Pranav Saran Vs ACIT (ITAT Delhi)
There are divergent views on this taxability of interest on the enhanced compensation awarded u/s 28 of the Land Acquisition Act wherein the Hon’ble Punjab & Haryana High Court has consistently taking a view that it is an income to be treated under the head ‘income from other sources’. The Hon’ble Gujarat High Court has decided this issue in favour of the assessee following the decision of Hon’ble Supreme Court in the case of Ghanshyam (supra). Since the AO of the present case falls under the jurisdiction of Hon’ble Delhi High Court, therefore following the dictum that, if one High Court is in favour of the assessee, then in absence of any jurisdictional High Court, that should be followed in favour of the assessee. Thus, ratio of Hon’ble Punjab & Haryana High Court may not have any binding precedent. Thus, the interest on the enhanced compensation u/s 28 of the Land Acquisition Act is not taxable.
FULL TEXT OF THE ORDER OF ITAT DELHI
The aforesaid appeal has been filed by the assessee against the impugned order dated 18.03.2021, passed by the ld. National Faceless Appeal Centre (NFAC), Delhi for the quantum of assessment passed under section 143(3) of the Income-tax Act, 1961 (for short ‘the Act’) for the Assessment Year 2016-17.
2. In the grounds of appeal, the assessee has raised following grounds :-
“1. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. AO in not allowing the benefit of exemption claimed by the assessee u/s 10(37) on the compulsory acquisition of agricultural land under the Land Acquisition Act and more so when all the conditions have been complied with by the assessee and further erred in exercising his jurisdiction u/s 251(2) in treating the subject agricultural land as ‘Capital Asset’ U/S 45(5) and that too by recording incorrect facts and findings and without appreciating the facts and circumstances of the case and in violation of principles of natural justice and without considering the submission filed by the assessee and without providing the entire adverse material available on record.
2. That in any case and in any view of the matter, action of Ld. CIT(A) in confirming the action of Ld. AO in not allowing the benefit of exemption claimed by the assessee u/s 10(37) on the compulsory acquisition of agricultural land under the Land Acquisition Act and more so when all the conditions have been complied with by the assessee and further erred in exercising his jurisdiction u/s 251 (2) in treating the subject agricultural land as ‘capital asset’ u/s 45(5), is bad in law and against the facts and circumstances of the case.
3. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in holding as under:-
(a) That the land in question is a ‘Capital Asset’, whose acquisition by state Government is a transfer of capital asset wherein the principal compensation received by the appellant is chargeable to under the head ‘Capital Gains’ u/s 45 of Income Tax Act, 1961.
(b) That interest on enhanced compensation is to be treated as ‘Income from Other Sources’ u/s 56 of Income Tax Act, 1961.
4. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in treating the interest on enhanced compensation as interest simpliciter whereas such interest is to be treated as part of compensation itself in view of authoritative judicial decisions and being part of compensation, ought to qualify for exemption u/s 10(37) of Income Tax Act, 1961.”
3. Facts, in brief, are that the assessee has filed his original return of income at Rs.3,34,10,040/- on 03.08.2016. Later on, return was revised at Rs.1,70,83,650/- which was filed on 23.03.2018. The case of the assessee was selected for limited scrutiny under CASS on the following grounds :-
“Sale consideration of property reported by the assessee in schedule CG of ITR is less than the compensation on acquisition of immovable property reported by transferee of property in TDS return (for TDS u/s 194L and 194LA).”
4. The assessee has declared interest received on enhanced compensation u/s 28 under the Land Acquisition Act, 1894, of Rs.3,31,93,013/-. Later on, in the revised return, the assessee has claimed 50% deduction u/s 57 of the Act on the said interest. The AO accepted the interest income at Rs.1,70,83,650/- as shown in revised return. However, during the course of assessment proceedings, the assessee had raised a claim by way of letter that even the balance amount of 50%, i.e., Rs.1,70,83,650/- itself was not taxable as enhanced interest was awarded u/s 28 of the Land Acquisition Act and, therefore, such interest income partakes the nature of compensation as held by Hon’ble Supreme Court in the case of UOI & Ors. Vs. Hari Singh reported in 302 CTR 458 (SC) and CIT vs. Ghanshyam (HUF) (2009) 315 ITR 1. According to the assessee, since the land was agricultural land being used for agricultural operations in for last many years of acquisition and, therefore, such agricultural land which was acquired by the Government and thus compensation received from the Government is exempt u/s 10(37) of the Act. The AO however did not accept this claim.
