BALVANTBHAI GOPALBHAI PATEL,SABARKANTHA V. THE ITO, WARD-1, HIMATNAGAR

ITA 1523/AHD/2024

AI Insights

The case involves Balvantbhai Gopalbhai Patel, who received enhanced compensation along with interest for the compulsory acquisition of his agricultural land by the Government of Gujarat. The Assessing Officer taxed 50% of the interest component under Section 56(2)(viii) of the Income Tax Act, 1961, considering it as income from other sources. The assessee contested this decision, arguing that the interest is part of the compensation and exempt under Section 10(37) of the Act. The Tribunal examined various judicial precedents and legislative provisions, ultimately deciding in favor of the assessee, aligning with the Supreme Court's decision in CIT Vs. Ghanshyam HUF, which treated such interest as part of the compensation.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 25802 (ITAT-AHMEDABAD)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-03-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2018-2019
• Other Referred Cases: CIT Vs. Ghanshyam HUF, Lakshmama vs. CIT, Movaliya Bhikhubhai Balabhai vs. ITO, Union of India vs. Hari Singh
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V.K. MANGLA
• Assessee Lawyers: TEJ SHAH
• Keywords: Set aside; Capital asset; Proportionate interest; Capital receipt; Capital Gains; TDS; Earning of tax free income
• Section: 147; 143(3); 250; 154; 263; 56; 56(2); 133(6); 13; 27; 28; 2; 2(14); 45(5)

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL “SMC” BENCH, AHMEDABAD BEFORE DR. B.R.R. KUMAR, VICE-PRESIDENT SHRI SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER I.T.A. No. 1523/Ahd/2024 (Assessment Year: 2018-19) Balvantbhai Gopalbhai Patel At Post : Kamalpur, Tal: Prantij, Dist: Sabarkantha, Gujarat - 383205 [PAN : AJPPP 2634 R] Vs. Income Tax Officer, Ward-1, Himmatnagar (Appellant) .. (Respondent) Appellant by : Shri Tej Shah, AR Respondent by: Shri V.K. Mangla, Sr DR Date of Hearing 19.12.2024 Date of Pronouncement 07.03.2025 O R D E R PER DR. B.R.R. KUMAR, VICE-PRESIDENT : This appeal has been filed by the Assessee against the order passed by the Ld. Commissioner of Income-tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi (hereinafter referred to as \"CIT(A)\" for short) dated 08.08.2024 passed under Section 250 of the Income-tax Act, 1961 [hereinafter referred to as \"the Act\" for short], for Assessment Year (AY) 2018-19. 2. The grounds of appeal raised by the Assessee are as follows:- 1. The Learned Commissioner of Income-tax (Appeals) has erred in facts and in law and confirmed the addition made by assessing officer amounting of Rs.15,45,596/- u/s 56(2)(viii) of I.T. Act. ITA No. 1523/Ahd/2024 Balvantbhai Gopalbhai Patel Vs. ITO Asst. Year : 2018-19 - 2– 2. Direction to charge interest u/s 234 B & C without application of mind is unjustified. It be so held now.” 3. The brief facts of the case are that, for the year under consideration, the assessee had received additional compensation against compulsory acquisition of agricultural land by the Government of Gujarat, along with interest component of Rs.30,91,191/-. The assessee had claimed the entire amount received on account of enhanced compensation, which consisted of interest component, as exempt income u/s 10(37) of the Act. The Assessing Officer observed that, in view of the amended provisions of Section 145(B) of the Act with effect from 01.04.2017, the interest component is taxable u/s 56(2)(viii) of the Act; accordingly amount of Rs.15,45,596/-, being 50% of the interest component of Rs.30,91,191/- was brought to tax u/s 56(2)(viii) of the Act. Subsequently, assessment order was passed by the Assessing Officer u/s 143(3) r.w.s. 143(3A) & 143(3B) of the Act on 31.01.2021, determining the income of the assessee at Rs.29,45,847/- by making addition of Rs.15,45,596/- against the returned income of Rs.14,00,251/-. 4. Aggrieved by the order of the Assessing Officer, the assessee preferred appeal before the Ld. CIT(A) who dismissed the appeal of the assessee. ITA No. 1523/Ahd/2024 Balvantbhai Gopalbhai Patel Vs. ITO Asst. Year : 2018-19 - 3– 5. Aggrieved by the order of the Ld. CIT(A), the assessee is now in appeal before the Tribunal. 6. Before us, the Ld. AR submitted that the interest received by the assessee on compulsory acquisition of his agricultural land by the Government is exempt u/s 10(37) of the Act. He argued that even after insertion of Section 56(2)(viii) w.e.f. 01.04.2020, the statute has not repealed Section 10(37) of the Act. He also submitted that Section 10(37) is a special provision which exempts interest received on compulsory acquisition of agricultural land, whereas Section 56(2)(viii) is a general provision which taxes interest received on compensation or enhanced compensation where there is no mention of the words ‘land’ or ‘agricultural land’. The Ld. AR relied on the decision of Hon’ble Supreme Court in the case of CIT Vs. Ghanshyam HUF wherein it was held that interest on enhanced compensation partakes the character of compensation itself which is taxable as capital gains u/s 45(5) of the Act and not income from other sources. In the present case, since the land acquired was agricultural land, the same is not a capital asset u/s 2(14) of the Act and therefore is exempt u/s 10(37) of the Act. He further relied upon the decision of ITAT Bengaluru in the case of Lakshmama (113 taxmann.com 572), following the decision of Hon’ble Jurisdictional High Court in the case of Movaliya Bhikhubhai Balabhai, wherein it was held that the interest received on enhanced compensation u/s 28 of Land Acquisition Act, 1984 is eligible for exemption u/s 10(37) of the Act. ITA No. 1523/Ahd/2024 Balvantbhai Gopalbhai Patel Vs. ITO Asst. Year : 2018-19 - 4– 7. The Ld. DR, on the other hand relied upon the orders of the authorities below and submitted that Section 10(37) of the Act envisages exemption for income which are chargebale under the head ‘capital