ITAT: Interest on Enhanced Land Compensation Taxable as ‘Income from Other Sources’

The assessee, an individual, received interest of ₹82.88 lakh under Section 28 of the Land Acquisition Act, 1894, on enhanced compensation for compulsory acquisition of agricultural land during AY 2018-19. In reassessment proceedings initiated under Section 148, the Assessing Officer accepted the assessee’s claim that such interest was exempt under Section 10(37).

The Principal Commissioner of Income Tax (PCIT) found that the AO had failed to examine the issue in light of amended statutory provisions and binding judicial precedents, and invoked revisional jurisdiction under Section 263 to set aside the assessment.

Issues Raised: Whether interest received on enhanced compensation under Section 28 of the Land Acquisition Act is exempt under Section 10(37) or taxable as “income from other sources” under Section 56(2)(viii) read with Section 145B after the 2010 amendment, and whether the PCIT was justified in invoking Section 263 for lack of proper enquiry.

ITAT’s Decision: The ITAT dismissed the assessee’s appeal and upheld the PCIT’s revision order. The Tribunal held that post the Finance (No. 2) Act, 2009 amendments, interest received on compensation or enhanced compensation is expressly taxable as “income from other sources” in the year of receipt under Section 56(2)(viii) read with Section 145B, with a standard 50% deduction under Section 57(iv). It further held that Section 10(37) applies only to compensation and not to interest on compensation.

The Tribunal concluded that the AO’s failure to apply the settled legal position rendered the assessment erroneous and prejudicial to the interests of the Revenue, justifying action under Section 263.

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