Income Tax Appellate Tribunal - Rajkot
Savitaben Dayabhai Sakariya,Rajkot vs Income Tax Officer Ward 1(2)(3), Rajkot on 30 March, 2026
आयकर अपीलीय अिधकरण,राजकोट यायपीठ,राजकोट।
IN THE INCOME TAX APPELLATE TRIBUNAL,
RAJKOT BENCH, RAJKOT
BEFORE DR. ARJUN LAL SAINI, ACCOUNTANT MEMBER
AND
DR. DINESH MOHAN SINHA, JUDICIAL MEMBER
आयकरअपीलस.ं /ITA No. 328/RJT/2025
(िनधारणवष/Assessment Year: (2016-17)
Babubhai Punabhai Sakariya Income Tax Officer, wd - 1(2)(3)
Khajuri Gundala, Jetpur, Rajkot (Guj) - Vs. Aayakar Bhavan, Race Course Ring
360370 Road, Rajkot (Guj) - 360001
थायीलेखासं./जीआइआरसं./PAN/GIR No.: GCXPS4115R
(अपीलाथ /Assessee) ( यथ /Respondent)
आयकरअपीलस.ं /ITA No. 327/RJT/2025
(िनधारणवष/Assessment Year: (2016-17)
Savitaben Dayabhai Sakariya Income Tax Officer, wd - 1(2)(3)
Khajuri Gundala, Jetpur, Rajkot (Guj) - Vs. Aayakar Bhavan, Race Course Ring
360370 Road, Rajkot (Guj) - 360001
थायीलेखासं./जीआइआरसं./PAN/GIR No.: GDEPS5700N
(अपीलाथ /Assessee) ( यथ /Respondent)
आयकरअपीलस.ं /ITA No. 279/RJT/2025
(िनधारणवष/Assessment Year: (2016-17)
Jeabhai Rajabhai Khtana Income Tax Officer, wd - 1(2)(3)
Khajuri Gundala, Jetpur, Rajkot (Guj) - Vs. Aayakar Bhavan, Race Course Ring
360370 Road, Rajkot (Guj) - 360001
थायीलेखासं./जीआइआरसं./PAN/GIR No.: DHYPK4927E
(अपीलाथ /Assessee) ( यथ /Respondent)
Assessee by : Shri Sagar Shah, Ld. AR
Respondent by : Shri Abhimanyu Singh Yadav, Ld. Sr. DR
Date of Hearing : 26/03/2026 (Originally heard on 27.11.2025)
Date of Pronouncement : 30/03/2026
ITA No. 279 & 327 & 328/Rjt/2025
Babubhai P. Sakariya and others
ORDER
Per Bench:
Captioned these three appeals filed by the different assessees, pertaining to same Assessment Year 2016-17, are directed against the separate orders passed under section 250 by Commissioner of Income-tax (Appeals) (hereinafter referred to as "Ld.CIT(A) Act"), which in turn arise out of a separate orders passed u/s. 143(3) of the Income Tax Act, 1961 by the Assessing Officer (hereinafter referred to as "Act")
2. Since, the issues involved in all these three appeals are common and identical, therefore, these appeals are clubbed and heard together and a consolidate order is being passed for the sake of convenience and brevity. The facts as well as grounds of appeal raised by the assessee in ITA 328/Rjt/2025 in the case of Babubhai Punabhai Sakariya, for AY 2016-17 have been taken into consideration for deciding these three appeals en-masee.
3. The grounds of appeal raised by the assessee in ITA 328/Rjt/2025,(lead case) are as follows:
"Ground 1. On the basis of the facts AND circumstances of the case, the learned Commissioner of Income Tax (Appeals) AND Income Tax Officer has erred in passing the order without keeping in mind the principles of natural justice, exercised judicious discretion in a non-judicial AND arbitrary manner AND the order is bad in law as well as on facts AND therefore, the same is required to be quashed. On the basis of the facts AND circumstances of the case, the learned Commissioner of Income Tax (Appeals) AND Income Tax Officer has erred in passing the order without keeping in mind the principles of natural justice, exercised judicious discretion in a non-judicial AND arbitrary manner AND the order is bad in law as well as on facts AND therefore, the same is required to be quashed.
