Case Law Details
Nitin Kumar Vs ITO (ITAT Delhi)
In the recent case of Nitin Kumar Vs ITO at ITAT Delhi, the tribunal ruled that the interest received under Section 28 of the Land Acquisition Act on enhanced compensation is part of the compensation, thereby not taxable.
In this case, the assessee, Nitin Kumar, had received interest on enhanced compensation due to compulsory acquisition of his agricultural land under Section 28 of the Land Acquisition Act 1894. The key point of contention was whether this interest was taxable under Section 56 (2) (viii) of the Income Tax Act 1961. The CIT(A) had treated the interest as ‘Income from other sources’ and confirmed its taxability.
However, the ITAT, referring to the decision in Ram Kishan (supra) case, noted that such interest received is part and parcel of the enhanced compensation. Hence, if the acquired land is agricultural, it is exempt under Section 10(37) of the Act. The tribunal further stated that the assessee being a farmer with limited educational background was not aware of the intricacies of the Income Tax Act and condoned the delay in filing the appeal.
ITAT Delhi’s ruling in Nitin Kumar Vs ITO provides a significant precedent for cases involving land acquisition and taxation. It underscores that the interest received on enhanced compensation due to compulsory acquisition of agricultural land is a non-taxable part of the compensation under Section 10(37) of the Income Tax Act.
FULL TEXT OF THE ORDER OF ITAT DELHI
This appeal filed by the assessee is directed against the order dated 30.05.2022 of the Ld. NFAC, New Delhi, relating to Assessment Year 20 18-19.
Application of assessee for seeking condonation of delay of 161 days.
2. I have heard arguments of both the sides seeking condonation of delay supported by an affidavit. The ld. AR submits that on request of assessee when the counsel check the status of first appeal in December 2022, then it came to the notice that the ld. CIT(A)-NFAC has dismissed appeal of assessee on 30.05.2022 this fact came to the knowledge of assessee who is uneducated having limited knowledge of Therefore the delay caused in filing appeal before the Tribunal. The assessee has also filed his affidavit supporting the cause of delay stated in the condonation petition. The Sr. DR oppose to the condonation of delay.
3. On careful consideration of above I note that there is no counter affidavit by the Assessing Officer and the assessee states that he is a uneducated less literate farmer who has very little knowledge of computer therefore the fact of dismissal of appeal by NFAC came to his notice in December 2022 on receipt of copy of order in the said month he immediately filed appeal before the Tribunal on 06.01.2023 by the delay of 161 days. In my humble understanding the assessee is duty bound to explain delay by submitting sufficient cause and also he is required to substantiate that there was no willful or deliberate default or omission on his part in filing delayed appeal. In the present case the cause shown by the assessee appears to be bonafide and sufficient and I am unable to see any fact of willful or deliberate omission on the part of assessee in filing delayed appeal. In the case of Paras Rice Mills vs. CIT (Karnal) in ITA No. 657/2009 the Hon’ble High Court of Punjab & Haryana rendered a view that under bonafide cause the delay should be condoned. Therefore application of assessee is allowed and delayed of 161 days in filing appeal is hereby condoned and appeal is admitted for hearing.
4. The sole ground raised by the assessee is that the ld. CIT(A) has erred in law and facts in confirming the addition of Rs. 20,07,526/- being 50% of interest on enhance compensation on compulsory acquisition of agricultural land received u/s. 28 of land acquisition Act 1894, and holding the same to be taxable u/s. 56 (2) (viii) of the T Act 1961 (for short the ‘Act’ ). The ld. counsel has placed reliance on the judgment of SMC Bench of Delhi in the case of Kamla Devi vs. ITO reported as [2022] (11) TMI 448- ITAT Delhi to submitted that the entire amount of interest received u/s. 28 of the land acquisition Act 1894 is on enhance compensation is part and parcel of enhance compensation thus exempt u/s. 10(37) of the Act.
5. Replying to the above, the ld. Sr. DR, placing reliance on the judgement of Punjab & Haryana High Court in the case of Mahender Pal Narang vs. CBDT, dated 02.2020 in CWP No.17971 of 2019, submitted 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.’ Therefore, the same is not exempt u/s 10(37) of the Act.
6. Placing rejoinder to the above, the ld. AR again drew our attention to the copy of the order of ITAT Delhi ‘F’ Bench in the case of Ram Kishan (supra) and submitted that in this order, the Tribunal has considered lead judgement of the Hon’ble Supreme Court in the case CIT vs. Ghanshyam (HUF) (supra) as well as the judgement of the Hon’ble Punjab & Haryana High Court in the case of Mahender Pal Narang (supra) as relied by the ld. Sr. DR and in paras 8 and 9 has held that the interest received by the assessee u/s 28 of the Land Acquisition Act on the enhanced compensation is not taxable being part of compensation and the same has to be treated as tax free in the case of an individual and HUF u/s 10(37) of the Act if transfer is of an agricultural land.
