2025 (5) TMI 1541 - AT - Income Tax

Compensation received being arising out of compulsory acquisition of land under National Highway Act 1956 - Entitlement to exemption from Long Term Capital Gains tax u/s 96 of the Right to Fair Compensation and Transparency in Land Acquisition Rehabilitation and Resettlement Act 2013 (RFCTLARR Act) - HELD THAT - The Hon ble Punjab Haryana HC in the case of NHAI vs Modan Singh and Others and other group cases 2023 (4) TMI 1396 - PUNJAB AND HARYANA HIGH COURT has held that the RFCTLAAR Act. 2013 would apply to cases wherein award has been awarded prior to 31.12.2024 but compensation is not paid yet till 31.12.2014 even though the said acquisitions have been done under the NHAI Act. 1956.It is evident from the comparative chart on similar facts as above that the appellant case is covered matter in favour of assessee by case of Sh. Ranjit Singh 2023 (8) TMI 1617 - ITAT AMRITSAR when it has been observed that the award of compensation in the said case was not paid till 31.12.2014 and was paid only on 19.05.2015 as evident from bank statement and it isto be exempted u/s 96 of the RFCTLARR Act. We hold that the compensation received by the appellant assessee out of compulsory acquisition of land under National Highway Authority Act is exempt from Income Tax by virtue of section 96 of RFCTLARR Act 2013 and clarificatory circular No. 36/2016 dated 25.10. 2016. According the addition is deleted. Assessee appeal allowed.

The core legal questions considered by the Tribunal in this appeal are:

1. Whether the compensation received by the assessee on compulsory acquisition of land under the National Highway Act, 1956 qualifies for exemption from Long Term Capital Gains tax under Section 96 of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 (RFCTLARR Act) and the CBDT Circular No. 36/2016 dated 25.10.2016.

2. Whether the decision of the Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) (CIT(A)) in rejecting the exemption claim and assessing income at Rs. 2,05,93,010/- is legally sustainable.

3. Whether the binding precedent set by the co-ordinate Amritsar Bench of the Income Tax Appellate Tribunal (ITAT) in the case of Ranjit Singh & Ranjit Poultry Farm, which held similar compensation exempt, was correctly disregarded by the CIT(A).

4. Whether the exemption claim for additional compensation of Rs. 41,142/- under the same acquisition is maintainable (this ground was conceded as not pressed).

Issue-wise Detailed Analysis:

Issue 1: Applicability of Section 96 of the RFCTLARR Act and Circular No. 36/2016 to compensation under the National Highway Act, 1956

Legal Framework and Precedents: Section 96 of the RFCTLARR Act, 2013 provides exemption from capital gains tax for compensation received on compulsory acquisition of land under the Act. Circular No. 36/2016 issued by the CBDT clarifies the applicability of Section 96 to compensation received under various land acquisition statutes, including the National Highway Act, 1956, especially where the award was made before 31.12.2014 but compensation paid after that date.

Judicial precedents cited include the Supreme Court judgment in Union of India vs. Tarsem Singh (Civil Appeal No. 7064 of 2019), which held that the provisions of the RFCTLARR Act apply to land acquired under the National Highway Act and compensation must be calculated accordingly. The Punjab & Haryana High Court in NHAI vs. Modan Singh and others (FAQ 756-2022 order dated 11.04.2023) held similarly that RFCTLARR Act provisions apply where awards were made prior to 31.12.2014 but compensation was paid after that date.

The Rajasthan High Court in Gopa Ram vs. Union of India and the Kerala High Court in Raghavan Nair vs. ACIT also support the exemption under Section 96 for compensation arising from compulsory acquisition under related statutes.

Court's Interpretation and Reasoning: The Tribunal examined the facts that the award was announced on 07.11.2014 but the compensation was actually received by the assessee on 18.05.2015. The AO and CIT(A) had rejected the exemption on the ground that the award was given before 31.12.2014 and the RFCTLARR Act provisions were not applicable as the acquisition was under the National Highway Act, 1956.

The Tribunal relied on the Ministry of Road Transport and Highways letter dated 28.12.2017 clarifying that the RFCTLARR Act applies to acquisitions under the National Highway Act where awards were not paid before 31.12.2014. It also relied on the co-ordinate Bench's decision in Ranjit Singh & Ranjit Poultry Farm (ITA Nos. 91/Asr/2023 & 135/Asr/2023), which held that compensation received after 31.12.2014 is exempt under Section 96.

Key Evidence and Findings: The bank statement evidencing receipt of compensation on 18.05.2015 was a crucial fact distinguishing the case from those where compensation was paid before 31.12.2014. The Tribunal found that the AO's reliance on the date of award rather than date of receipt of compensation was misplaced.

Application of Law to Facts: The Tribunal applied the legal principle that the chargeability of capital gains arises in the year of receipt of compensation under Section 45(5)(a) of the Income Tax Act and that exemption under Section 96 of the RFCTLARR Act applies if compensation is received after 31.12.2014, even if the award was made earlier, provided the acquisition falls under the National Highway Act as clarified by the Ministry and judicial precedents.

Treatment of Competing Arguments: The AO and CIT(A) argued that since the acquisition was under the National Highway Act and the award was prior to 31.12.2014, Section 96 exemption did not apply. The Tribunal rejected this, emphasizing the binding nature of the co-ordinate Bench's decision and the clarificatory circulars and government letters. The Department failed to rebut the appellant's submissions effectively.

Conclusion: The Tribunal held that the compensation received by the assessee on compulsory acquisition of land under the National Highway Act, 1956 is exempt from income tax under Section 96 of the RFCTLARR Act, 2013 and Circular No. 36/2016.

Issue 2: Validity of the addition of Rs. 2,05,93,010/- to the assessee's income

Legal Framework and Precedents: The addition was made under the Income Tax Act based on the AO's rejection of exemption claim. The relevant provisions include Section 45(5)(a) regarding capital gains on compulsory acquisition and Section 96 of the RFCTLARR Act granting exemption.

Court's Interpretation and Reasoning: Since the Tribunal accepted the exemption claim under Section 96, the addition of Rs. 2,05,93,010/- representing long-term capital gains was held to be unjustified.

Key Evidence and Findings: The Tribunal relied on the revised return of income filed by the assessee showing income at Rs. 26,98,530/- after claiming exemption, and the bank statement confirming receipt of compensation after 31.12.2014.

Application of Law to Facts: The Tribunal applied the exemption provisions to negate the addition.

Treatment of Competing Arguments: The Department's stand that exemption was not applicable was rejected on the basis of binding precedents and clarifications.

Conclusion: The addition was deleted and the income assessed at the revised return level was accepted.

Issue 3: Non-adherence to binding precedent of the co-ordinate Amritsar Bench

Legal Framework and Precedents: The principle of judicial discipline requires adherence to decisions of co-ordinate benches unless overruled by higher courts. The co-ordinate Amritsar Bench had held in Ranjit Singh & Ranjit Poultry Farm that compensation under similar facts is exempt.

Court's Interpretation and Reasoning: The Tribunal noted that the CIT(A) failed to consider or follow the binding decision of the co-ordinate Bench despite the appellant bringing it on record and filing detailed submissions.

Key Evidence and Findings: The appellant provided a detailed comparative chart establishing factual similarity with the Ranjit Singh case, including dates of notification, award, compensation receipt, and acquisition details.

Application of Law to Facts: The Tribunal held that the CIT(A)'s failure to follow binding precedent was an error.

Treatment of Competing Arguments: The Department did not effectively distinguish the precedent or provide contrary binding authority.

Conclusion: The Tribunal held that the exemption claim was covered by the binding precedent and should have been allowed.

Issue 4: Exemption of additional compensation of Rs. 41,142/-

This ground was conceded by the appellant as not pressed following adverse judicial pronouncements, including the Punjab & Haryana High Court decisions. Accordingly, it was dismissed.

Significant Holdings:

"In the instant case, it is a matter of record that the award of compensation in the said case was not paid till 31.12.2014 and was paid only on 19.05.2015 as evident from bank statement and it is to be exempted u/s 96 of the RFCTLARR Act."

The Tribunal established the principle that for compulsory acquisition of land under the National Highway Act, 1956, where the award was made prior to 31.12.2014 but compensation was paid after that date, the provisions of the RFCTLARR Act, 2013, including exemption under Section 96, apply.

The Tribunal reaffirmed the binding nature of co-ordinate Bench decisions and the requirement for appellate authorities to follow such precedents unless overruled.

Final determination: The appeal was allowed, the addition of Rs. 2,05,93,010/- was deleted, and the exemption claim under Section 96 of the RFCTLARR Act was upheld.

← Previous Next →