Ground 2. On the basis of the facts AND circumstances of the case, the learned Commissioner of Income Tax (Appeals) AND Income Tax Officer has erred in passing the order by failing to correctly interpret the provisions of Section 10(37) of the Income Page 2 of 18 ITA No. 279 & 327 & 328/Rjt/2025 Babubhai P. Sakariya and others Tax Act, 1961. The Assessing Officer (AO) incorrectly treated interest on enhanced compensation as taxable income10(37). instead of exempt income, even though such interest is in the nature of compensation for compulsory acquisition of agricultural land AND is eligible for exemption under Section Ground 3. On the basis of the facts AND circumstances of the case, the learned Commissioner of Income Tax (Appeals) AND Income Tax Officer has erred in passing the order by disregarding the binding decision of the Hon'ble Gujarat High Court in Movaliya Bhikhubhai Balabhai vs. ITO-TDS-1, Surat (2016) 70 taxmann.com 45, which specifically held that interest awarded under Section 28 of the Land Acquisition Act forms part of compensation AND not interest AND is therefore, exempt from tax. The AO has ignored this precedent AND made an erroneous addition, Ground 4. On the basis of the facts AND circumstances of the case, the learned Commissioner of Income Tax (Appeals) AND Income Tax Officer has erred in passing the order thereby failing to consider the decision of the Hon'ble Supreme Court in CIT vs. Ghanshyam (HUF) 315 ITR 1, wherein it was held that interest awarded under Section 28 of the Land Acquisition Act is compensatory in nature AND should not be treated as taxable income.
Ground 5. On the basis of the facts AND circumstances of the case, the learned Commissioner of Income Tax (Appeals) AND income Tax Officer has erred in passing the order by failing to fertigate between interest under Section 28 AND interest under Section 34 of the Land Acquisition Act. The Ld. AO has incorrectly classified interest under Section 28, which is part of compensation, as taxable under Section 56(2)(viii), whereas only interest under Section 34 (delayed interest) is taxable.
Ground 6. On the basis of the facts AND circumstances of the case, the learned Commissioner of Income Tax (Appeals) AND Income Tax Officer has erred in passing the order by wrongly applying the provisions of Section 56(2)(viii) of the Income Tax Act. The AO has treated 50% of the interest received on enhanced compensation as "Income from Other Sources" instead of recognizing it as part of compensation, which is exempt under Section 10(37) of the Act.
Ground 7. On the basis of the facts AND circumstances of the case, the learned Commissioner of Income Tax (Appeals) AND Income Tax Officer has erred in passing the order by not taking into account that the similar case of assessee named "CHHAGANBHAI PAGHADAL vs. CIT (A), Rajkot", wherein the CIT(A) had relied upon the judgment of the Hon'ble Gujarat High Court in Movaliya Bhikhubhai Balabhai vs. ITO, AND held that enhanced compensation received for the compulsory acquisition of agricultural land is not taxable. Therefore, the principle of judicial consistency is not followed wherein two different judgements are given for the similar facts AND case for two different assessee for the same assessment year.
Ground 8. On the basis of the facts AND circumstances of the case, the learned Commissioner of Income Tax (Appeals) AND Income Tax Officer has erred in passing Page 3 of 18 ITA No. 279 & 327 & 328/Rjt/2025 Babubhai P. Sakariya and others the order by failing to consider the explicit wording of the order of the Hon'ble Gujarat High Court, which states: "It is hereby ordered that all the applicants are entitled to get compensation...". The use of the term "compensation" instead of "interest" in the High Court's order makes it clear that the amount received is compensation AND not interest. Since the Hon'ble Gujarat High Court has clearly stated that the amount received is compensation, CIT(A) has wrongly classified it as interest. This mistake is not legally valid.
