Paras & Shubham Chaudhary Vs ITO (ITAT Chandigarh)
Agricultural Land Acquisition – Interest u/s 28 Enjoys Same Exemption as Compensation- Interest on Enhanced Compensation Not Taxable as Income: ITAT Deletes ₹1.64 Cr Addition
The dispute arose on whether interest of ₹1,64,03,967/- received by the legal heirs of Shri Kanhaiya Lal u/s 28 of the Land Acquisition Act, 1894 on compulsory acquisition of land was taxable in AY 2007-08. The Haryana Government had acquired 18.98 acres of agricultural land at village Devinagar by issuing notification u/s 4 on 23.08.2001. The Land Acquisition Collector awarded compensation at ₹6 lakh per acre. On reference u/s 18, the Additional District Judge, Panchkula enhanced the compensation to ₹440 per sq. yd. (approx. ₹21.34 lakh per acre) along with statutory benefits like solatium & interest. Shri Kanhaiya Lal received the enhanced compensation & interest in the accounting year relevant to AY 2007-08. The AO taxed the interest u/s 28 as income, & the CIT(A) upheld this action.
Before the Tribunal, Assessees contended that interest awarded u/s 28 is not interest in the ordinary sense but is deemed to be part of compensation itself, as settled by the Supreme Court in CIT v. Ghanshyam (HUF) 315 ITR 1. They further argued that by virtue of Sec 10(37), which exempts capital gains arising from compulsory acquisition of urban agricultural land if used for agricultural purposes, the enhanced compensation & interest treated as compensation was not taxable. The Revenue could not controvert this legal position.
