DCIT Vs Ganga Developers (ITAT Mumbai)
ITAT Mumbai held that compensation received in respect of award/ agreement under Section 96 of Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 is not taxable under Income Tax Act, 1961.
Facts-
During assessment proceedings, it was found that assessee has claimed exemption under Section 10(37) of the Income Tax Act of Rs. 69,92,42,974/-. On questioning to the same, assessee submitted copy of Awarded under Section 11 of the Land Acquisition Act, 1984. Assessee relied on Section 96 of Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 as well as CBDT circular no.36/2016 dated 25th October 2016. Assessee submits that as the compensation has been received under that Act, the amount received is exempt under Section 10(37) of the Income Tax Act.
AO held that compensation received by the assessee of Rs. 69,96,28,629/- is business income. Accordingly, assessment order u/s. 143(3) of the Act was passed determining the total income of the assessee at ₹67,93,22,036/-.
CIT (A) has held that Award made in the present case is in terms of RFCTLAAR Act and not under the old Act which is repealed with effect from 1st January, 2014 and further, CBDT Circular No.36 of 2016, the above amount of compensation cannot be charged to tax. Accordingly, the claim of the assessee was allowed. Therefore, the learned Assessing Officer is aggrieved with the order is in appeal before us.
Conclusion-
According to Section 96 of Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 income tax shall not be levied on any award agreement made Under that act except as provided u/s 46 of that act. This award/agreement is not u/s 46 of that act. Therefore the income arising in the form of compensation shall be governed by the provisions of Section 96 of the act. Accordingly the income is not chargeable to income tax.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
01. This appeal is filed by the Dy. Commissioner of Income-tax 27(1), Mumbai (the learned Assessing Officer) against the appellate order passed by the Commissioner of Income-tax (Appeals)52, Mumbai [the learned CIT (A)] for A.Y. 2007-08 dated 2nd August, 2021, wherein the appeal filed by the assessee against the assessment order dated 28th December, 2019 passed under Section 143(3) of the Income-tax Act, 1961 (the Act), by the learned Assessing Officer was allowed.
02. The learned Assessing Officer has raised the following grounds of appeal:-
“1. Whether on the facts and circumstances of the case and in law the Ld. CIT(A) was right in holding that the compensation received on compulsory acquisition of land of Rs.69,92,42,974/- was not taxable and failing to appreciate that the award of compensation to the assessee was made under section 11 of the Land Acquisition Act 1894 and not an award under RFCTLAAR Act 2013 and hence the provisions of the section 96 of the RFCTLAAR Act 2013 is not applicable in the case of the assessee and the compensation was rightly treated as business income of the assessee.
2) Whether on the facts and circumstances of the case and in law the Ld. CIT(A) has erred in failing to appreciate that the provisions section 10(37) of the I.T. Act is applicable only to individuals and HUF and not to the assessee being the partnership firm and also as the land is non-agricultural land.
3) Whether on the facts and circumstances of the case and in law the Ld.CIT (A) has erred in holding that the CBDT circular number 36 of 2016 is applicable to the case of the assessee.
4) Whether on the facts and circumstances of the case and in law the Ld.CIT(A) was right in deleting the addition on account of deemed income from house property in respect of the unsold flats.
5) The appellant craves leave to amend, modify and alter any grounds of appeal during the course of hearing of this case.”
03. The fact of the case shows that assessee is a company engaged in the business of real estate development and construction. It is also running a hotel. It filed its return of income on 31stOctober 2017 declaring nil income.
04. During assessment proceedings, it was found that assessee has claimed exemption under Section 10(37) of the Act of ₹69,92,42,974/-. On questioning to the same, assessee submitted copy of Awarded under Section 11 of the Land Acquisition Act, 1984 dated 5/8/2016. Assessee relied on Section 96 of Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 (in short RFCTLARR) as well as CBDT circular no.36/2016 dated 25thOctober 2016. Assessee submits that as the compensation has been received under that Act, the amount received is exempt under Section 10(37) of the Act.