gains’ and the interest income is chargeable under the head ‘income from other sources; therefore, the exemption provided in Section 10(37) of the Act is not applicable in assessee’s case. The arguments of the Ld. DR in writing are as under:- Sub: submission in case of Balvantbhai Gopalbhai Patel AJPPP2634R, AY2018-19- reg. Ref: hearing held on 19.12.2024 in ITA 1523/AHM/2024 Written submission from the Revenue is as under: 1. The solitary question which arises in the instant case is whether the interest on enhanced compensation received by her partakes the character of income from other sources under section 56(2)(viii), to be considered as separable from the enhanced compensation. Thus, taxability of interest on enhanced compensation of Rs.79,44,141 is to be examined u/s 56 of the Act. 1.1. AR of the Appellant has relied upon decision of Hon’ble Supreme Court in Ghanshyam HUF’s and also relied upon accounting principles as held by the decision of Hon’ble Supreme Court in Rama Bal vs. CIT (1990) 181ITR 400. 1.2. Rebuttal: It is submitted that insertion of section 145A, 145B, 56(2)(viii) and 57(iv) by the Finance (No. 2) Act, 2009 has ITA No. 1523/Ahd/2024 Balvantbhai Gopalbhai Patel Vs. ITO Asst. Year : 2018-19 - 5– changed the character of Interest under section 28 of the Land Acquisition Act from ‘capital receipt’ forming part of enhanced compensation as envisaged in section 45(5) of the Act to ‘revenue receipt’ chargeable to tax as ‘income from other sources’. CBDT Circular No. 5 dated 03.06.2010 reported in (2010) 324 ITR (St.) 293, it is stated that the Hon’ble Supreme Court in the case of Rama Bai Vs. CIT (supra) has held that arrears of interest computed on delayed or enhanced compensation shall be taxable on accrual basis. This has caused undue hardship to the taxpayers. With a view to mitigate the hardship section 145A has been substituted and clause (viii) in subsection (2) of section 56 has been inserted by the Finance (No. 2) Act, 2009 so as to provide that the interest received on compensation or on enhanced compensation referred to in clause (b) of section 145A shall be assessed as Income from other sources In the year in which it is received. It is thus evident that the amended provisions of section 56(2)(viii) of the Act r.w. section 145A were brought on the statute to nullify the effect of Hon’ble Supreme Court’s ruling in the case of Rama Bai and not Ghanshyam HUF. 3. Union of India v. Hari Singh (SC) 2018 ITL 321 : (2018) 302 CTR 458 : 254 TAXMANN 126 In this case, Land Acquisition Collector while disbursing compensation, had deducted tax at source and deposited same with Income Tax Department. Assessee in writ petition before High Court stated that no such deduction at source was permissible in view of provisions of section 194LA, since land acquired was agricultural land and this provision categorically mentions that in respect of agricultural land, tax at source is not to be deducted. High Court passed an order directing Department to refund amount to Collector with a direction to Collector to ITA No. 1523/Ahd/2024 Balvantbhai Gopalbhai Patel Vs. ITO Asst. Year : 2018-19 - 6– determine whether compensation is paid for property other than agricultural land or otherwise and whether deduction of tax at source was permissible under any provision of law. 3.1. Rebuttal: Case lav; is not applicable in this case. The Hon’ble SC held as under: -it is Assessing Officer who has to come to conclusion whether land is agricultural land or not. Further held- thus, where Land Acquisition Collector while disbursing compensation, had deducted tax at source and deposited same with Income Tax Department, better course of action, which was in consonance with provisions of Act, for assessee should have been to approach concerned Assessing Officer(s) and raise issue that no tax was payableon compensation/enhanced compensation received by them as their land was agricultural land. 3.2. The cited decision pertains to TDS on compensation. The Hon’ble SC has clearly held that taxability of compensation rest with the Income Tax Department/AO. Therefore, the cited decision can not rescue her from rigour of Sec 56(2)(vii) r.ws 57(iv) of the Act as amended by Finance Act 2009 w.e.f 01.04.2010. 4. Analysis of Land Acquisition Act: It is significant to refer to Sections 28 and 34 of the Act of 1894, which deal with the payment of interest on compensation, and read as under:- \"28. Collector may be directed to pay interest on excess compensation.- ITA No. 1523/Ahd/2024 Balvantbhai Gopalbhai Patel Vs. ITO Asst. Year : 2018-19 - 7– If the sum which, in the opinion of the court, the Collector ought to have awarded as compensation is in excess of the sum which the Collector did award as compensation, the award of the Court may direct that the Collector shall pay interest on such excess at the rate of [nine per centum] per annum from the date on which he took possession of the land to the date of payment of such excess into Court.” 4.1. Payment of interest.- When the amount of such compensation is not paid or deposited on or before taking possession of the land, the Collector shall pay the amount awarded with interest thereon at the rate of nine per centum per annum from the time of so taking possession until it shall have been so paid or deposited. Provided that if such compensation or any part thereof is not paid or deposited within a period of one year from the date on which possession is taken, interest at the rate of fifteen per centum per annum shall be payable from the date of expiry of the said period of one year on the amount of compensation of part thereof which has not been paid or deposited before the date of such expiry.