No Tax on Compensation received for compulsory acquisition of land by Govt

Viswanathan M. Vs Chief Commissioner (Kerala High Court)

The issue under consideration is whether the exemption will be allowed against compensation paid for acquired land?

The land of the petitioner had been acquired by the government taken for expansion of Road against some consideration. Now, A.O. wants to charge Income Tax on this consideration received by the petitioner.

The language of Section 96 of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act (RFCTLARR) Act, 2013, do not leave any doubt in the mind that if the land is either acquired or the result of an agreement, it could not fall within the mischief of Income Tax Act, in other words, exemption is liable to be granted

Further, The Central Board of Direct Tax vide the Circular No.36/2016 dated 25.08.2016 came out with a clarification that the exemption provided under Section 96 of the RFCTLARR Act is wider in scope than the tax-exemption provided under the existing provisions of Income-tax Act, 1961. Hence, compensation received in respect of non agricultural land which has been exempted from levy of income-tax vide section 96 of the RFCTLARR Act shall also not be taxable under the provisions of income-tax Act, 1961 even if there is no specific provision of exemption for such compensation in the Income-tax Act, 1961

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