. Durgapur Projects Ltd. in ITA No.282/2022 dated 24.02.2023 (assessee being Limited Company) wherein also the issue of compensation by a non-individual/non HUF came up for adjudication before the Hon’ble Court and again the same was decided in favour of the assesee and the relevant observation of the Hon’ble Court reads as under:

“11. Coming back to the taxability of the compensation received by the assessee for the lands compulsory acquired under the 2013 Act, it is relevant to take note of the circular issued by the CBDT dated 25.10.2016 in Circular No. 36/2016. It was pointed out that under the existing provisions of the Income Tax Act an agricultural land which is not situated in specified urban area is not regarded as a capital asset and hence capital gain arising from the transfer (including compulsory acquisition) of such agricultural land is not taxable. It is further stated that Finance (No. 02) Act, 2004 inserted Section 10(37) in the Act from 01.04.2005 to provide specific exemption to capital gains arising to an individual or a HUF from compulsory acquisition of an agricultural land situated in specified urban limited subject to fulfillment of certain conditions. Thus, it was ordered that the compensation received from the compulsory acquisition of an agricultural land is not taxable under the Income Tax Act subject to the fulfillment of certain conditions for specified urban land. It was further stated that the 2013 Acquisition Act came into effect from 01.01.2014 and Section 96 inter alia provides that income tax shall not be levied on any award or agreement made except those made under Section 46 of the said Act. Therefore, it was directed that compensation for compulsory acquisition of land under the 2013 Acquisition Act except those made under Section 46 of the said act is exempted from the levy of income tax. Further it was ordered that as no distinction has been made between compensation received for compulsory acquisition of agricultural land and non-agricultural land in the matter of providing exemption from income tax under 2013 Acquisition Act, the exemption provided under Section 96 of the 2013 Acquisition Act is wider in scope than the tax-exemption provided under the existing provisions of the Income Tax Act, 1961. It was pointed out that this aspect has created uncertainty in the matter of taxability of compensation received on compulsory acquisition of land especially those relating to acquisition of non-agricultural land. This matter was examined by the CBDT and it was clarified that compensation received in respect of award or agreement which has been exempted from the levy of income tax under Section 96 of the 2013 Acquisition Act shall also not be taxable under provisions of the Income Tax Act, 1961 even if there is no specific provision of exemption for such compensation in the Income Tax Act, 1961. The said Circular No. 36 of 2016 would come to the aid and assistance of the assessee and the compensation received by the assessee on account of the compulsory acquisition of land under the 2013 Acquisition Act is exempt from the tax.

12. For all the above reasons, we find no grounds to interfere with the order passed by the learned tribunal and consequently the appeal filed by the revenue fails and the substantial questions of law are answered against the revenue. No costs.”

15. Now considering the ratios laid down by the Hon’ble Calcutta High Court in the case of PCIT Vs. Durgapur Projects Ltd.(supra) as well as the decision of Kolkata Bench of the Tribunal in the case of Parasnath Vinimay Pvt. Ltd. Vs. CPC (supra), we find that the assessee is a partnership firm and the land owned by it as stock in trade was acquired by the Government which in this case is NHAI for the consideration finalised by NHAI. It is an admitted fact that when the lands of various land owners are acquired by the Government in the public interest, even if the owners are not willing to sell the lands or is willing to sell at a future date for maximum gains, they have to abide by the law and are forced to offer their lands for compulsory acquisition.

16. RFCTLAAR Act, 2013 was inserted to deal with all these issues and section 96 of this Act clearly provides that no income-tax or stamp duty shall be levied on any award or agreement made under this Act (except those made u/s.46) and no person claiming any such award or agreement shall be liable to pay any fee for a copy of the same. This act came into force from 1st January, 2014 and the transaction in question pertains to F.Y. 2015-16 and therefore RFCTLAAR Act, 2013 applies for the year under consideration with full force and the benefit of section 96 is available to the assessee.

