ITAT held that Interest received under section 28 of Land Acquisition Act, 1894 is not taxable under section 56(2)(viii) read with sections 57(iv) and 145A of Income Tax Act,1961.
As per Section 10(37) of the Act, any income chargeable under the head of capital gain arising from transfer of agricultural land by way of compulsory acquisition under the law is exempt from taxation. Further, as per provisions of Section 56(2) (vi) of the Act, income by way of interest received on compensation on an enhanced compensation is taxable and a deduction of a sum equal of 50% of such income is allowable u/s 57(iv) of the Act on that interest. The interest under Land Acquisition Act, is payable under two different Sections i.e. Section 34 & Section 28 of Land Acquisitions Act. There is no dispute in so far as payment of interest u/s 34 of the Land Acquisition Act is concerned. Now, the question whether the interest paid under the provisions of Section 28 of Land Acquisition Act is a part of enhanced compensation or is it taxable as interest income or not. The said issue has been considered by the Hon’ble Supreme Court in the case of CIT Vs. Ghanshyam HUF 315 ITR 1 held that the interest paid on the excess amount u/s 28 of Land Acquisition Act, 1894, depends upon a claim by the person whose land is acquired, where as interest u/s 34 of Land Acquisition Act is for delay in making payment. Interest u/s 28 of Land Acquisition Act is a part of enhanced value of land which is not the case in the matter of payment of interest u/s 34 of the Land Acquisition Act.