\" 4.2. A reading of Section 28 of the Act of 1894 indicates that the said provision comes into play in cases where the Court finds that some higher compensation ought to have been provided by the Collector. In such situations, the Court may direct for payment of an interest on the excess awarded amount. Whereas, Section34 of the Act of 1894 stipulates that the Collector shall award interest on the compensation at the rate of 9% per annum from the date of taking possession. It further lays down the condition that in case of non-payment despite expiry of a period of one year, the said interest on the amount of compensation which remains unpaid, shall be awarded at the rate of 15% per annum, calculable from the date of such expiry. ITA No. 1523/Ahd/2024 Balvantbhai Gopalbhai Patel Vs. ITO Asst. Year : 2018-19 - 8– 4.3. It is contention of the appellant that the interest awarded under Section 28 of the Act of 1894, as discussed above, shall constitute part of the compensation itself. She has relied upon observation of the Hon'ble Supreme Court in the case of Ghanshyam (supra) and the relevant paragraph of the said decision reads as under:- \"35. To sum up, interest is different from compensation. However, interest paid on the excess amount under Section 28 of the 1894 Act depends upon a claim by the person whose land is acquired whereas interest under Section 34 is for the delay in making payment. This vital difference needs to be kept in mind in deciding this matter. Interest under Section 28 is part of the amount of compensation whereas interest under Section 34 is only for delay in making payment after the compensation amount is determined. Interest under Section 28 is a part of enhanced value of the land which is not the case in the matter of payment of interest under Section 34.\" 4.4. Amendment w.e.f. 01.04.2010 u/s 56 of the Act: However, vide Finance (No.2) Act, 2009 (with effect from 01.10.2010), Clause (viii) of sub-Section 2 to Section 56 of the Act was inserted and the same is extracted hereunder as:- \"56. Income from other sources.- *** (2)In particular and without prejudice to the generality of the provisions of sub-section (1), the following incomes shall be chargeable to income tax under the head \"Income from other sources\", namely:- [(viii) income by way of interest received on compensation or on enhanced compensation referred to in [sub-section (1) of Section 145-B].]\" ITA No. 1523/Ahd/2024 Balvantbhai Gopalbhai Patel Vs. ITO Asst. Year : 2018-19 - 9– 4.5. For the sake of clarity, Section145-B of the Act is reproduced as under:- \"[145-B. Taxability of certain income.-(1) Notwithstanding anything to the contrary contained in Section 145, the interest received by an assessee on any compensation or on enhanced compensation, as the case may be, shall be deemed to be the income of the previous year in which it is received. ( 2) Any claim for escalation of price in a contract or export incentives shall be deemed to be the income of the previous year in which reasonable certainty of its realisation is achieved. (3) The income referred to in sub-clause (xviii) of clause (24) of Section 2 shall be deemed to be the income of the previous year in which it is received, if not charged to income-tax in any earlier previous year]\" A conjoint reading of the aforementioned provisions i.e., Sections 56(2)(w77) and 145-B of the Act vividly stipulate that the income received by way of interest on compensation or on enhanced compensation shall be chargeable to tax under the head “income from other sources'. Therefore, since the position with respect to the imposition of tax on interest on compensation or enhanced compensation, as it exists today, came into being only in the year 2010, the conclusions drawn from the decision in Ghanshyam (supra), which was passed in the year 2009, are inapplicable in the facts of the present case. 4.6. Notably, a three-Judges Bench of the Hon'ble Supreme Court in the case of Sham Lal Narula (Dr.) v. CIT [(1964)53 ITR151], while considering the interest under Section 28 of the Act of 1894 to be analogous to the ITA No. 1523/Ahd/2024 Balvantbhai Gopalbhai Patel Vs. ITO Asst. Year : 2018-19 - 10– interest under Section 34 of the Act, took the view that the same did not form part of compensation. The relevant extract of the said decision is culled out as under:- \"9. — As we have pointed out, earlier, as soon as the Collector has taken possession of the land either before or after the award the title absolutely vests in the Government and thereafter the owner of the land so acquired ceases to have any title or right of possession to the land acquired. Under the award he gets compensation for both the rights. Therefore, the interest awarded under Section 28 of the Act, just like under Section34 thereof, cannot be a compensation or damages for the loss of the right to retain possession but only compensation payable by the State for keeping back the amount payable to the owner. 4.7. The decision in Sham Lal Narula(supra) was followed by the Hon'ble Supreme Court in the case of Bikram Singh v. Land Acquisition Collector [(1997) 10 SCC 243], wherein, it was held that interest under Section 28 of the Act of 1894 was in the nature of a revenue receipt and hence, the same was considered to be taxable. 4.8. In the case of Puneet Singh(supra), the High Court of Punjab and Haryana, while enunciating the effect of Section 145A(b) and Section 56(2)( w/7) of the Act, has held as under:- \"19. The cumulative effect of section 145A(b) and section 56(2)(v7/7) would be that any interest received on compensation or on enhanced compensation shall be taxable under the head \"Income from other sources\" in the year of receipt. 20. However, by section 27 of the 2009 Act, a new clause (iv) in section 57 has been inserted with effect from April ITA No. 1523/Ahd/2024 Balvantbhai Gopalbhai Patel Vs. ITO Asst. Year : 2018-19 - 11– 1, 2010 whichlays down that in the case of income of the nature referred to in section 56(2) (viii), a deduction of a sum equal to 50 per cent, of such income would be allowable thereunder and no deduction would be allowed under any other clause of section 57. The said provision reads thus: \"57.Deductions.