17. Here, we would like to refer to the judgment of Hon’ble Karnataka High Court in the case of BMRCL vs. Sri Balaji Corporate Services, PCIT and Ors (supra) where the claim of exemption u/s.96 of the RFCTLARR Act, 2013 was also allowed in respect of acquisition made by Karnataka Industrial Area Development Act, 1966 and Hon’ble Court referring to the judgment of Hon’ble Apex Court in the case of Nagpur Improvement Trust vs. Vithal Rao and Others reported in (1973) 1 SCC 500 held that if the acceptance of two acts enables the State to give one owner different treatment from another equally situated, the owner who is discriminated against can claim protection of Article 14. That it is immaterial under which Act and for what purpose the land is acquired as far as land losers are concerned the differential standard of compensation cannot be applied. This ratio laid down by the Hon’ble Karnataka High Court further asserts the claim of exemption by the assessee firm for the compensation received from NHAI for acquiring the land held by it as stock in trade.

18. Under these facts and circumstances and respectfully following the decision of Coordinate Bench Kolkata in the case of Parasnath Vinimay Pvt. Ltd. Vs. CPC (supra) as well as the decision of Hon’ble Calcutta High Court in the case of PCIT Vs. Durgapur Projects Ltd. (supra), we are inclined to hold that the compensation received by the assessee firm at Rs.2,74,48,078/- from acquisition of land held by it, is exempt from income tax in terms of section 96 of the RFCTLAAR Act, 2013. Accordingly, finding of ld.CIT(A) is reversed and Grounds of appeal No. 1 to 3 raised by the assessee are allowed.”

26. We find the Delhi Bench of the Tribunal in the case of Harry Township Ltd. vs. ACIT (supra) while deciding an identical issue has observed as under:

“16. We have heard the rival submissions and perused the material available on record. Before dwelling upon the issue, The relevant provisions as contained in section 96 and 105 of the RFCTLARR Act, 2013 needs to be considered which reads as under :

96. Exemption from income-tax, stamp duty and fees. “No income tax or stamp duty shall be levied on any award or agreement made under this Act, except under section 46 and no person claiming under any such award or agreement shall be liable to pay any fee for a copy of the same Section.”

105. Provisions of this Act not to apply in certain cases or to apply with certain modifications.

(1) Subject to sub-section (3), the provisions of this Act shall not apply to the enactments relating to land acquisition specified in the Fourth Schedule.

(2) Subject to sub-section (2) of section 106, the Central Government may, by notification, omit or add to any of the enactments specified in the Fourth Schedule.

(3) The Central Government shall, by notification, within one year from the date of commencement of this Act, direct that any of the provisions of this Act relating to the determination of compensation in accordance with the First Schedule and rehabilitation and resettlement specified in the Second and Third Schedules, being beneficial to the affected families, shall apply to the cases of land acquisition under the enactments specified in the Fourth Schedule or shall apply with such exceptions or modifications that do not reduce the compensation or dilute the provisions of this Act relating to compensation or rehabilitation and resettlement as may be specified in the notification, as the case may be.

(4) A copy of every notification proposed to be issued under sub-section (3), shall be laid in draft before each House of Parliament, while it is in session, for a total period of thirty days which may be comprised in one session or in two or more successive sessions, and if, before the expiry of the session immediately following the session or the successive sessions aforesaid, both Houses agree in disapproving the issue of the notification or both Houses agree in making any modification in the notification, the notification shall not be issued or, as the case may be, shall be issued only in such modified form as may be agreed upon by the both Houses of Parliament.

16.1. Sub-section 3 to Section 105 of the RFCTLARR Act, 2013 is substituted by the Ordinance No. 9 of 2014 w.e.f. 01.01.2015 and the relevant amendment in sub-section (3) to Section 105reads as under:

“(3) The provisions of this Act relating to the determination of compensation in accord acne with the First Schedule, rehabilitation and resettlement in accordance with the Second Schedule and infrastructure amenities in accordance with the Third Schedule shall apply to the enactments relating to land acquisition specified in the Fourth Schedule with effect from 1st January, 2015.”

