Manjeet Digambar More Vs ITO (ITAT, Mumbai)
Interest That Travels With the Land: Section 28 Interest Is Enhanced Compensation, Not “Other Sources” u/s 56—ITAT Deletes ₹14.26-Lakh Addition
Delay of 131 Days Condoned
The assessee filed the appeal before the Tribunal with a delay of 131 days. He submitted a condonation petition supported by a notarised affidavit sworn on 04.03.2026, explaining the circumstances responsible for the delay.
The Departmental Representative did not raise any strong objection to the condonation request.
After considering the affidavit, the Tribunal found that the assessee had demonstrated sufficient cause for not filing the appeal within the prescribed period. The delay was neither deliberate nor attributable to any lack of bona fides.
Invoking its power u/s 253(5) & prioritising substantial justice, the ITAT condoned the delay and admitted the appeal for adjudication on merits. Section 253(5) empowers the Tribunal to admit an appeal after expiry of the prescribed period where sufficient cause is demonstrated.
Facts of the Case
The assessee was an individual. Based on information received through the Department’s Risk Management Strategy, the AO noticed that he had received aggregate interest income of ₹34,83,868 during the relevant previous year.
The AO initiated reassessment proceedings & issued notice u/s 148 on 28.03.2024. In response, the assessee filed his return on 28.06.2024 declaring a total income of ₹4,44,360.
During the assessment, Form 26AS revealed that the assessee had received ₹28,53,487 from the Deputy Collector/Land Acquisition Officer. The amount was described as interest on enhanced compensation & tax of ₹2,85,349 had been deducted u/s 194A.
The assessee explained that his agricultural land had been compulsorily acquired & that the disputed amount represented interest awarded u/s 28 of the Land Acquisition Act, 1894. Section 28 of the Land Acquisition Act, 1894 concerns interest on excess compensation awarded by the Court.
According to him, such interest was not ordinary interest income. It constituted an integral part of the enhanced compensation awarded for compulsory acquisition & could not be independently taxed under the head “Income from Other Sources.”
AO’s Treatment of the Interest
The AO rejected the explanation. He invoked section 56(2)(viii) r.w.s. 57(iv).
Under this treatment, the interest on compensation or enhanced compensation was regarded as income from other sources. After granting the statutory deduction of 50%, the AO brought the balance amount of ₹14,26,743 to tax.
The reassessment was completed u/s 147 r.w.s. 144B on 24.01.2025. The CIT(A)/NFAC upheld the addition by order dated 19.08.2025.
The assessee thereafter approached the ITAT.
Interest u/s 28 Is Part of Compensation
The assessee contended that interest awarded u/s 28 of the Land Acquisition Act possesses a character different from ordinary interest.
Such interest is awarded by the court while enhancing compensation because the original amount determined for the acquired property was inadequate. It is therefore an accretion to the value of the land & forms part of the enhanced compensation itself.
The assessee relied upon the Delhi ITAT’s decision in Akhilesh Bansal v. ITO, ITA No. 2394/Del/2026, dated 27.07.2026.
That decision, following Satender Kumar v. ITO, ITA No. 229/Del/2026 & Pawan Kumar v. PCIT [2024] 159 taxmann.com 61, held that interest awarded u/s 28 is not an independent receipt but forms an integral component of enhanced compensation.
The Tribunal in those cases had also considered the Supreme Court’s decision in CIT v. Ghanshyam (HUF) & the amendments introduced by the Finance (No. 2) Act, 2009.
Taxability Follows the Character of the Land
The principle accepted by the Coordinate Bench was that the taxability of section 28 interest follows the taxability of the underlying compensation.
Where the acquired property is rural agricultural land falling outside the definition of “capital asset” u/s 2(14)(iii), compensation arising from its compulsory acquisition is not chargeable to capital gains tax. Section 2(14)(iii) deals with agricultural land excluded from the definition of capital asset.
Once the interest awarded u/s 28 is treated as part of that compensation, it cannot be artificially separated & assessed as income from other sources. Its character remains attached to the compensation of which it forms a part.
The Departmental Representative could neither produce a contrary decision nor identify any material factual distinction from the authorities cited by the assessee.
ITAT’s Decision
The ITAT recorded that the assessee received ₹28,53,487 as interest u/s 28 in connection with the compulsory acquisition of agricultural land.
Following Akhilesh Bansal & Satender Kumar, it held that the interest represented an accretion to the value of the acquired land & formed part of the enhanced compensation.
