Lakhi Ram Vs ITO (ITAT Delhi)
Interest u/s 28 of Land Acquisition Act Forms Part of Compensation—Taxable as Capital Receipt, Not “Income from Other Sources”
The Delhi ITAT (E Bench) allowed the appeal of Lakhi Ram for AY 2019-20, holding that interest received under section 28 of the Land Acquisition Act, 1894 is an integral part of enhanced compensation and cannot be assessed as “income from other sources” under sections 56(2)(viii), 57(iv) and 145A(b).
The Tribunal held that:
- Interest u/s 28 is accretion to the value of land and forms part of enhanced compensation, as consistently held by the Supreme Court in Ghanshyam (HUF) and Union of India v. Hari Singh.
- Amendments introduced by the Finance (No.2) Act, 2009 (sections 56(2)(viii), 57(iv), 145A/145B) were intended to overcome the hardship caused by Rama Bai (taxability on accrual) and do not alter the character of interest u/s 28 from capital to revenue.
- Interest u/s 34 (delay in payment) stands on a different footing; only such interest is taxable as income from other sources—not interest u/s 28.
- Reliance by the Revenue on Mahender Pal Narang (P&H HC) was misplaced, as it was rendered without considering subsequent binding Supreme Court rulings; dismissal of SLP in limine does not create binding precedent.
- The AO’s acceptance of exemption based on Supreme Court law represented a plausible and legally sustainable view; no adverse inference could be drawn.
Accordingly, the ITAT set aside the NFAC order, accepted the assessee’s claim, and allowed the appeal in full, holding that interest u/s 28 retains the character of compensation and is not taxable as income from other sources
FULL TEXT OF THE ORDER OF ITAT DELHI
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