Ground 9. On the basis of the facts AND circumstances of the case, the learned Commissioner of Income Tax (Appeals) has erred in passing the order by dismissing the appeal by relying on the judgment of the Hon'ble ITAT Rajkot in the case of Jayantilal Paghadal vs. ITO, 1(2)(3), Rajkot in ITA No. 252/RJT/2022 for A.Y. 2016-17 dated 13/12/2023. The reliance placed on the said order is unsustainable as the order passed is an ex-parte order, therefore the addition confirmed is not in line with the provisions of the law AND is therefore required to be deleted. Further, no reliance is placed on the judicial pronouncements of the higher authorities AND no adverse findings are stated on such judgements relied upon.
Ground 10. On the basis of the facts AND circumstances of the case, the learned Commissioner of Income Tax (Appeals) AND Income Tax Officer has erred in passing the order by dismissing the appeal without properly considering the appellant's submissions. CIT(A) has not given due weightage to the judicial precedents cited by the appellant AND has merely confirmed AO's order without properly verifying the facts OR considering the evidence submitted by the appellant. Since no proper examination was carried out, the addition is unfair AND should be deleted. "
4. When these three appeals were called out for hearing, the Ld.Counsel invited out attention to the judgement dated 31.03.2016 passed by the Hight Court of Gujarat and also invited our attention to the order passed by the ITAT, Rajkot on the same issue in ITA 318/Rjt/2024 in the case of Mansukhbhai Kanjibhai Sakariya, on the similar and identical issue where in the issue of enhanced compensation whether it is taxable u/s. 56 of the Act or it is exempt from tax was discussed and adjusted in favour of assessee. The Ld.Counsel for the assessee submitted that interest on enhanced compensation is not taxable, instead it is exempted from tax, as such interest is in the nature of compensation for compulsory acquisition of agricultural land, and is eligible for exemption u/s. 10(37) of the Income Tax Act. Therefore, the Ld. Counsel for the assessee Page 4 of 18 ITA No. 279 & 327 & 328/Rjt/2025 Babubhai P. Sakariya and others submitted that since the assessee is resided in Gujarat, hence the binding decision of the Jurisdictional Gujarat High Court in the case of Mavalliya Bhikubhai Balabhai, where in it, especially held that the interest u/s. 28 of the land acquisition Act forms of part of compensation and, therefore exempt from tax. The Ld. Counsel also stated that the issue is covered in favour of the assessee by the judgement of the Hon'ble Supreme Court in the case of Ghanshyam (HUF), 315 ITR 1, wherein the Hon'ble Supreme court held that interests u/s. 28 of the Land Acquisition Act is compensation in nature and therefore they should not taxable. Likewise the Ld.Counsel also invited our attention to the decision of co-ordinate Bench of ITAT, Rajkot in 318/Rjt/2016 in the case of Mansukhbhai Kanjibhai Sakariyan wherein the ITAT, Rajkot- Bench by following the judgement of jurisdictional High Court of Gujarat in the case of Movalliya Bhikhubhai Balabhai (supra), held that the interest on enhanced compensation in the case of agricultural land, has exempted from tax. Therefore, the Ld. Counsel submitted that the issue under consideration in these three appeals is squarely covered in favour of the assessee, hence addition made by the assessing officer should be deleted.
5. On the other hand, the Ld. DR for the revenue submitted that interest on enhanced compensation is an income from other sources and taxable u/s.56 of the Act under the head income from the other sources. The Ld. DR also submitted that assessing officer has himself given relief of 50% of the compensation, that is, interest on enhanced compensation and therefore no further relief should be given to the assesse, as the interest on enhanced compensation in the case of the agricultural land is taxable under the head income from other sources.