16.2. It is thus clear that after the amendment in sub-section 3 of the RFCTLARR Act, 2013, precondition of issue of notification is withdrawn w.e.f. 01.01.2015. From the perusal of the order of Ld.CIT(A), we find that though the Ld.CIT(A) was in agreement with the claim of the assessee that the provisionsof the RFCTLARR Act, 2013 are applicable to the present case and as per Section 96 the said Act, the compensation so received is exempted from Income Tax. However, the Ld.CIT(A) by relying upon the old provision of sub-section (3) of section 105 of RFCTLARR Act, 2013 has disallowed the claim for reason that no notification was issued by the Central Government in terms of section 105(3) of the Act. Therefore, only issue remained for our consideration is whether any notification as provided in section 105(3) is issued by the Central Government to this effect or not.

16.3. Section 96 of the RFCTLARR Act, 2013 provides exemption from income tax and stamp duty of the compensation received on compulsory acquisition made under this Act for public purposes. Section 105(1) of the RFCTLARR Act, 2013 states that provisions of this act shall not apply to enactments relating to land acquisition specified under Schedule Fourth (which includes NHAI Act also). However, as per amended sub-section 3 of section 105, the provisions of the RFCTLARR Act, 2013 relating to the determination of compensation in accordance with First schedule shall apply to all cases of land acquisition under the enactments specified in Fourth schedule of the said Act. Since NHAI Act is already included in Fourth schedule of the RFCTLARR Act, 2013 thus exemption as provided in section 96 of the said act is available in cases where land is compulsory acquired by under NHAI Act for public purposes and the precondition of issue of notification to this effect has already been withdrawn through amendment in sub-section (3) of section 105 of the said Act.

16.4. One more aspect needs to be considered that certain portion of the land acquired was having commercial status and the lower authorities observed that the exemption is only available to the agricultural land. CBDT vide circular No. 36 of 2016 dated 25.10.2016 after considering the exemption provided u/s 96 of the RFCTLARR Act, 2013 towards the compensation award under this Act as tax free under the Income Tax Act, 1961. The relevant para 2 and 3 of the said Circular as under:-

2. “The RFCTLARR Act which came into effect from 1st January, 2014, in section 96, inter alia provides that income-tax shall not be levied on any award or agreement made (except those made under section 46) under the RFCTLARR Act. Therefore, compensation received for compulsory acquisition of land under the RFCTLARR Act (except those made under section 46 of RFCTLARR Act), is exempted from the levy of income-tax.

3. As no distinction has been made between compensation received for compulsory acquisition of agricultural land and non-agricultural land in the matter of providing exemption from income-tax under the RFCTLARR Act, the exemption provided under section 96 of the RFCTLARR Act is wider in scope than the tax-exemption provided under the existing provisions of Income Tax Act, 1961. This has created uncertainty in the matter of taxability of compensation received on compulsory acquisition of land, especially those relating to acquisition of non-agricultural land. The matter has been examined by the Board and it is hereby clarified that compensation received in respect of award or agreement which has been exempted from levy of income-tax vide section 96 of RFCTLARR Act shall also not be taxable under provisions of Income Tax Act, 1961 even if there is no specific provision of exemption for such compensation in the Income-tax Act, 1961.”

16.5. Thus vide this Circular, CBDT clarified that award granted under the RFCTLARR Act, 2013 both for agricultural and non-agricultural land is tax free.Therefore, the compensation received by the assessee on compulsory acquisition of its land, both commercial and agricultural land, by NHAI is eligible for exemption from income tax as per the provisions of section 96 of the RFCTLARR Act, 2013 which is a special Act and prevail over the Income Tax Act, 1961. This view gets support from the judgement of co-ordinate bench of ITAT Lucknow in the case of ITO Vs. V.S. Promotors Ltd. in ITA No. 378/LKW/2020 wherein vide order dated 20.02 2023 it is held as under:

4.1. “After considering submissions made by the assessee in respect of Section 96 of RFCTLARR Act, 2013 read with CBDT Circular no. 36/2016 and by placing reliance on decision of the Hon’ble High Court of Kerala in the case of Madaparambil Varkey Varghese vs. ACIT in WP(C). No.1908 of 2019 (Kerala High Court), ld. CIT(A) deleted the addition made by ld. AO. Findings given by ld. CIT(A) in this respect are reproduced as under:-

“The only objection of the AO is that the exemption is not available to the appellant as it is a Company which is not covered in the definition as contained in sec. 10(37) and is only available to assessees having status of Individual or HUF. Further according to the AO exemption is also not available to the appellant Company as the Circular has not stated to extend the exemption to all categories of assessees. On perusal of section 96 of the RFCTLARR Act, 2013 it is seen that as per the same it states that no income tax or stamp duty shall be levied on any award or agreement made under this Act, except under section 46 and no person claiming under any such award or agreement shall be liable to pay any fee for a copy of the same. Further the Circular No. 36 of 2016 issued by the CBDT in para 3 states that the exemption provided under section 96 of the RFCTLARR Act is wider in scope than the exemption provided under the existing provisions of the Income Tax Act, 1961.

It is seen that the RFCTLARR Act, 2013 is a Special Law and that Special Law should prevail over-the General law. Moreover, it is true that under any statue where there is special as well as general provision special provision always prevails. This aspect has been well recognised by the Hon’ble Supreme Court in several cases

• • • CIT v. Oriental Fire & General Insurance Co. Ltd. [2007] 161 Taxman 181,291 ITR 370 (SC)
    • Britannia Industries Ltd, v. CIT [2005] 148 Taxman 468, 278 ITR 546 (SC)
    • UOI v. AzadiBachao Andolan [2003] 132 Taxman 373, 263 ITR 706 (SC)
    • General Insurance Corpn. of India v. CIT [1999] 106 Taxman 389, 240 ITR139 (SC).

The AO’s objection regarding section 10(37) does not hold good as exemption has not only been claimed under section 10(37) of the IT Act, 1961 but also under the RFCTLARR Act, 2013.

Section 96 of the “RFCTLARR Act, 2013” exempts awards from the levy of Income-tax under the I.T Act, 1961. Section 96 was enacted under the 2013 Act for making tax-free award granted to the land losers but there was no specific provision to treat such award as tax-free under the Income-tax Act, 1961.

CBDT vide Circular No: 36 of 2016 Dated 25/10/2016 offers due recognition to the provisions of section 96 enacted under the “RFCTLARR Act, 2013” so as to treat award under the said Act as taxfree under the Income –tax Act, 1961. The operative Para 2 and Para 3 of the Circular No.: 30 of 2016, dated 25/10/2016 reads as under:

“Para 2. The RFCTLARR Act which came in to effect from 1st January, 2014, in section 96, inter-alia, provides that income-tax shall not be levied on any award or agreement made (except those made under section 46) under the RFCTARR Act. Therefore, compensation received for compulsory acquisition of land under the RFCTLARR Act (except those made under section 46 of RFCTLARR Act), is exempted from the levy of income-tax.”

“Para 3. As no distinction has been made between compensation received from compulsory acquisition of agricultural land and nonagricultural land in the matter of providing exemption from income-tax under section the RFCTLARR Act, the exemption provided under 96 of the RFCTLARR Act is wider in scope than the tax-exemption provided under the existing provisions of Income-tax Act, 1961. This has created uncertainty in the matter of taxability of compensation received on compulsory acquisition of land, especially those relating to acquisition of non-agricultural land. The matter has been examined by the Board and it is hereby clarified that compensation received in respect of award or compensation has been exempted from levy of income-tax vide section 96 of the RFCTLARR Act shall also not be taxable under the provisions of Income-tax Act, 1961 even if there is no specific provision of exemption for such compensation in the Income-tax Act, 1961.”

CBDT Circular No. 36 of 2016, dated 25/10/2016 clarifies that in absence of specific provision under the Income-tax Act, 1961 award under the “RFCTLARR Act, 2013” in the hands of land losers, both for agricultural and non- agricultural land is tax free.

