Land Acquisition Act Section 28 Interest is Not ‘Interest’: Tribunal Deletes Entire Addition as Capital Receipt

Kantaben Vajubhai Paghadal Vs ITO (ITAT Rajkot)

Assessee’s appeal was delayed by 84 days. Tribunal found the reasons in the affidavit convincing & condoned the delay. On merits, Assessee received interest on enhanced compensation of Rs.18,51,082/- relating to compulsory acquisition of ancestral agricultural land. AO treated the interest as taxable “income from other sources”. CIT(A)/NFAC upheld the addition.

Before Tribunal, Assessee argued that the interest was granted u/s 28 of the Land Acquisition Act, hence it forms part of compensation for compulsory acquisition & is exempt u/s 10(37). Tribunal examined extensive judicial material, including the binding Gujarat High Court judgment in Movaliya Bhikhubhai Balabhai (2016) 70 taxmann.com 45, which held that interest u/s 28 is an accretion to compensation & not “interest” u/s 145B/56(2)(viii). Tribunal also relied on its own decision in Mansukhbhai Kanjibhai Sakariya, ITA 318/RJT/2024, and the Supreme Court rulings in Ghanshyam (HUF) & Govindbhai Mamaiya.

Tribunal noted that AO had already conducted proper inquiries in reassessment & adopted a legally sustainable view consistent with jurisdictional High Court law. PCIT’s reliance on Punjab & Haryana HC ruling in Manjeet Singh (HUF) was irrelevant, as it is not jurisdictional & contrary to binding Gujarat High Court law. Applying the doctrine of precedent & stare decisis, Tribunal held that the entire interest is part of compensation for compulsory acquisition of agricultural land & fully exempt u/s 10(37). The addition was deleted. Appeal allowed.