Page 5 of 18ITA No. 279 & 327 & 328/Rjt/2025 Babubhai P. Sakariya and others
6. We have heard both the parties and perused the material available on record. We note that the legal issue raised by the assessee in these three appeals are squarely covered by the above said order of the Jurisdictional High Court Of Gujarat in the case of Movalliya Bhikhubhai Balabhai (supra), and by the judgements of the Hon'ble Supreme Court in the case of Ghanshyam (HUF) and it also covered by the recent judgements of the jurisdictional ITAT, Rajkot in ITA 318/Rjt/2024 in the case of Mansukhbhai Kanjibhai Sakariyan, the copy of these orders were placed before the Bench by the Ld. Counsel. After considering the facts narrated in the assessment order, wherein the assessing officer held that interest on enhanced compensation is taxable under the head income from other source and the Ld.CIT(A) also confirmed the stand taken by the assessing officer, therefore, these three assessees are in appeal before us.
7. We have heard both the parties. We see no reason to take another view then a view so taken by the Jurisdictional High Court of Gujarat in the case of Movalliya Bhikhubhai Balabhai (supra), and Hon'ble Supreme Court in the case of Ghanshyam (HUF) (supra), and the decision of the ITAT, Rajkot in the case of Mansukhbhai Kanjibhai Sakariyan (supra). In the judgement of the Hon'ble Gujarat High Court in the case of Movalliya Bhikhubhai Balabhai (supra), the Hon'ble Court inter-alia observed as follows:
"12. On behalf of the first respondent, reliance has been placed upon decisions of different High Courts taking a different view. This court is not in agreement with the view adopted by the other High Courts which are not consistent with the law laid down in the case of Ghanshyam (HUF) (supra). In Manjet Singh (HUF) v. Union of India (supra), the Punjab and Haryana High Court has chosen to place reliance upon various decisions of the Supreme Court rendered during the period 1964 to 1997 and has chosen to brush aside the subsequent decision of the Supreme Court in Ghanshyam (HUF) (supra) which is directly on the issue by observing the assessee cannot derive any benefit from the observatio made by the Supreme Court as quoted therein. In Hari Kishan v.
Union of India (supra), the Punjab and Haryana High Court has placed reliance upon its earlier decision in the case of Manjet Singh (supra). In The Commissioner of Income-
Page 6 of 18ITA No. 279 & 327 & 328/Rjt/2025 Babubhai P. Sakariya and others tax, Faridabad v. Bir Singh (HUF), Ballabgarh (supra), the Punjab and Haryana High Court has held that under the scheme of the 1894 Act, interest under section 34 is part of compensation while interest under section 28 is not the interest which partakes the character of compensation and is treated differently. In the opinion of this court, the above view of the Punjab and Haryana High Court is contrary to what has been held in the decision of the Supreme Court in Ghanshyam (HUF) (supra) wherein it has been held that interest under section 28 unlike interest under section 34 is an accretion to the value, hence it is a part of enhanced compensation or consideration which is not the case with interest under section 34 of the 1894 Act. This court is in agreement with the view adopted by the Punjab and Haryana High Court in Jagmal Singh v. State of Haryana (supra), which has been extensively referred to in paragraph 4.1 above. The decision of the Delhi High Court in Commissioner of Income-tax v. Sharda Kochhar (supra), having been rendered in the context of a different controversy would have no applicability to the facts of the present case.
13. The upshot of the above discussion is that since interest under section 28 of the Act of 1894, partakes the character of compensation, it does not fall within the ambit of the expression "interest" as contemplated in section 145A of Income Tax Officer was, the I.T. Act. The first respondent therefore, not justified in refusing to grant a certificate under section 197 of the I.T. Act to the petitioner for non-deduction of tax at source, inasmuch as, the petitioner is not liable to pay any tax under the head "income from other sources" on the interest paid to it under section 28 of the Act of 1894."
8. The findings of the order of the Jurisdictional ITAT, Rajkot in ITA 318/Rjt/2024 in the case of Mansukhbhai Kanjibhai Sakariyan (supra), also reproduced below:
"12. On the other hand, the ld. CIT-DR for the Revenue submitted that if the compensation is received, then, it is taxable under section 28 of the Act. However, in the assessee's case, the assessee has received interest, on compensation, which is not a compensation, and therefore, it is clearly assessable under the head "income from other sources" and this inquiry was not conducted by the assessing officer. Besides, the entire compensation and interest, have been taxed in the hands of one co-owner, however, it should be taxable in the hands of all the co-owners, in the ratio of their respective shares in the property. Therefore, the order passed by the assessing officer is erroneous as well as prejudicial to the interest of the Revenue.
13.We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position.We note that Hon'ble Gujarat High Court in the case of Movaliya Bhikhubhai Balabhai Vs. ITO, SCA No.17944 of 2015 dated 31.3.2016 stated that the interest received for enhanced compensation is part of the compensation and this judgment has been delivered by the jurisdictional High Court of Gujarat, after the amendment made in section 145B and section 56 (2) (viii) of the Income Tax Act. We note that theld.Pr.CIT has heavily relied Page 7 of 18 ITA No. 279 & 327 & 328/Rjt/2025 Babubhai P. Sakariya and others on the judgment of Hon'ble Punjab & Haryana High Court in the case of Manjeet Singh (HUF) Vs. UOI, CWP No.15506 of 2013 dated 29.1.2016 wherein the Hon'ble Punjab & Haryana High Court held that interest received on enhanced compensation is a revenue receipt and it is taxable in the hands of the assessee under section 56 of the Act, under "income from other sources" in the year of receipt. However, we note that jurisdictional High Court in the case of Movaliya Bhikhubhai Balabhai Vs. ITO(supra) clearly stated that the compensation and interest received on enhanced compensation has character of compensation and it does not fall within the expression "interest" as contemplated in section 145B r.w.s. 56(2) (viii) of the Act. We note that before this Bench, jurisdictional High Court's decision in the case of Movaliya Bhikhubhai Balabhai Vs. ITO(supra) would be applicable, as it is a judgment of jurisdictional High Court of Gujarat. However, the judgment relied on by the ld.Pr.CIT in the case of Manjeet Singh (HUF) Vs. UOI (supra) is related to Hon'ble Punjab & Haryana High Court, which is not a jurisdictional High Court, for us. Therefore, judicial discipline mandates that we suppose to follow the judgment of the jurisdictional High Court. Thus, we note that the judgement of jurisdictional High Court of Gujarat in the case of Movaliya Bhikhubhai Balabhai Vs. ITO [2016] 70 taxmann.com 45 (Gujarat),(supra) Is clearly applicable to us, wherein following ratio was laid down by the Hon`ble Court:
"6. The facts as emerging from the record are that the petitioner's agricultural lands came to be acquired underthe provisions of the Act of 1894 for the public purpose of the Ozat-2 Irrigation Scheme. The award passed bythe Collector came to be challenged by the petitioner before the learned Principal Senior Civil Judge,Junagadh (hereinafter referred to as the "Reference Court"), who by an order dated 20th March, 2011 awardadditional compensation of Rs. 5,01,846/- in favour of the petitioner together with other statutory benefits.Pursuant to such award, the second respondent calculated the amount payable to the petitioner and in terms of the statement showing the amount of compensation to be deposited in the court, computed an amount of Rs.20,74,157/- as payable to the petitioner by way of interest under section 28 of the Act of 1894. In support ofsuch statement, the second respondent has also issued a communication dated 12th October, 2015 certifyingthat the interest shown in Columns No. 13 and 14 indicates the interest under section 28 of the Act of 1894. Itmay be noted that Column No. 15 is comprised of the total amount of interest under Columns No. 13 and 14of the above statement. Undisputedly, therefore, the amount of interest from which the income tax is sought tobe deducted at source, is interest payable under section 28 of the Act of 1894.
