2025 (7) TMI 1364 - AT - Income Tax

Income from other sources - interest component of land acquisition compensation u/s 28 of the Land Acquisition Act 1894 while invoking section 57(iv) r.w.s. 56(1) (a) r.w.s. 145A(b) - HELD THAT - It emerges that this tribunal s recent decision in Pawan Kumar 2024 (1) TMI 1077 - ITAT DELHI interest under section 28 of Land Acquisition Act received by the assessee is exempt under section 10(37) - Assessee s appeal is allowed.

Summary

ISSUES:

Whether the interest component received under section 28 of the Land Acquisition Act, 1894 forms part of enhanced compensation and is exempt under section 10(37) of the Income Tax Act, 1961, or is taxable as income from "other sources" under sections 56(2)(viii), 57(iv), and 145A of the Income Tax Act.Whether the Assessing Officer's assessment order was erroneous or prejudicial to the interest of Revenue for not taxing the interest component as income from other sources.Whether the revisional jurisdiction under section 263 of the Income Tax Act can be validly exercised solely on the basis of an audit objection without independent application of mind.Interpretation and applicability of the decisions in CIT vs. Ghanshyam HUF (2009), Mahender Pal Narang vs. CBDT (2020), and subsequent Supreme Court rulings on the taxability of interest on compensation under the Land Acquisition Act.

RULINGS / HOLDINGS:

The interest received under section 28 of the Land Acquisition Act is an accretion to the value of the land and forms part of the enhanced compensation, which is exempt under section 10(37) of the Income Tax Act; it is not taxable as "income from other sources" under sections 56(2)(viii), 57(iv), and 145A. The assessment order holding this view is not erroneous.The Assessing Officer conducted necessary and proper enquiries during the assessment proceedings and accepted the assessee's explanation supported by binding Supreme Court precedent; therefore, the order cannot be held to be "erroneous" or "prejudicial to the interest of Revenue".The revisional jurisdiction under section 263 cannot be assumed merely on the basis of an audit objection without independent application of mind, as such assumption is invalid and contrary to settled law.The decision of the Punjab & Haryana High Court in Mahender Pal Narang's case, treating such interest as income from other sources, is distinguishable and not binding, particularly since the Supreme Court dismissed the Special Leave Petition (SLP) in limine, which does not amount to affirmation of the High Court's view.

RATIONALE:

The Court applied the legal framework under the Income Tax Act, 1961, especially sections 10(37), 28 of the Land Acquisition Act, and the amendments introduced by the Finance (No. 2) Act, 2009, including sections 56(2)(viii), 57(iv), and 145A.The Supreme Court's ruling in CIT vs. Ghanshyam HUF (2009) was held to be authoritative, establishing that interest under section 28 is part of compensation and exempt under section 10(37), while interest under section 34 is distinct and taxable as income from other sources.The Court noted that the amendments introduced by the Finance Act, 2009, were intended to address the taxability of interest on delayed or enhanced compensation as per the Supreme Court's decision in Rama Bai vs. CIT, and not to overrule Ghanshyam HUF.The Court emphasized that dismissal of SLPs without detailed reasons does not create binding precedent, thus the dismissal of SLP against Mahender Pal Narang's case does not bind the Court to follow that decision.The Court relied on precedents holding that revisional powers under section 263 cannot be exercised solely on audit objections without independent scrutiny, citing CIT vs. Sohana Woollen Mills and CIT vs. Hindustan Coca Cola Beverages Pvt. Ltd.The decision represents a reaffirmation of the distinction between capital receipts forming part of compensation and revenue receipts taxable as income from other sources, maintaining the settled position under the Supreme Court's jurisprudence.