Malini Vs ACIT (ITAT Chennai)
Assessee received a substantial amount of enhanced compensation along with interest due to compulsory acquisition of agricultural land. In her return of income, she declared the compensation & claimed that the interest received was not taxable, as the land was agricultural & thus outside the scope of “capital asset” under the Income-tax Act.
During scrutiny, AO examined the receipt of compensation & noted that interest of ₹1.94 crore was received on the enhanced9 compensation. Applying section 56(2)(viii) read with section 145A(b), AO treated the interest as “Income from Other Sources”, taxable in the year of receipt. Only 50% deduction u/s 57(iv) was allowed, & ₹97.44 lakh was added to the total income.96
Assessee argued that when the land itself is agricultural & exempt, the interest on such compensation is merely an accretion to compensation, & therefore also exempt. She relied heavily on the Supreme Court judgment in CIT v. Ghanshyam (HUF) (315 ITR 1), which held that interest awarded under section 28 of the Land Acquisition Act is part of compensation, not a separate income. She also relied on section 96 of the RFCTLARR Act, 2013, which clearly states that no income-tax shall be levied on any compensation, enhanced compensation, solatium or interest awarded under the Act. Further support came from ITAT Chennai’s own earlier decision in SV Global Mill Ltd. (2021), which held that interest on delayed payment of compensation is exempt under RFCTLARR Act.
