Interest on enhanced land compensation is taxable u/s 56(2)(viii) subject to 50% deduction u/s 57

Interest on enhanced land compensation is taxable u/s 56(2)(viii) subject to 50% deduction u/s 57

Issue

1. Whether interest received on enhanced compensation u/s 28 of the Land Acquisition Act is exempt from tax or taxable as ‘Income from Other Sources’ u/s 56(2)(viii).

2. Whether the intimation order passed u/s 143(1) by CPC Bangalore was valid.

3. Whether the Assessee is entitled to a standard deduction of 50% u/s 57 on the interest income if held taxable.

Facts

• Appeal Filing: The Assessee filed an appeal against the order of the Ld. Addl./JCIT(A)-2, Delhi dated 29.11.2024.

• Delay: There was a delay of 113 days in filing the appeal before the Tribunal, for which a condonation application and affidavit were filed.

• The Addition: The Assessing Officer (AO) made an addition of Rs. 1,66,05,363/-, treating the enhanced compensation and interest received u/s 28 of the Land Acquisition Act as taxable income.

• Assessee’s Contention: The Assessee claimed the amount is exempt, relying on the Supreme Court judgment in CIT vs Ghanshyam (HUF) [(2009) 315 ITR 1 (SC)].

• CIT(A)’s Stance: The CIT(A) rejected the exemption claim, citing Section 56(2)(viii) (inserted by Finance Act 2009 w.e.f 01.04.2010), holding the amount taxable.

• Alternative Plea: The Assessee raised an alternative ground that if the amount is taxable, a 50% deduction u/s 57 of the Act should be allowed.

Decision

• Condonation of Delay: The Tribunal accepted the reasons in the affidavit and condoned the 113-day delay.

• On Taxability of Interest (Ground 2):

  • The Tribunal rejected the Assessee’s reliance on CIT vs Ghanshyam (HUF).

  • It relied on the Coordinate Bench decision in Ajay Kumar and Others vs ITO (ITA No. 463/Chd/2023, dated 11.11.2025).

  • The Tribunal held that post the insertion of Section 56(2)(viii), interest on enhanced compensation is clearly taxable as “Income from Other Sources.”

• On Jurisdiction u/s 143(1) (Ground 3): The Tribunal upheld the order of the CIT(A), dismissing the challenge to the validity of the CPC intimation.

• On 50% Deduction (Ground 4):

  • The Tribunal accepted the alternative plea of the Assessee.

  • The AO was directed to recompute the income by allowing the mandatory deduction to the extent of 50% u/s 57 of the Income Tax Act.

• Final Ruling: The appeal was Partly Allowed.

Key Takeaways

1. Statutory Override of Case Law: The Supreme Court decision in Ghanshyam (HUF) regarding the exemption of interest on enhanced compensation is no longer applicable after the insertion of Section 56(2)(viii) w.e.f. 01.04.2010.

2. Taxability: Interest received on compensation or enhanced compensation is strictly taxable under the head ‘Income from Other Sources’.

3. Mandatory Deduction: While such interest is taxable, the taxpayer is statutorily entitled to a flat deduction of 50% of such income u/s 57(iv), regardless of the actual expenditure incurred.

4. Precedent: This order reinforces the position taken in Ajay Kumar and Others vs ITO (2025).

IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BENCH “A”, CHANDIGARH
Amardeep Chaudhary House No. 153, Sector-2, Panchkula, Haryana – 134112
Vs.
ITO Ward 1 Panchkula
ITO Ward-1, Panchkula,
Date of Pronouncement : 06- 01-2026
ITA No. 750/CHD/2025