05. The learned Assessing Officer looked at the various dates with respect to acquisition of land of the assessee as per paragraph no.9 of the assessment order. The learned Assessing Officer noted that the date of publication of the notification of land acquisition is 21stJune 2012.Revised notification was published on 27thMarch 2014. Award under Section 11 of the Act was issued on 5thAugust 2016 and compensation was paid on 24thAugust 2015. The learned Assessing Officer further noticed that Land Acquisition Act was in force till 31stDecember 2013 and same has been repealed by the RFCTLARR Act, 2013 with effect from 1st June 2014. The learned Assessing Officer held that as the award was passed under Section 11 of the Act Land Acquisition Act, the provision of RFCTLAAR Act does not apply to the case. He also held that reliance on the CBDT Circular No.36 of 2016 is also misplaced. Accordingly, he held that compensation received by the assessee of ₹69,96,28,629/- is business income. Accordingly, assessment order under Section 143(3) of the Act was passed on 28th December 2018 determining the total income of the assessee at ₹67,93,22,036/-.
06. Assessee preferred the appeal before the learned CIT (A). The learned CIT (A) has held that Award made in the present case is in terms of RFCTLAAR Act and not under the old Act which is repealed with effect from 1stJanuary, 2014 and further, CBDT Circular No.36 of 2016, the above amount of compensation cannot be charged to tax. Accordingly, the claim of the assessee was allowed. Therefore, the learned Assessing Officer is aggrieved with the order is in appeal before us.
07. The learned Departmental Representative vehemently supported the order of the learned Assessing Officer and submitted that the Award is under the Land AcquisitionAct and same is not exempt under Section 10(37) of the Act. He further referred to the provision of Section 10(37) of the Act and stated that the claim of the assessee has rightly being denied. He further stated that, the learned CIT (A) is not correct in holding that the Award given to the assessee is under the new Act and further, circular of CBDT does not apply. He submitted that the assessee is not entitled to the above exemption.
08. The learned Authorized Representative vehemently supported the order of the learned CIT (A). He referred to Paper Book containing 282 pages which is the submission before the learned CIT (A). He further submitted that there is no infirmity in the order of the learned CIT (A) in holding that the award given to the assessee is under the new Act. He referred to the old legislation, new legislation and saving clause under Section 24 of the Act. He also stated that the decision cited by the learned CIT (A) covers the issue in favour of the assessee. He further submitted that now the issue is squarely covered in favour of the assessee by the decision of Hon’ble Bombay High Court in case of Seema Jagdish Patil Vs. National Hi-Speed Rail Corporation Ltd [2022] 139 com 249 (Bombay).
09. We have carefully considered the rival contentions and perused the orders of the lower authorities. The fact shows that during the year, the assessee has claimed exemption of ₹69,92,42,974/- of compensation received. This compensation was received for the reason that assessee was holding non agricultural land which was partially acquired by the Mumbai Municipal Corporation for recreational purposes and widening of existing road. The compensation was paid as per award dated 5thAugust 2016, under Section 96 of RFCTLAAR Act. The award was passed under Section 11 of the Act i.e. land acquisition Act, 1894. According to the learned Assessing Officer, same is not exempt. Several judicial precedents were relied upon before the lower authorities. The learned CIT (A) held as under :-
“5.7 The various observations of the AO while arriving at the conclusion that the provisions of section 96 of the RFCTLARR Act 2013 are not applicable to the present case and the submission made by the assessee have been examined. The main conclusions drawn by the AO can be summarized as below:
(i) The case of the appellant does not fall within the provisions of section 10(37) of the Act.
(ii) The case of the appellant does not fall within the scope of Board’s Circular No. 36/2016.
(iii) The case of the appellant does not fall within the scope of section 96 of RFCTLARR Act 2013 as the award is under the old Act.
5.8 The assessee is a partnership firm which has acquired a non-agricultural piece of land in Mumbai from various co-owners. There appears to be an encroachment of slums in part of the premises. However, there does not appear to be any dispute with respect to the ownership of the land as on the date of award as the entire consideration has been paid to the appellant in spite of certain reservations on this issue in the main order conferring the award. The time lines as noted by the AO resulting in the award of compensation are reproduced below:
