ITAT Upholds Exemption u/s 10(37) on Rs 5 Crore Land Compensation Paid by Haryana Government

The Income Tax Appellate Tribunal (ITAT), Delhi, rejected Revenue’s appeal and upheld the exemption claimed by the assessee under section 10(37)(ii) of the Income Tax Act, 1961.

The assessee, Dharam Singh, is the son and legal heir of Late Smt Bati Devi, who sold land in Faridabad to a company named Triveni Infrastructure Development Company Ltd (TIDCL) for industrial purposes. However, the company did not pay the full consideration. Only a part of the sale consideration was received, and the balance remained unpaid. Since the full consideration was not received by Bati Devi, a civil suit was filed, and the court cancelled the sale deed in 2008, and the ownership of the land was given back to Bati Devi.

The Haryana Government acquired the land under the Land Acquisition Act. Bati Devi’s son, who was her legal heir, received Rs 5,85,16,500 as full and final consideration of land and interest as per the High Court’s order. Out of this amount, the assessee paid taxes on interest of Rs 85 lakhs under ‘income from other sources’, and the remaining balance was claimed as exempt income under section 10(37) of the Income Tax Act because it was urban agricultural land acquired by the government.

However, the Assessing Officer treated this amount as capital gains, claiming that the land was within the city limits and was for industrial purposes. The CIT(A) disagreed with AO, observing that the original sale deed was cancelled and the ownership was restored to Bati Devi, so the purpose of the earlier sale was irrelevant.

The ITAT agreed with CIT(A), noting that the ownership was restored to the assessee’s late mother before the land was acquired by the Haryana Government, and the compensation was received by the government, not the company. Therefore, the revenue’s appeal was rejected.