-The income chargeable under the head' Income from other sources' shall be computed after making the following deductions, namely :. . . (iv) in the case of income of the nature referred to in clause (viii) of sub-section (2) of section 56, a deduction of a sum equal to fifty per cent, of such income and no deduction shall be allowed under any other clause of this section.\" 5. [2024] 161 taxmann.com 301 (Delhi) [08-04-2024] The Hon’ble Delhi HC in IT Appeal NO. 769 OF 2023 CM APP.L 65057 OF 2023- in case of Principal Commissioner of Income Tax-10 v. Inderjit Singh Sodhi (HUF)decided the issue in favour of the Revenue on 08.04.2024: Held - Section 56 of the Income-tax Act, 1961, read with sections 28, 34 and 145 of the Land Acquisition Act, 1894 - Income from other sources - Interest, etc. (Interest on compensation) - Assessment year 2016-17 - Whether interest, whether on compensation or on enhanced compensation, received for acquisition of land under section 28 and 34 of Land Acquisition Act, 1894 shall be considered as income from other sources under section 56(2)(viii) and shall be exigible to income-tax - Held, yes [Paras 29 and 30] [In favour of revenue], 6. [2024] 169 taxmann.com 338 (Delhi - Trib.)ln the ITAT DELHI BENCH 'H' ITA No. 1523/Ahd/2024 Balvantbhai Gopalbhai Patel Vs. ITO Asst. Year : 2018-19 - 12– Vachaspati Sharma vs. Income-tax Officer IT Appeal No. 1180 (Del) of 2023 [Assessment Year 2019-20]dated NOVEMBER 21, 2024, it is held: Section 56, read with section 10(37), of the Income-tax Act, 1961 - Income from other sources - Chargeable as (Interest on compensation) - Assessment year 2019-20 - Whether interest received on compensation or enhanced compensation under section 28 of Land Acquisition Act, 1894 shall be considered as income from other sources and shall be exigible to income tax - Held, yes [Paras 29 and 30] [In favour of revenue] 7. [2024] 165 taxmann.com 51 (Delhi - Trib.)IN THE ITAT DELHI BENCH 'G' Veena Shahv.Principal Commissioner of lncome-tax*IT Appeal NO. 1222 (DELHI) OF2023 [Assessment Year 2018-1.9]JUNE 28, 2024: Held: Section 56, read with sections 10(37) and 263, of the Income-tax Act, 1961 and section 28 of the Land Acquisition Act, 1894 - Income from other sources - Chargeable As (Interest on enhanced compensation) - Assessment year 2018-19 - Assesses received enhanced compensation after compulsory acquisition of agricultural land and claimed interest received on said compensation as exempt - Assessing Officer completed assessment under section 143(3) and allowed assesses's claim - Subsequently Pr. Commissioner invoked revisionary power under section 263 on ground that Assessing Officer failed to do necessary inquiry about taxability of interest on enhanced compensation and passed order not in accordance with binding decision of Court in Mahender Pal Narang v. CBDT[2020] 120 taxmann.com 400/275 Taxman 222/423 ITR 13 (Punjab & Haryana) - He held that said interest should be treated as 'income from other sources' in view of amended provisions of section 56(2)(viii) by Finance Act, 2009 - ITA No. 1523/Ahd/2024 Balvantbhai Gopalbhai Patel Vs. ITO Asst. Year : 2018-19 - 13– Whether since impugned assessment order was passed on 11-2-2021, In view of amended provisions of section 56(2)(vlii) by Finance Act, 2009 w.e.f 1-4-2010, order of Principal Commissioner passed under section 263 could not be Interfered - Held, yes [Paras 18 and 26] [In favour of revenue] 8. Prayer: The 2010 amendment was a conscious departure by the Legislature from the earlier position and the said departure holds good law, as on date. There is no question with respect to the vires of the amendment or regarding any ambiguity in the language of the amendment. The only concern is regarding the enunciation of the applicable law. It is unequivocally mean that interest, whether on compensation or on enhanced compensation, shall be considered as income from other sources and shall be exigible to income tax u/s 56(2)(vii) r.w.s 57(iv) of the Act. Vijay Kumar Mangla JCIT, Ahmedabad.” 8. Heard both the parties and perused the material available on record. 9. We find that similar issue stands adjudicated by the order of the Hon’ble High Court of Delhi in the case of CIT Vs. Indrajit Singh Sodhi (HUF). The examination of the issue are as under:- The Delhi High Court has held that interest received on compensation or enhanced compensation shall be taxable under head “Income from other sources”. The court set aside the order of the Income Tax Appellate Tribunal ( ITAT ). The revenue challenged the order passed by the Income Tax Appellate Tribunal [ “ITAT” ], whereby, the ITAT deleted the ITA No. 1523/Ahd/2024 Balvantbhai Gopalbhai Patel Vs. ITO Asst. Year : 2018-19 - 14– addition made by the Assessing Officer [ “AO” ] under Section 56(2)(viii) of the Income Tax Act, 1961 [ “Act” ] for the assessee, Inderjit Singh Sodhi ( HUF ). The appeal involves an examination of the taxability of the interest component, earned on compensation or enhanced compensation, ordered under Land Acquisition Act, 1894 [ “Act of 1894” ]. The central issue which arises for consideration is: whether interest received by the respondent/assessee under Section 28 and 34 of the Land Acquisition Act, 1894 would fall under the provisions of Section 10(37) and Section 56(2)(viii) of the Income Tax Act, 1961 [ “Act” ]? The respondent-assessee had filed its Income Tax Return [ “ITR” ] declaring the income to the tune of Rs.3,08,920/-. The AO found that the respondent-assessee had claimed an exemption on the receipt of income amounting to Rs.26,93,84,780/-. Thereafter, the AO vide email dated 13.11.2018, made an enquiry under Section 133(6) of the Act from the District Revenue Officer-cum Land Acquisition Collector [ “Collector” ], asking about the details of payments of Rs.18,86,63,176/- and Rs.8,02,13,161/-. It was informed by the Collector that the enhanced compensation was released in light of the judgment in the case titled as Ram Chander & Ors. v. State