Mahender Pal Narang Vs Central Board of Direct Taxes (Punjab and Haryana High Court)
Punjab and Haryana High Court has dismissed a petition filed by Mahender Pal Narang against an order of the Central Board of Direct Taxes (CBDT), clarifying a crucial aspect of income tax law regarding interest received on land acquisition compensation. The central question before the court was whether, following specific amendments to the Income Tax Act, 1961, interest received under Section 28 of the Land Acquisition Act, 1894, should be treated as part of the compensation (taxable under “Capital Gains”) or as “Income from Other Sources.”
Background of the Dispute
The case originated from the compulsory acquisition of agricultural land belonging to the petitioner, Mahender Pal Narang, during the assessment years 2007-08 and 2008-09. Subsequently, on March 21, 2016, Narang received enhanced compensation.
In his income tax return for the Assessment Year 2016-17, the petitioner initially declared the interest received under Section 28 of the 1894 Act as “income from other sources.” He also claimed a 50% deduction on this income, as permitted by Section 57(iv) of the 1961 Act. His return was processed without objection under Section 143(1) of the Act.
However, the petitioner later filed an application under Section 264 of the 1961 Act, seeking a revision of his assessment. He contended that he had mistakenly treated the interest income as “income from other sources,” arguing that it should, in fact, be considered part of the enhanced compensation and, therefore, taxable under the head “Capital gains.” The revisional authority, after considering the application, rejected it on January 30, 2019, leading to the present petition before the High Court.