Accordingly, the amount could not be independently brought to tax u/s 56(2)(viii) r.w.s. 57(iv).
The addition of ₹14,26,743 was deleted, the CIT(A)’s order was set aside to that extent & the assessee’s appeal was allowed.
Authors’ Comments
The ruling reinforces the substantive distinction between interest awarded u/s 28 & ordinary interest for delayed payment. The label “interest” is not conclusive; its legal character depends upon the provision under which it is awarded.
However, the exemption ultimately depends upon the underlying land & compensation. The assessee should preserve the acquisition notification, revenue records, award, court order & evidence establishing that the land was rural agricultural land outside section 2(14)(iii).
The fact that TDS was deducted u/s 194A does not by itself determine taxability. TDS is a collection mechanism, not a final adjudication of the character of the receipt.
Cases Discussed
- Akhilesh Bansal v. ITO, ITA No. 2394/Del/2026, dated 27.07.2026
- Satender Kumar v. ITO, ITA No. 229/Del/2026, order dated 10.02.2026
- Pawan Kumar v. PCIT, (2024) 159 taxmann.com 61 (Del.-Trib.)
- CIT v. Ghanshyam (HUF)
FULL TEXT OF THE JUDGMENT/ORDER OF ITAT, MUMBAI
The instant appeal of the assessee filed against the order of the NFAC, Delhi [for brevity ‘Ld. CIT(A)’], order passed under Section 250 of the Income Tax Act, 1961 (for brevity ‘the Act’) for Assessment Year 2020-21, date of order 19.08.2025. The impugned order emanated from the order of the Assessment Unit Income Tax Department (for brevity ‘Ld. AO’) order passed under Section 147 r.w.s. 144B of the Act, date of order 24.01.2025.
2. The registry informed that the appeal was filed with a delay for 131 days. The assessee has filed a petition for seeking condonation of delay along with a notarized affidavit sworn on 04.03.2026 by assessee-himself for explaining the delay. The Ld. DR had not made any strong objection against the submission of the assessee. Considering the circumstances explained in the affidavit, we find that the assessee has shown sufficient cause for not filing the appeal within the prescribed period. The delay does not appear to be deliberate or attributable to any lack of bona fides. Section 253(5) of the Act empowers the Tribunal to admit an appeal after expiry of the prescribed period where sufficient cause for the delay is demonstrated. Accordingly, in the interest of substantial justice, the delay of 131 days in filing the present appeal is condoned and the appeal is admitted for adjudication on merits.
3. The assessee is an individual. Based on information received through the Risk Management Strategy, the Ld. AO noticed that the assessee had received interest income aggregating to Rs.34,83,868/- during the relevant previous year. Consequently, reassessment proceedings were initiated, and notice under section 148 of the Act was issued on 28.03.2024. In response, the assessee filed the return of income on 28.06.2024, declaring total income of Rs.4,44,360/-. During the assessment proceedings, the Ld. AO observed from Form No. 26AS that the assessee had received Rs.28,53,487/- from the Deputy Collector, Land Acquisition Officer, as interest on enhanced compensation, on which tax of Rs.2,85,349/- had been deducted under section 194A of the Act. The assessee explained that his agricultural land had been compulsorily acquired and that the impugned interest was awarded under section 28 of the Land Acquisition Act, 1894. According to the assessee, such interest formed an integral part of the enhanced compensation and was not independently taxable as income from other sources. The Ld. AO did not accept the explanation. Applying section 56(2)(viii) read with section 57(iv) of the Act, the Ld. AO allowed deduction of 50% of the interest and assessed the balance amount of Rs.14,26,743/- under the head “Income from Other Sources”. The assessment was accordingly completed under section 147 r.w.s. 144B of the Act on 24.01.2025. The Ld. CIT(A), by the impugned order dated 19.08.2025, upheld the addition. Being aggrieved, the assessee is in appeal before the Tribunal.
4. The Ld. AR argued and contended that the Ld. AO found that the assessee had received amount to Rs.28,53,487/- as interest on enhanced compensation and TDS was deducted u/sec. 194A amount to Rs.2,85,349/-. The Ld. AO had considered the entire interest u/sec. 56(2)(vii) and by application of section 57(iv) providing for 50% result in taxable amount comes amount to Rs.14,26,743/- which was added back with the total income of the assessee.
