Compensation for Agricultural Land vs. Interest: ITAT Remands Matter for Fresh Verification

Compensation for Agricultural Land vs. Interest: ITAT Remands Matter for Fresh Verification

1. The Core Dispute

The case involved three primary tax issues arising from a reassessment under Section 147:

1. Exempt Compensation: Whether the amount of ₹9,01,726 received was actual land compensation (exempt under Section 10(37)) or “Income from Other Sources.”

2. Interest on Compensation: The taxability of ₹9,17,167 received as interest on land acquisition.

3. Deductions u/s 80C: The disallowance of ₹1,46,630 (LIC payments) due to lack of documentation.

2. Legal Ruling: Verification of Facts and Remand

The ITAT Chandigarh Bench (Accountant Member Manoj Kumar Aggarwal) disposed of the appeal with the following directions:

I. Interest on Compensation (Decided against Assessee)

The assessee had offered 50% of the interest income to tax (after the standard 50% deduction).

• The Ruling: The Tribunal noted that this specific issue (interest taxability u/s 56(2)(viii)) was already decided against the taxpayer in the recent bunch of appeals titled Shri Ajay Kumar & Ors. (2025). Since the AO had already accepted the 50% offering, this part of the assessment remains.

II. Agricultural Income/Compensation (Restored for Verification)

The assessee claimed ₹9,01,726 as exempt agricultural income/compensation for land acquisition under Section 10(37). The AO had treated it as taxable “Income from Other Sources.”

• The Finding: The Tribunal observed that if the amount is indeed compensation for the compulsory acquisition of agricultural land, it would be exempt.

• The Direction: This issue is restored back to the AO to verify the nature of the receipt.

III. Section 80C Deductions (Restored for Evidence)

The deduction for LIC payments was denied by the lower authorities because the assessee failed to provide receipts.

• The Direction: The Tribunal accepted the assessee’s prayer for a second chance. This issue is also restored to the AO, allowing the assessee to produce the necessary insurance premium receipts.

3. Summary of the Final Order

• Interest on Land: Confirmed as taxable (as per the Ajay Kumar precedent).

• Compensation & 80C Claim: Sent back to the Assessing Officer for a fresh look.

• Outcome: The appeal is Allowed for Statistical Purposes (Remanded).

Key Takeaways for Taxpayers

• Section 10(37) Protection: Compensation for compulsory acquisition of urban agricultural land is exempt for Individuals/HUFs. Always ensure your “Award” clearly specifies the nature of the payment.

• Interest vs. Compensation: While the principal compensation is often exempt, the interest earned on that compensation is generally taxable at a flat 50% (after deduction), unless it falls under specific categories defined by the Supreme Court (e.g., Ghanshyam HUF).

• Document Management: Even in a faceless environment, a simple missing LIC receipt can lead to a long litigation process. Always upload clear PDF proofs for all Section 80C claims during the assessment stage.