of Haryana & Ors. and the respondent-assessee herein was a petitioner in the said case and therefore, he was entitled for the consequential benefits, including the interest on enhanced compensation. The AO held that the receipt of interest must be treated as income chargeable to tax under Section 56(2)(viii) of the Act and therefore, it allowed the statutory deduction of 50% of the interest income under Section 57(iv) of the Act. Accordingly, an amount of Rs.4,01,06,580/- was added to the taxable income of the respondent-assessee and vide assessment order dated 23.12.2018, the total income of the respondent-assessee was assessed to be Rs.4,04,15,500/-. On appeal, the CIT(A) found that since Section 56 of the Act was amended by the Finance (No.2) Act, 2009, which led to the introduction of Section 56(2)(viii) of the Act with effect ITA No. 1523/Ahd/2024 Balvantbhai Gopalbhai Patel Vs. ITO Asst. Year : 2018-19 - 15– from 01.04.2010, therefore, the decision relied upon by the respondent-assessee herein was not applicable as the same pertained to the year prior to the said amendment. While relying upon the judgment of the Supreme Court in the case of Ghanshyam, the ITAT drew an equivalence between the interest received under Section 28 of the 1894 Act and the enhanced compensation. It was further held that since the interest amounts to accretion to the value of compensation, therefore, the same must be treated as a part of compensation. A division bench of Hon’ble High Court of Delhi upheld the concurrent findings of the AO and CIT(A) and found that the view taken by the ITAT is unsustainable, as the same is based on an incorrect appreciation of law. The 2010 amendment was a conscious departure by the Legislature from the earlier position and the said departure holds good law, as on date. In the light of the judicial pronouncements and the concerned amendment, the court set aside the order of the ITAT. Consequently, the appeal of the revenue was allowed and the concurrent findings of the AO and CIT(A) are hereby affirmed. 10. The similar issue stands adjudicated by the order of the ITAT Delhi in the case of Manjeet Singh (ITA No. 1391/Del/2017 AY 2011- 12), Shri Satbir Vs. ITO, Jind in ITA No. 1413 to 1415/CHD/2016 for the A.Ys. 2007-08 to 2009-10 order dated 09.07.2018. The facts and ratio thereof is as under:- “6. The brief fact relevant to the issue under consideration are that the lands of the assessees were compulsorily acquired by the HSI IDC, Sirsa/Government of Haryana in the year 2005. Subsequently the compensation was enhanced by the Court. The enhanced compensation alongwith interest thereupon u/ s 28 of the ITA No. 1523/Ahd/2024 Balvantbhai Gopalbhai Patel Vs. ITO Asst. Year : 2018-19 - 16– Land Acquisition Act, 1894 was received by the assessees in the financial year 2008-09 relevant to assessment year 2009-10. The assessees treated the interest on the enhanced compensation as part of the compensation liable to be taxed under sect ion 45(5) of the income Tax Act and the transferred land being rural agricultural land exempt from capital Gains tax u/s 10(37) of the Income Tax Act, 1961. Subsequently, from the perusal of the computation of income attached with the return of income f i led by the assessee for assessment year 2009-10, the Assessing Officer observed that w.e.f. assessment year 2010-11 the interest received on enhanced compensation was taxable in the year of receipt as per the provisions of sect ion 145A(b) of the Act. However, prior to assessment year 2010-11 interest received on compensation/enhanced compensation was taxable on proportionate basis for the each year in view of the decision of the Hon'ble Supreme Court rendered in the case of Rama Bai Vs. CIT dated 8.11.1989 reported in 181 I TR 400 (SC). The Assessing Officer, therefore, reopened the assessment proceedings of the assessees and applied the ratio of the decision of the Hon'ble Supreme Court in the case of Rama Bai (supra) and held that the interest received by the assessees on the enhanced compensation was to be proportionately al located to different assessment years as having accrued year after year from the date of delivery of possession of the lands till the date of such order. The Assessing Officer observed that the lands of the assessees were acquired in the year 2005, whereas the interest on the enhanced compensation had been received in the year 2008. He, therefore, calculated the proportionate interest pertaining to each assessment year and added the same as taxable receipt under the head 'other sources' and accordingly, added the proportionate amount of interest in the imp ugned years in the reopened assessment proceedings u/s 147 r.w.s. 143(3) of the Act. 7. Before the Ld.CIT (Appeals), the assessee relied upon the decision of the Hon'ble Supreme Court in the case of CIT Vs. Ghanshyam (HUF) (2009) 315 ITR 1 (SC) and contended that as per the ratio laid down in the said decision the interest received u/s 28 of the Land Acquisition Act, 1894 does not partake the character of interest, ITA No. 1523/Ahd/2024 Balvantbhai Gopalbhai Patel Vs. ITO Asst. Year : 2018-19 - 17– rather it was a part of compensation of land which was not taxable as per the provisions of sect ion 10(37) of the Income Tax Act . The Ld . CIT(Appeals) after considering the submissions of the assessee as well as considering the nature of compensation and interest thereupon received by the assessee, held that the issue was squarely covered by the decision of the Hon'ble Supreme Court in the case of Ghanshyam (HUF) (supra) and accordingly, allowed the appeal of the assessee. 