INCOME TAX ACT, 1961

Section 45(5) read with section 56(2)(viii)

Capital gains - Chargeability - Interest on enhanced compensation arising on compulsory acquisition of agricultural land -

Issue arose as to whether after insertion of sections 56(2)(viii) and 57(iv) from 1-4-2010, can assessee claim that interest received under section 28 of the Land Acquisition Act, 1894, will part take character of compensation and would fall under the head “Capital gains” and not “Income from other sources”. Held: The scheme with regard to chargeability of interest received on compensation and enhanced compensation has undergone a sea change with the insertion of Sections 56(2)(viii) and 57(iv) of the 1961 Act. Section 56 deals with income from other sources and a specific provision has been inserted by way of sub-section 2(viii), whereby interest received on compensation or enhanced compensation, as referred to in clause (b) to section 145A has been included under head 'Income from other sources'. In clause (iv) to Section 57, deduction of fifty per cent is provided on interest received on compensation or enhanced compensation. In view of the amendments, decision of Apex Court in Ghanshyam's case [(2009) 315 ITR 1 (SC) : 2009 TaxPub(DT) 1897 (SC)] did not come to rescue of petitioner to claim that interest received under section 28 of the 1894 Act is to be treated as compensation and to be dealt with under “Capital gains”. Fact that there is no amendment carried out under Section 10(37) of Income Tax Act, 1961, will not change position. Section 10 deals with deductions and sub section (37) thereof deals with capital gains arising from transfer of agricultural land. It no where provides as to what is to be included under head “Capital gains”. Thus, interest received on compensation or enhanced compensation was to be treated as “income from other sources” and not under the head “Capital gains”.

Distinguished:CIT v. Ghanshyam (HUF) (2009) 315 ITR 1 (SC) : 2009 TaxPub(DT) 1897 (SC) and Movaliya Bhikhubhai Balabhai v. ITO (2016) 388 ITR 343 (Guj) : 2016 TaxPub(DT) 2320 (Guj-HC).

REFERRED :

FAVOUR : Against the assessee.

A.Y. : 2016-17

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