Babubhai Kanjibhai Sakariya Vs ITO (ITAT Rajkot)
Interest on Enhanced Compensation Is Part of Land Value, Not Income – ITAT Rajkot Deletes ₹94.81 Lakh Addition on Rural Land Acquisition
Rajkot ITAT allowed Assessee’s appeal & held that interest awarded under section 28 of the Land Acquisition Act, 1894 forms part of enhanced compensation & is not taxable as income from other sources under section 56(2)(viii).
Assessee had received ₹1.89 crore as interest on enhanced compensation for compulsory acquisition of rural agricultural land, jointly owned by four co-heirs. Due to the Land Acquisition Officer quoting only Assessee’s PAN, the entire interest & TDS of ₹18.95 lakh appeared in his account. Assessee declared only his 25% share (₹47.37 lakh), explaining that the land was rural agricultural land—not a capital asset u/s 2(14)—& that interest u/s 28 represented accretion in land value, not ordinary interest.
AO rejected the explanation, taxing the entire ₹94.81 lakh (including 75% belonging to co-owners) & treating it as income from other sources, while CIT(A) upheld this view relying on a Delhi High Court ruling (Inderjit Singh Sodhi HUF) instead of the jurisdictional Gujarat High Court.
Before Tribunal, Assessee relied on the jurisdictional Gujarat High Court’s landmark ruling in Movaliya Bhikhubhai Balabhai v. ITO (388 ITR 343) & the SC decision in CIT v. Ghanshyam (HUF) (315 ITR 1). Tribunal noted that identical relief had already been granted in Assessee’s brother’s case (Mansukhbhai K. Sakariya, ITA 318/RJT/2024).