8. Subsequently the Assessing Officer moved an application for rectification of the u/s 154 of the Act before the CIT(A) pleading therein that the interest received on enhanced compensation u/s 28 of Land Acquisition Act was chargeable to tax as 'income from other sources' u/s 56(2) (viii) r.w.s. 57(iv) of the Act in the light of the decision of the Hon'ble Punjab & Haryana High C ourt in the case of 'Manjeet Singh (HUF), Karta Manjeet Singh Vs. Union of India & Others' in CWP No.15506 of 2013, date of decision 14.1.2014, wherein, the Hon'ble High Court has held that the interest received by the assessee u/s 28 as well as u/s 34 of the Land Acquisition Act on the additional comp ensation received was chargeable to tax u/s 56(2) (viii) r.w.s. 57(iv) of the Act. It was further contended that even the SLP filed in that case before the Hon'ble Supreme Court had been dismissed vide order dated 18.12.2014 in SLP No.34642 of 2014. Reliance was also placed on the decision dated 2.2.2016 of the Hon'ble Punjab & Haryana High Court in the case of Jagmal & Another Vs. state of Haryana & Another in RA-CR NO.46 C11 of 2014 in CR No.7740 of 2012, whereby the Hon'ble High Court had recalled its earlier order and held that the interest of the additional award was taxable under u/s 56(2) (viii) r.w.s.57(iv) of the Act. 9. The Ld .CIT(Appeals) considering the aforesaid decisions and also the decision of the Hon'ble Punjab & Haryana High Court in the case of Sunder Lal & Another Vs. Union of India & Others in CWP No.20014 of 2015, order dated 21.9.2015 and also in the case of CIT Vs. Bir Singh (HUF) in ITA No.209 of 2004, etc. held that in the light of the above decisions, the mistake apparent on record had occurred in his order while allowing the appeal of the assessees while relying upon the decision of the Hon'ble Supreme Court in the case of Ghanshyam (HUF) (supra). He, therefore, vide the impugned order passed u/s 154 of the Act held that the interest received by the assessee on ITA No. 1523/Ahd/2024 Balvantbhai Gopalbhai Patel Vs. ITO Asst. Year : 2018-19 - 18– enhanced compensation on account of acq uisi t ion of land was taxable as 'income from other sources'. He, therefore, confirmed the additions made by the Assessing Officer passed in the reopened assessment proceedings carried out u/s 147 r.w.s. 143(3) of the Act. 10. Now the assessee has come up in appeal before us agitating the above orders passed by the CIT(Appeals) u/s 154 of the Act. 11. We have heard the rival content ions. It is pertinent to note here that interest under the Land Acquisition Act can be awarded under sect ion 28 or/and under sect ion 34 of the Land Acquisition Act, 1894. Interest awarded under sect ion 28 of Land acquisition Act, 1894 is the interest on the excess amount of compensation awarded by the court over the amount awarded by the collector. It is awarded by the Court payable by the collector from the date on which the collector took the possession of the land to the date of payment of such excess into Court. Whereas interest under sect ion 34 of the Land Acquisition Act, 1894 is given when the amount of compensation awarded by the collector is not paid or deposited on or before taking possession of land, such interest is pay able from the time of so taking possession till the date of payment of compensation. In the case in hand, the Ld. CIT (Appeals) vide his order dated 14.3.2016 had allowed the appeal of the assessee following the decision in case of Ghanshyam (HUF) (supra), wherein it has held Interest u/s 28 of the Land Acquisition Act 1984, unlike interest u/s 34 is an accretion to the value of the land , hence it is part of enhanced compensation or consideration which is not the case with interest u/s 34A. So also additional amount u/s 23(1A) and solatium u/s 23(2) form part of enhanced compensation. 12. The Ld. CIT(A), however, subsequently, while relying upon the decision of the H on'ble High Court in the case of Bir Singh (HUF) (supra) and Manjeet Singh (HUF) (supra) & Others as noted above, recalled his orders dated 14.3.2016 and confirmed the additions made by the Assessing Officer. 13. Undisputedly, the issue involved in these appeals is regarding the taxability of interest received on enhanced compensation u/s 28 of the Land Acquisition Act, 1894. Now, there are two questions involved in these appeals, first issue is regarding the year of ITA No. 1523/Ahd/2024 Balvantbhai Gopalbhai Patel Vs. ITO Asst. Year : 2018-19 - 19– taxability of the interest income whether it has to taxed in the year of receipt in the light of the decision of the Hon'ble Supreme Court in the case of Ghanshyam (HUF) (supra) or is to be taxed on the basis of apportionment for each year from the date of acquisition of lands till the receipt of the compensation in the light of the decision of the Hon'ble Supreme Court in the case of Rama Bai (supra); the second issue involved is as to whether the interest awarded u/s 28 of the Land Acquisition Act on enhanced compensation is to be treated as part of the enhanced compensation and will not be tax able separately as interest income under the Head 'income from other sources'? 14. We find that both these issues are covered by the aforesaid decision of the Hon'ble Supreme Court in the case of Ghanshyam (HUF) (supra) holding the same to be in the nature of compensation itself. The Court also deal t with the other aspect namely, the year of tax and answered this quest ion by holding that it has to be tested on receipt basis, which means it would be taxed in the year in which i t is received. The said findings given in the case of Ghanshyam (HUF) (supra) have been reiterated by the Hon'ble Supreme Court in the case of Govindbhai Mamaiya (supra) observing as under: \"In so far as the second question is concerned, that is also covered by another judgment of this Court in Commissioner of Income Tax, Faridabad vs. Ghanshyam (HUF) reported in (2009) 8 SCC 412, 6 albeit, in favour of the Revenue. In that case, the court drew distinction between the \"interest\" earned under Section 28 of the Land Acquisition Act and the \"interest\" which is under Section 34 of the said Act. The Court clarified that whereas compensation given to the assessee of the land acquired would be 'income', the enhanced compensation/consideration becomes income by virtue of