Appellate tribunal rules interest on enhanced land compensation is exempt from income tax under specific sections

The income tax appellate tribunal allowed both appeals filed by the assessee for the assessment year 2019-20 concerning quantum additions and associated penalties. The core dispute centered on whether interest received on enhanced compensation under Section 28 of the Land Acquisition Act attracts tax liability under Section 56(2)(viii) read with Section 57(iv) of the Income Tax Act. The tribunal concluded that such interest receipts do not qualify for taxation under the cited provisions.

Judicial interpretations distinguish between regular interest earned on commercial deposits and statutory interest awarded on compulsory acquisition of land by the state. While commercial interest represents income from other sources, statutory compensation interest stems from the original acquisition proceedings and enjoys specific judicial protections. The old administrative practice often sought to tax all interest receipts automatically, but recent jurisprudence provides necessary relief to landowners.

Tax professionals managing clients with land acquisition payouts should review past assessment orders for potential rectification applications based on this tribunal outcome. Practitioners must ensure that interest under Section 28 is correctly segregated from regular taxable interest during return filings. Bottom line: protecting clients from erroneous tax demands on compulsory land acquisition payouts preserves substantial capital for taxpayers.