ITAT: Interest on Enhanced Compensation Taxable as “Income from Other Sources” under Section 56(2)(viii)

ITAT: Interest on Enhanced Compensation Taxable as “Income from Other Sources” under Section 56(2)(viii)

The assessee filed his ITR for the Assessment Year 2015-16, declaring income of Rs. 3,74,740 and claiming a refund of over Rs. 1.33 crore. The return was selected for limited scrutiny to verify the correctness of interest income, agricultural income, and refund claims. During the assessment proceedings, it was found that the assessee had received Rs. 13.43 crore as interest on enhanced compensation from the New Okhla Industrial Development Authority (NOIDA) but had not shown this receipt in his return of income. The Assessing Officer treated 50% of the amount, ₹6.71 crore, as taxable under the head “Income from Other Sources” in accordance with Section 56(2)(viii) and allowed the statutory deduction of 50% under Section 57(iv).

CIT(A) Held: Before the authorities, the assessee contended that the interest received was compensation under Section 28 of the Land Acquisition Act, 1894, and was therefore exempt under Section 10(37) as the land acquired was agricultural. He relied on the Supreme Court’s ruling in CIT v. Ghanshyam (HUF) and various ITAT decisions, including Hari Singh Saini, Pranav Saran, and Virendr Rathee. However, the CIT(A) affirmed the assessment, holding that the Finance Act, 2009 had altered the legal position by specifically taxing such receipts under Section 56(2)(viii).

Issue Raised: Whether interest awarded under Section 28 of the Land Acquisition Act forms part of compensation exempt under Section 10(37) or is taxable as “Income from Other Sources” under Section 56(2)(viii) of the Income Tax Act.

ITAT’s Decision: The tribunal upheld the view of the lower authorities. The Tribunal observed that Sections 56(2)(viii) and 57(iv), introduced by the Finance Act, 2009, clearly provide that any interest received on compensation or enhanced compensation is taxable under “Income from Other Sources,” with effect from AY 2010–11. Consequently, the earlier Supreme Court ruling in Ghanshyam (HUF), which predated the amendment, no longer applies to such cases.

The Bench relied upon the Delhi High Court’s decision in PCIT v. Inderjit Singh Sodhi, which held that both types of interest, under Section 28 or 34 of the Land Acquisition Act, are taxable as income from other sources. Reference was also made to the Tribunal’s own ruling in Veena Shah v. Pr. CIT, where it was reiterated that Ghanshyam (HUF) stands superseded by the legislative amendments.

Finding that the Assessing Officer had correctly brought Rs. 6.71 crore to tax under Section 56(2)(viii), the ITAT dismissed the appeal of the assessee.

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