In the case of Madaparambil Varkey Varghese Vs ACIT (Kerala High Court) WP(C).No.1908 of 2019 it was held by the Hon’ble court that “Section 96 mandates that no income-tax shall be levied on any award made under the Act except under Section 46. Section 46 deals with the purchase of land by a person other than a specified person through private negotiations. The benefit of Section 96 is not available when a land is purchased through private negotiations by a person other than a specified person under Section 46(1). Therefore, in cases other than those covered by Section 46 of the 2013 Land Acquisition Act, the levy of income-tax is barred by Section 96 and as a consequence, the deduction or collection under Section 194LA of the Income Tax Act, 1961, is impermissible”.

It is further seen that according to section 96 of the said Act and also as per the Circular No. 36 of 2016 it is clear that exemption from Income-tax provided under section 96 of the “RFCTLARR Act, 2013”, being special Act, prevails over the Income-tax Act, 1961. The RFCTLARR Act, 2013 also applies to all land losers, irrespective of their status. Further any award in any form made under this Act as defined under section 96 (except those covered under section 46) is exempt from income-tax both under normal and MAT provisions under the I.T Act, 1961. Thus the addition so made of Rs.5,10,29,003/- by disallowing the exemption is based on incorrect interpretation of the Act accordingly the same is directed to be deleted.”

17. Regarding the judgement of Co-ordinate Bench of ITAT, Agra in the case of Jagdish Arora as relied upon by the Revenue, we find that the said judgement pertained to AY 2010-11 when the RFCTLARR Act, 2013 was not introduced and therefore, the said judgement was not applicable in the facts of the case of the assessee where the compensation is received by the assessee in FY 2015-16 which is fallen after date when the RFCTLARR Act, 2013 come into force.

18. Since the land owned by the assessee were acquired by NHAI as compulsory acquisition u/s 3A of NHAI Act, 1956 and compensation was awarded by the competent authorities. The entire amount compensation so awarded was received by the assessee during the FY 2015-16 relevant to the assessment year under appeal, which is after the amendment made in section 105(3) w.e.f. 01.01.2015. Therefore, for claiming the exemption of the compensation under the RFCTLARR Act, 2013 awarded by NHAI, there is no requirement of issue of any notification. Moreover, we have already expressed the view that exemption from the income tax on the compensation received upon compulsory acquisition of land by NHAI is available as per section 96 of the RFCTLARR Act, 2013, therefore, in view of above discussion, the addition made of INR 31,31,903/- by disallowing the exemptions available to assessee is directed to be deleted. Accordingly, assessee get the relief of INR 31,31,903/-. Ground of appeal Nos. 5 & 6 of the assessee are allowed.”

27. We find the Aurangabad Bench of Hon’ble Bombay High Court in the case of Tukaram Kana Pawara (Deceased) through legal heirs vs. The Project Director Project Implementation Unit & The Competent Authority and Deputy Collector (supra) has observed as under:

“22. It is held that no deduction of TDS is permissible from the compensation awarded under the arbitral award passed under Section 3G(5) of the National Highways Act, 1956, having regard to the provisions of Section 96 of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013.”

28. The various other decisions relied on by the Ld. Counsel for the assessee, copies of which are placed in the paper book also supports his case to the proposition that the entire compensation received by the assessee on account of compulsory acquisition of land by NHAI is exempt from tax u/s 10(37) r.w.s. 96 of RFCTLARR Act and CBDT Circular No.36 of 2016. In view of the above discussion and relying on the decisions cited above, we hold that the Ld. CIT(A) / NFAC is not justified in sustaining the addition of interest of Rs.31,72,130/- made by the Assessing Officer u/s 56(2)(viii) of the Act. We, therefore, set aside the order of the Ld. CIT(A) / NFAC and direct the Assessing Officer to delete the addition. The grounds raised by the assessee are accordingly allowed.

29. In the result, the appeal filed by assessee is allowed.

Order pronounced in the open Court on 15th September, 2026.