5. The assessee then raised this issue before the NFAC. Ld. NFAC however, instead of dealing with the controversy raised in the grounds of appeal and was subject matter of appellate proceedings that amount of interest received on the acquisition of land u/s 28 of the Land Acquisition Act is exempt, has held that the land itself is not agricultural and, therefore, there is no question of any exemption u/s 10(37) of the Act. Accordingly, there was an enhancement. One of the allegations of the first appellate authority is that assessee has not given any other evidence to show that impugned land was agricultural land and merely relied upon the RTC. The entire case of the first appellate authority revolves around the fact that the land, which was the subject matter of award for compensation, was not used for agricultural purposes. All the evidences filed before the first appellate authority to substantiate that it was agricultural land have been rejected and finally, it was held that the land was not agricultural land albeit it had commercial value having a strategic location and, therefore, exemption u/s 10(37) cannot be allowed. The judgments which was relied upon by the assessee has been distinguished and many judgements have been quoted by him from his side and finally it was concluded as under:-
“44. From the above facts and judicial pronouncements the appellant does not fulfill the conditions for claiming exemptions under section 10(37) of the Income tax Act, 1961. The nature and character of land, as seen from various documents submitted by the appellant during the assessment and appellate proceedings acquired by the Haryana Government under compulsory acquisition cannot be called Agricultural Land under the provisions of the Income-tax Act, 1961. In view of the above facts and circumstances the land in question is a ‘Capital Asset’, whose acquisition by State Government is a transfer of capital asset wherein the principle compensation received by the appellant is chargeable under the head Capital Gains under section 45 of the Income-tax Act, 1961. Interest on the enhanced compensation is to be treated as ‘Income from other sources’ under section 56 of the Income-tax Act, 1961. The AO is directed accordingly.”
6. Before us, ld. counsel for the assessee, Dr. Rakesh Gupta submitted that insofar as the interest on enhanced compensation u/s 28 of the Land Acquisition Act in respect of agricultural land also partakes the character of a compensation and, therefore, he is entitled for compensation u/s 10(37) of the Act. In support, he relied upon various judgments which are as under :-
(i) ITO vs. Gordhan, ITA No.3996/2018 dated of order 15.01.2019 (Del.);
(ii) Sushma Gupta vs. ITO, ITA No.1823/2016, dated of order 31.01.2019 (Del.);
(iii) ITO vs. Shri Vinayak Hari Palled, ITA No.05/2017 date of order 12.10.2018 (Bang.)
(iv) Jagmal Singh vs. ITO, ITA No.2340/2018 date of order 20.09.2018 (Del.);
(v) ITO vs. Shri Basavaraj M Kundarikannur, ITA Nos.1747 & 1750/2017 dated of order 01.06.2018 (Bang.);
(vi) Shri Yashpal Singh vs. ITO, ITA No.755/2013 date of order 18.03.2014 (Asr);
(vii) Sumesh Kumar vs. ITO, ITA No.5207/2017 date of order 05.03.2020 (Del.);
(viii) Shri Baldev Singh vs. ITO, ITA No.2970/2015 date of order 08.03.2019 (Del.);
(ix) ITO vs. Shri Dhanender Kumar HUF, ITA No.1591/2018 date of order 30.09.2019 (Chd);
(x) Shri Ummed Singh & Ors. vs. ITO, ITA Nos.5774-5777/2016 date of order 30.01.2020 (Del.); and
(xi) Mahesh Kumar Gupta vs. DCIT, ITA No.5986/2016 date of order 16.10.2019 (Del.)
Copies of which have been filed in the paper book before us.
