Taxability Taxability of Interest on Enhanced Compensation

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The Tax Publishers Taxability of Interest on Enhanced Compensation Hridayesh Vyas Instant article tries to cover the issue regarding taxability of interest received by assessee on enhanced compensation awarded by Court, pursuant to compulsory acquisition of assessee's agricultural land by Government. 1. Statutory provisions Interest received on enhanced compensation is taxable as Income from other sources as per Section 57(iv) read with 56(2)(viii). However, compensation amount received by any assessee, in case of rural agricultural land, which is acquired by way of compulsory acquisition, is exempt under Section 10(37). Now, there are many instances when the amount of compensation fixed by Collector is disputed before Courts, who may or may not order enhanced compensation at their discretion. Issue arises, as to what will be the tax consequences of interest received on such enhanced compensation, in case the same, is awarded by Courts. Order passed by the Gujarat High Court, in Movaliya Bhikhubhai Balabhai v. ITO (TDS) (2016) 388 ITR 343 (Guj), has given rise to new litigations all over India. Issue under consideration before High Court was as to whether interest on enhanced compensation under Section 28 of the Land Acquisition Act, 1894, is assessable as capital gains or as income from other sources. 2. Brief facts of the case In this case assessee's agricultural lands were compulsorily acquired by State Government for undertaking an irrigation project. Assessee challenged the compensation awarded by the Collector in Court contending that the compensation given to assessee did not reflect true value of the acquired lands. Court awarded additional compensation of Rs. 5,01,846 and interest on the same amounting to Rs. 20.74 lakhs under Section 28 of the Land Acquisition Act, 1894. The assessee filed an application in the prescribed form to the AO for issuance of a certificate with 'nil' tax deduction at source. Claim of assessee was based on the ground that interest received on enhanced compensation being an integral part of the consideration, was taxable as 'capital gains' and therefore, was exempt under Section 10(37), as the lands were agricultural lands situated in rural area. SUBSCRIBE FOR FULL CONTENT

The Tax Publishers

Taxability of Interest on Enhanced Compensation

Hridayesh Vyas

Instant article tries to cover the issue regarding taxability of interest received by assessee on enhanced compensation awarded by Court, pursuant to compulsory acquisition of assessee's agricultural land by Government.

1. Statutory provisions

Interest received on enhanced compensation is taxable as Income from other sources as per Section 57(iv) read with 56(2)(viii). However, compensation amount received by any assessee, in case of rural agricultural land, which is acquired by way of compulsory acquisition, is exempt under Section 10(37). Now, there are many instances when the amount of compensation fixed by Collector is disputed before Courts, who may or may not order enhanced compensation at their discretion. Issue arises, as to what will be the tax consequences of interest received on such enhanced compensation, in case the same, is awarded by Courts. Order passed by the Gujarat High Court, in Movaliya Bhikhubhai Balabhai v. ITO (TDS) (2016) 388 ITR 343 (Guj), has given rise to new litigations all over India. Issue under consideration before High Court was as to whether interest on enhanced compensation under Section 28 of the Land Acquisition Act, 1894, is assessable as capital gains or as income from other sources.

2. Brief facts of the case

In this case assessee's agricultural lands were compulsorily acquired by State Government for undertaking an irrigation project. Assessee challenged the compensation awarded by the Collector in Court contending that the compensation given to assessee did not reflect true value of the acquired lands. Court awarded additional compensation of Rs. 5,01,846 and interest on the same amounting to Rs. 20.74 lakhs under Section 28 of the Land Acquisition Act, 1894. The assessee filed an application in the prescribed form to the AO for issuance of a certificate with 'nil' tax deduction at source. Claim of assessee was based on the ground that interest received on enhanced compensation being an integral part of the consideration, was taxable as 'capital gains' and therefore, was exempt under Section 10(37), as the lands were agricultural lands situated in rural area.