Section 45(5)(b) of the Income Tax Act. The question was whether it will cover \"interest\" and if so, what would be the year of taxability. The position in this respect is explained in paras 49 and 50 of the judgment which make the following reading: \"49. As discussed hereinabove, Section 23(1-A) provides for additional amount. It takes care of the increase in the value at the rate of 12% per annum. Similarly, under Section 23(2) of the 1894 Act there is a provision for solatium which also represents part of the ITA No. 1523/Ahd/2024 Balvantbhai Gopalbhai Patel Vs. ITO Asst. Year : 2018-19 - 20– enhanced compensation. Similarly, Section 28 empowers the court in its discretion to award interest on the excess amount of compensation over and above what is awarded by the Collector. It includes additional amount under Section 23(1-A) and solatium under Section 23(2) of the said Act. Section 28 of the 1894 Act applies only in respect of the excess amount determined by the court after reference under Section 18 of the 1894 Act. It depends upon the claim, unlike interest under section 34 which depends on undue delay in making the award. 50. It is true that \"interest\" is not compensation. It is equally true that Section 45(5) of the 1961 Act refers to compensation. But as discussed hereinabove, we have to go by the provisions of the 1894 Act which awards \"interest\" both as an accretion in the value of the lands acquired and interest for undue delay. Interest under Section 28 unlike interest under Section 34 is an accretion to the value, hence it is a p art of enhanced compensation or consideration which is not the case with interest under Section 34 of the 1894 Act. So also additional amount under Section 23 (1-A) and solatium under Section 23(2) of the 1961 Act forms part of enhanced compensation under Section 45(5)(b) of the 1961 Act.\" 8. It is clear from the above that whereas interest under Section 34 is not treated as a part of income subject to tax, the interest earned under Section 28, which is on enhanced compensation, is treated as a accretion to the value and therefore, part of the enhanced compensation or consideration making it exigible to tax. After holding that interest on enhanced compensation under Section 28 of 1894 Act is taxable, the Court dealt with the other aspect namely, the year of tax and answered this question by holding that it has to be tested on receipt basis, which means it would be taxed in the year in which it is received. It would mean that converse position i.e. spread over of this interest on accrual basis is not permissible.\" 15. The Ld. counsel for assessee has further brought our at tent ion the latest decision of the Hon'ble Supreme Court in the case of CIT Vs. Chet Ram (HUF) dated 12.9.2017 in Civil Appeal No.13053/ 2017 wherein also the Hon'ble Supreme Court has again reiterated the proposition laid down in the case of Ghanshyam (HUF) (supra), which we find has been further reiterated in the case of Union of ITA No. 1523/Ahd/2024 Balvantbhai Gopalbhai Patel Vs. ITO Asst. Year : 2018-19 - 21– India vs. Hari Singh & others in Civil Appeal No. 1504 of 2017 dated 15.9.2017, as under: \"(2) While determining as to whether the compensation paid was for agricultural land or not, the Assessing Officer(s) will keep in mind the provisions of Section 28 of the Land Acquisition Act and the law laid down by this Court in 'Commissioner of Income Tax, Faridabad v. Ghanshyam (HUF)' [2009 (8) SCC 412] in order to ascertain whether the interest given under the said provision amounts to compensation or not.\" The said decision as rightly pointed out by the Ld. counsel for assessee have been rendered by the Hon'ble Apex Court subsequent to the decision passed by the Hon'ble Jurisdictional High Court in the case of Manjeet Singh(HUF) (supra) which had dealt with the decisions of the Hon'ble Apex Court in Ghanshyam, HUF (supra) . Therefore, in view of the same, the proposition laid down in Ghanshyam, HUF (supra) remains and which having been laid down by the Hon'ble Apex Court is the law of the land and has to be followed by all lower authorities. In view of the above, we hold that the interest received by the assessee during the impugned year on the compulsory acquisition of its land u/s 28 of the Land Acquisition Act, is in the nature of compensation and not interest which is taxable under the head income from other sources u/s 56 of the Act as held by the authorities below. The compensation being exempt u/s 10(37) of the Act is not disputed. In view of the same the order passed by the CIT(Appeals) upholding the addition made by the AO on account of interest on enhanced compensation is, not sustainable.\" 11. Before parting, the salient features of the orders of the Hon'ble Supreme Court are mentioned below: • The order of the Bikram Singh Vs Land Acquisition Collector is dated 12.09.1996 - Interest of any nature is taxable irrespective of its receipt. • The order of Ghanshyam (HUF) is dated 16.07.2009 \"It is to answer the above questions that we have analysed the provisions of sections 23, 23(1A), 23(2), 28 and 34 of the 1894 Act. As discussed ITA No. 1523/Ahd/2024 Balvantbhai Gopalbhai Patel Vs. ITO Asst. Year : 2018-19 - 22– hereinabove, section 23(1A) provides for additional amount. It takes care of increase in the value at the rate of 12 per cent per annum. Similarly, under section 23(2) of the 1894 Act, there is a provision for solatium which also represents part of enhanced compensation. Similarly, section 28 empowers the Court in its discretion to award interest on the excess amount of compensation over and above what is awarded by the Collector. It includes additional amount under section 23(1A) and solatium under section 23(2) of the said Act. Section 28 of the 1894 Act applies only in respect of the excess amount determined by the Court after reference under section 18 of the 1894 Act. It depends upon the claim, unlike interest under section 34 which depends