7. On careful consideration of the above submissions, I am of the considered view that similar controversy arose before the ITAT Delhi ‘F’ Bench in the case of Ram Kishan (supra) wherein the coordinate Bench of the Tribunal in paras 8 and 9 has elaborately considered the judgement of the Hon’ble Supreme Court in the case of Ghanshyam (HUF) (supra) as well as the judgement of the Hon’ble Punjab & Haryana High Court in the case of Mahender Pal Narang (supra). The relevant observations and findings of the coordinate Bench of the Tribunal in paras 8 and 9 the said order read as under:-
“8. On careful consideration of the issue before us we find That The finance (number 2) act, 2009 with effect from 1 April 2010 in the income tax act has introduced the provisions of Section 145A (b) which defines the year of taxability as the year of receipt, irrespective of the method of accounting followed by the assessee with respect to the enhanced compensation and interest on compensation. The provisions of Section 56 (2) also defines head of income as income from other sources for such income. Section 57 (iv) allows deduction of 50% of such income without any proof of such expenditure. The provisions of the sections were introduced to remove an anamoly. At that time the existing provisions of the income tax provided that the income chargeable Under that profits and gains of business or profession or income from other sources shall be computed in accordance with either cash or Mercantile system of accounting regularly employed by the assessee. The honourable Supreme Court in case of Rama Bai versus CIT 181 ITR 400 held that arrears of interest computed on delayed or enhanced compensation shall be taxable on accrual basis. This has caused undue hardship to the taxpayers. With a view to mitigate that hardship provisions of Section 145A were amended to provide that the interest received by an assessee on compensation or enhanced compensation shall be deemed to be income for the year in which it was received, irrespective of the method of accounting followed by the assessee. Further amendment u/s 56 was also made to provide that such income shall be taxable as income from other sources in the year in which it is received. However such amendment was not in respect to the decision of the honourable Supreme Court in case of Ghanshyam HUF 315 ITR 1. Despite the above changes made u/s 14 5A and u/s 56 (2) with effect from 1 June 2010, so as to tax the interest on compensation or enhanced compensation as income from other sources u/s 56 in the year of receipts, the judicial precedents held that the interest awarded to landowners u/s 28 of the land acquisition act, 1894 on enhanced compensation is still a part of compensation and is a capital receipt taxable Under the head capital gains. Such is the judicial precedent of the honourable Himachal Pradesh High Court in case of CIT versus Joginder Singh 217 taxmann 208 and honourable Gujarat High Court in case of Movalia BhikhaBhai Balabhai 70 taxmann.com 45 [388 ITR 343] . Further we are also mindful of the fact that the honourable Punjab and Haryana High Court in the case of Mahenderpal Narang versus CBDT CWP 17971 of 2019 dated 19/2/2020 as well as in case of Puneet Singh V CIT 110 taxmann.com 16 and Manjeet Singh HUF V Union of India 137 taxman 116 has decided in favour of revenue. It is a settled law that Statute must be interpreted according to the intention of the legislature and the court should act upon the true intent of the legislation while applying the law and its interpretation. If a statutory provision is open to more than one meaning, the Court has to choose the interpretation which represents the intention of the legislature. In the present case the Department circular number 5/2010 dated 3/6 / 2010 clearly demonstrates the intention of the legislature. Accordingly we hold that interest on u/s 28 of the land acquisition act, 1894 being part of the compensation shall be treated as a tax free in the case of an individual and HUF u/s 10 (37) if transfer is of an agricultural land. In view of above facts and judicial precedence we hold that the interest received by the assessee u/s 28 of the land acquisition act of ₹ 24,207,223 is not taxable. Accordingly ground number 2 & 3 of the appeal of the assessee are allowed.
9. In the result appeal of the assessee is allowed.”
8. In the present case, from the orders of the authorities below, it is clear that the authorities below have treated interest received by the assessee on enhanced compensation u/s 28 of the Land Acquisition Act, 1984 as ‘Income from other sources’ and denied exemption u/s 10(37) of the Act. The facts and circumstances of the present case are identical and similar to the case of Ram Kishan (supra) wherein the coordinate Bench of the Tribunal categorically held that the interest received by the assessee u/s 28 of the Land Acquisition Act, 1984 on enhanced compensation is part and parcel of the compensation, if the agricultural land of the assessee has been acquired under compulsory acquisition and, thus, the same is exempt income u/s 10(37) of the Act. Respectfully following the said proposition, I allow ground No.2 of the assessee and the AO is directed to delete the addition.
9. In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 23.06.2023.
