Kishorbhai Nathabhai Makani Vs ITO (ITAT Rajkot)
Interest u/s 28 Is Compensation in Disguise – Exemption u/s 10(37) Cannot Be Denied by Taxing It u/s 56
The Rajkot Bench of the ITAT has held that interest awarded u/s 28 of the Land Acquisition Act, 1894 on enhanced compensation is not ordinary interest taxable as “Income from other sources” u/s 56(2)(viii). It is an accretion to the compensation awarded for compulsory acquisition and, where the compensation relates to eligible agricultural land, it is entitled to exemption u/s 10(37) of the Income-tax Act.
The assessee, Kishorbhai Nathabhai Makani, challenged the order of the NFAC/CIT(A) for AY 2016-17. The core dispute was whether interest received on enhanced compensation relating to compulsory acquisition of agricultural land should be taxed u/s 56(2)(viii), or treated as an integral part of the compensation and granted exemption u/s 10(37).
The assessee contended that the controversy was already covered by the decision of the Rajkot Tribunal in Mansukhbhai Kanjibhai Sakariya v. ITO, ITA No. 318/Rjt/2024, dated 28.11.2025. Reliance was also placed upon the binding judgment of the Gujarat High Court in Movaliya Bhikhubhai Balabhai v. ITO [2016] 70 taxmann.com 45 (Guj.), which held that interest awarded u/s 28 of the Land Acquisition Act forms part of the compensation.