on undue delay in making the award. It is true that \"interest\" is not compensation. It is equally true that section 45(5) of the 1961 Act, refers to compensation. But as discussed hereinabove, we have to go by the provisions of the 1894 Act, which awards \"interest\" both as an accretion in the value of the lands acquired and interest for undue delay. Interest under section 28 unlike interest under section 34 is an accretion to the value, hence it is a part of enhanced compensation or consideration which is not the case with interest under section 34 of the 1894 Act. So also additional amount under section 23(1A) and solatium under section 23(2) of the 1961 Act forms part of enhanced compensation under section 45(5)(b) of the 1961 Act. In fact, what we have stated hereinabove is reinforced by the newly inserted clause (c) in section 45(5) by the Finance Act, 2003 with effect from 1-4-2004.\" • The order in the case of Manjit Sing h (HUF) has been considered in the case of Ghanshyam (HUF). • The order in the case Hari Singh & Others in CA No.1504/2017 dated 15.09.2007 - held - While determining as to whether the compensation paid was for agricultural land or not, the Assessing Officer(s) will keep in mind the provisions of Section 28 of the Land Acquisition Act and the law laid down by this Court in CIT v. Ghanshyam (HUF) [2009] 182 Taxman 368/315 ITR 1 (SC) in order to ascertain whether the interest given under the said provision amounts to compensation or not. ITA No. 1523/Ahd/2024 Balvantbhai Gopalbhai Patel Vs. ITO Asst. Year : 2018-19 - 23– • The order in the case Govindbhai Mamaiya 367 ITR 498 (SC) dated 04.09.2014 - Reiterated that \"it is equally true that Section 45(5) of the 1961 Act refers to compensation. But as discussed hereinabove, we have to go by the provisions of the 1894 Act which awards \"interest\" both as an accretion in the value of the lands acquired and interest for undue delay. Interest under Section 28 unlike interest under Section 34 is an accretion to the value, hence it is a part of enhanced compensation or consideration which is not the case with interest under Section 34 of the 1894 Act. So also additional amount under Section 23 (1-A) and solatium under Section 23(2) of the 1961 Act forms part of enhanced compensation under Section 45(5)(b) of the 1961 Act.\" • In the case of Ghanshyam (HUF), the Hon'ble Supreme Court equated the interest received u/s 28 of LA with compensation. It was held that the interest is accretion to the value of compensation and hence it is a part of compensation. • In the case of Hari Singh (HUF), the Hon'ble Supreme Court reiterated the above proposition. 12. In the result, the appeals of the assessees are allowed.” 11. We have also gone through the judgment of Hon’ble Jurisdictional High Court in the case of Movaliya Bhikhubhai Balabhai vs. ITO; 388 ITR 343 (Guj), wherein Hon’ble Jurisdictional High Court dealt with additional compensation was awarded with interest and held as under: “i) In the case of CIT vs. Ghanshyam (HUF) 315 ITR 1 (SC), the Supreme Court held that it is clear that whereas interest u/s. 34 of the Land Acquisition Act, 1894 is not treated as a part of income subject to tax, interest earned u/s. 28, which is on enhanced compensation or consideration making it exigible to tax u/s. 45(5). The substitution of section 145A by the Finance (No. 2) Act, ITA No. 1523/Ahd/2024 Balvantbhai Gopalbhai Patel Vs. ITO Asst. Year : 2018-19 - 24– 2009 was not in connection with the decision of the Supreme Court in CIT vs. Ghanshyam (HUF) 315 ITR 1 (SC), but brought to mitigate the hardship caused to the assessee on account of the decision of the Supreme Court in Rama Bai vs. CIT 181 ITR 400 (SC), whereby it was held that arrears of interest computed on delayed or enhanced compensation shall be taxable on accrual basis. ii) Therefore, the words “interest received on compensation or enhanced compensation” in section 145A of the Act have to be construed in the manner interpreted by the Supreme Court in CIT vs. Ghanshyam (HUF) 315 ITR 1 (SC). As a necessary corollary, therefore, the payment made u/s. 28 of the 1894 Act is interest as envisaged u/s. 145A and cannot be treated as income from other sources. 12. Having considered the judgments of various Hon’ble Courts on this issue brought by both the parties and duly following the order of the Hon’ble jurisdictional High Court the appeal of the assessee is hereby allowed. 13. We would like to record our appreciation to Shri V.K. Mangla, Ld. Departmental Representative and Shri Tej Shah, Ld. Counsel for the assessee for their detailed arguments put forward. The order is pronounced in the open Court on 07.03.2025 Sd/- Sd/- (SIDDHARTHA NAUTIYAL) (DR. B.R.R. KUMAR) JUDICIAL MEMBER VICE-PRESIDENT Ahmedabad; Dated 07/03/2025 btk ITA No. 1523/Ahd/2024 Balvantbhai Gopalbhai Patel Vs. ITO Asst. Year : 2018-19 - 25– आदेश की \u0007ितिलिप अ\rेिषत/Copy of the Order forwarded to : 1. अपीलाथ\u0007 / The Appellant 2. \b\tथ\u0007 / The Respondent. 3. संबंिधत आयकर आयु\u0015 / Concerned CIT 4. आयकर आयु\u0015(अपील) / The CIT(A)- 5. िवभागीय \bितिनिध, आयकर अपीलीय अिधकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाड\u001f फाईल / Guard file. आदेशानुसार/ BY ORDER, True Copy उप/सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपीलीय अिधकरण, अहमदाबाद / ITAT, Ahmedabad 1. Date of dictation ……………. 2. Date on which the typed draft is placed before the Dictating Member …………. 3. Other Member………….….……………… 4. Date on which the approved draft comes to the Sr.P.S./P.S ………….……. 5. Date on which the fair order is placed before the Dictating Member for pronouncement………….… 6. Date on which the fair order comes back to the Sr.P.S./P.S ………….…………. 7. Date on which the file goes to the Bench Clerk ………….…………….. 8. Date on which the file goes to the Head Clerk…………………………………... 9. The date on which the file goes to the Assistant Registrar for signature on the order 10. Date of Dispatch of the Order…………………………………… "