5. The Ld. AR contended that the identical issue was duly considered by the Coordinate Bench of ITAT Delhi in the case of Akhilesh Bansal vs ITO ITA No.2394/Del/2026, date of pronouncement 27.07.2026, the relevant observations of the bench is reproduced as below:
“17. The Assessing Officer treated the interest u/s 28 as income from other sources, whereas the ld. CIT(A) sustained taxation of fifty per cent thereof after allowing deduction under section 57(iv). In our considered opinion, the approach adopted by both the authorities is contrary to the settled legal position as the interest on enhanced compensation u/s 28 of the Land Acquisition Act, 1984 is to be treated as part of compensation thus falling outside the scope of section 56.
18. An identical issue recently came up for consideration before the Coordinate Bench of this Tribunal in Satender Kumar vs. ITO (ITA No.229/Del/2026, order dated 10.02.2026). After an elaborate consideration of the decisions of the Hon’ble Supreme Court in CIT v. Ghanshyam (HUF) and the legislative amendments introduced by the Finance (No.2) Act, 2009, the Coordinate Bench after placing reliance upon another decision of Coordinate bench in the case of Pawan Kumar v. PCIT (2024) 159 taxmann.com 61 (Del.-Trib), held that interest awarded under section 28 of the Land Acquisition Act is not an independent receipt but is an accretion to the value of the land and forms an integral part of the enhanced compensation itself.
19. We respectfully concur with the aforesaid view as once the interest awarded under section 28 forms part and parcel of the compensation itself, its taxability necessarily follows the taxability of the compensation. Moreover, where the underlying compensation is not chargeable to tax because the land itself is not a capital asset, the interest under section 28 cannot be artificially segregated and subjected to tax under the head “Income from Other Sources”. The character of the interest cannot be dissected from the character of the compensation to which it is inextricably attached.
20. In the present case, we have already held that the land acquired was rural agricultural land falling outside the ambit of section 2(14)(iii) of the Act and consequently the enhanced compensation itself is not exigible to tax. Therefore, applying the ratio laid down by the Coordinate Bench in Satender Kumar vs. ITO (supra), we hold that the interest awarded under section 28 of the Land Acquisition Act, being an integral component of such compensation, is likewise not chargeable to tax.
21. Accordingly, the addition made towards enhanced compensation as well as the addition sustained in respect of interest under section 28 of the Land Acquisition Act are directed to be deleted in entirety. The assessee succeeds on all the substantive grounds of appeal.
22. In the result, the appeal filed by the assessee is allowed.”
6. The Ld. DR argued and stands in favor of the orders of revenue authorities. But the Ld. DR was unable to file any contrary judgment against the submission of the Ld. AR.
7. We have heard the rival submissions and perused the material available on record. The undisputed fact is that the amount of Rs.28,53,487/- was received by the assessee as interest awarded under section 28 of the Land Acquisition Act, 1894, in connection with the compulsory acquisition of agricultural land. The Ld. AO treated the amount as interest taxable under section 56(2)(viii) of the Act and, after allowing deduction of 50% under section 57(iv), brought the balance amount of Rs.14,26,743/- to tax.
An identical issue was considered by the Coordinate Bench of the Delhi Tribunal in Akhilesh Bansal (supra). After following Satender Kumar v. ITO, ITA No. 229/Del/2026, order dated 10.02.2026, the Coordinate Bench held that interest awarded under section 28 of the Land Acquisition Act is an accretion to the value of the acquired land and forms an integral part of the enhanced compensation. It was further held that where the underlying compensation is not chargeable to tax because the acquired land is not a capital asset, the interest awarded under section 28 cannot be separately assessed under the head “Income from Other Sources”. The revenue has not brought to our notice any contrary decision or any material factual distinction from the aforesaid decision of the Coordinate Bench. Therefore, respectfully following the ratio laid down in Akhilesh Bansal (supra), we hold that the interest received by the assessee under section 28 of the Land Acquisition Act forms part of the enhanced compensation and cannot be separately brought to tax under section 56(2)(viii) read with section 57(iv) of the Act. Accordingly, the addition of Rs.14,26,743/- is deleted. The impugned order of the Ld. CIT(A), to that extent, is set aside, and the grounds raised by the assessee are allowed.
8. In the result, the appeal of the assessee bearing ITA No.2597/Mum/2026 is allowed.
Order pronounced in the open court on 04th day of September 2026