7. Thus, insofar as the assessee’s claim for exemption u/s 10(37) is concerned, the same cannot be denied insofar as interest on enhanced compensation received u/s 28 of the Land Acquisition Act. He also referred to copy of award, as appearing in pages 140 to 146 of the paper book, passed by Land Acquisition Collector where it has been categorically mentioned that the award classified the land as “Chahi” which means irrigated land. The award also mentioned that there were tubewells and trees and the land was under Kharif crop and farmers have requested for permission to harvest the crop after ripening or allowing them due compensation for the same and the Land Acquisition Collector has allowed the owners for harvesting of the crop. He also referred to Form ‘D’ issued by Land Acquisition Officer which is issued in the case of compulsory acquisition of land which itself goes to show that it was agricultural land only. This Form ‘D’ issued by LAO has been signed by him and Patwari and Kanungo certifying that it was an agricultural land. He also referred to copy of jamabandi at pages 73 to 75 of the paper book which clearly shows that the land was under self-cultivation and there were tubewells and it was irrigated land establishing the nature of land as agriculture. He also pointed out that in the earlier income-tax returns starting from AY 2004-05 onwards; assessee had shown agricultural income from these land only.
8. Ld. NFAC issued notice u/s 251(2) that land does not fall under the parameter of agricultural land. In response, the assessee had submitted the entire evidences showing that land acquired was agricultural land and for which copy of jamabandi, Form-D, copy of award, etc. was enclosed. The assessee had also submitted the girdwari which gives the description of the crops produced in various years. Hence, Ld. Counsel submitted that ld. NFAC erred on law and facts in holding that compensation which was awarded on the acquisition of the land by the Government was not an agricultural land. In the light of these evidences and record, he submitted that such a finding should be reversed.
9. On the other hand, ld. DR for the Revenue submitted that first of all, interest received u/s 28 of the Land Acquisition Act is not part of compensation and is taxable and in support decisions of Hon’ble Punjab & Haryana High Court in case of Manjit Singh (2016) 65 taxman.com, Mahender Pal Narang vs. CBDT 423 ITR 13 and Punit Singh vs. CIT (A) 110 taxman 16. Thus, AO has rightly denied the exemption u/s 10(37) of the Act holding that interest received on enhanced compensation u/s 28 of the Land Acquisition Act is taxable. Insofar as observation and the finding of the ld. NFAC that it was not agricultural land, he strongly relied upon the finding and reasoning of the ld. first appellate authority.
10. We have heard rival submissions and also perused the relevant findings given in the impugned order as well as the material referred to before us. Here in this case, the assessee is having agricultural land in Village Gulab Nagar, HB-404, Tehsil Jagadari, District Yamuna Nagar, Haryana. The assessee’s land was acquired by the Government of Haryana and Land Acquisition Collector had announced award on 16.07.2007 fixing the market value of the land at Rs.20,00,000/- per acre. Later on, it was awarded enhanced compensation of Rs.95,00,000/- per acre by Hon’ble Supreme Court. The assessee was awarded interest u/s 28 of the Land Acquisition Act of Rs.3,31,93,013/- and had claimed deduction of 50% in the revised return and accordingly, in the return of income, the assessee has shown income on this amount of interest at Rs.1,70,83,650/-. Later on, during the course of assessment proceedings, the assessee claimed that this interest is not taxable at all, because such interest is enhanced income u/s 28 of the Land Acquisition Act and, therefore, it partakes the character of compensation which is held to be not taxable by Hon’ble Supreme Court in the case of CIT vs. Ghanshyam HUF and in the case of UOI vs. Hari Singh (supra). Ld. AO however held that the same is taxable. In the appeal filed before the first appellate authority, NAFC, the first appellate authority changed the entire nature of controversy and held that the amount on which compensation was awarded itself was not an agricultural land and, therefore, assessee is not entitled for any exemption u/s 10(37) of the Act which was brought into the statute to safeguard the interests of the farmers by the State Government under schemes of compulsory acquisition.
11. First of all, we will deal with the contention raised by the ld. DR for the Revenue that whether interest awarded u/s 28 of the Land Acquisition Act is part of compensation is taxable or not. According to the provisions of Land Acquisition Act, when the land is acquired the Collector may be directed to pay interest on excess compensation to the landowner u/s 28 of the Land Acquisition Act which is by the order of the Court and for the period the till excess compensation is deposited in the court. The said section has following limb :-