7. At this juncture, reference may be made to the decision of the Supreme Court in the case of Ghanshyam(HUF) (supra) wherein, the court has examined the provisions of the Land Acquisition Act, 1894 as well asthe provisions of section 45 of the I.T. Act and the intention behind insertion of sub-section (5) of section
45.The court noted that subsection (5) of section 45 was inserted to provide for taxation of additional compensation in the year of receipt instead of in the year of transfer of the capital asset. The court consideredthe provisions of sections 23(1), 23(1-A) and section 23(2) of the Act as well as section 28 and section 34 Page 8 of 18 ITA No. 279 & 327 & 328/Rjt/2025 Babubhai P. Sakariya and others ofthe Act of 1894 and observed that section 23(1-A) was introduced in the 1894 Act to mitigate the hardshipcaused to the owner of the land who is deprived of its enjoyment by taking possession from him and using itfor public purpose, because of the considerable delay and offering payment thereof. To obviate such hardship,section 23(1-A) was introduced and the legislature envisaged that the owner is entitled to 12% per annumadditional amount on the market value for a period commencing on or from the date of publication of thenotification under section 4(1) of the 1894 Act up to the date of the award of the Collector or the date oftaking possession of the land, whichever is earlier. The court held that the additional amount payable undersection 23(1-A) of the 1894 Act is neither interest nor solatium. It is an additional compensation designed tocompensate the owner of the land for the rise in price during the pendency of the land acquisition proceedings.It is a measure to offset the effect of inflation and the continuous rise in the value of properties. Therefore, theamount payable under section 23(1-A) of the Act is an additional compensation in respect to the acquisitionand has to be reckoned as part of the market value of the land. The court further held that the award of interestunder section 28 of the 1894 Act is discretionary. Section 28 applies when the amount originally awarded hasbeen paid or deposited and when the court awards excess amount. In such cases, interest on that excess alone is payable. Section 28 empowers the court to award interest on the excess amount of compensation awardedby it over the amount awarded by the Collector. The compensation awarded by the court includes theadditional compensation awarded under section 23(1-A) and the solatium under section 23(2) of the said Act.This award of interest is not mandatory but is left to the discretion of the court. It was further held that section28 is applicable only in respect of the excess amount which is determined by the court after a reference undersection 18 of the 1894 Act. Section 28 does not apply to cases of undue delay in making award forcompensation. The court observed that interest is different from compensation. However, interest paid on the excess amount under section 28 of the 1894 Act depends upon a claim made by a person whose land isacquired whereas interest under section 34 is for the delay in making payment. This vital difference needs tobe kept in mind in deciding the matter. Interest under section 28 is part of the amount of compensationwhereas interest under section 34 is only for delay in making payment after the compensation amount isdetermined. Interest under section 28 is a part of the enhanced value of the land which is not the case in thematter of payment of interest under section 34. The court, thereafter, specifically considered the question as towhether additional amount under section 23(1-A), solatium under section 23(2), interest paid on excesscompensation under section 28 and interest under section 34 of the 1894 Act, could be treated as part ofcompensation under section 45(5) of the 1961 Act and the court held thus: --"47. The issue to be decided before us-what is the meaning of the words "enhancedcompensation/consideration" in Section 45(5)(b) of the 1961 Act? Will it cover "interest"? Thesequestions also bring in the concept of the year of taxability.48. It is to answer the above questions that we have analysed the provisions of Sections 23, 23(1-A),23(2), 28 and 34 of the 1894 Act.49. As Page 9 of 18 ITA No. 279 & 327 & 328/Rjt/2025 Babubhai P. Sakariya and others discussed hereinabove, Section 23(1-A) provides for additional amount. It takes care of theincrease in the value at the rate of 12% per annum. Similarly, under Section 23(2) of the 1894 Actthere is a provision for solatium which also represents part of the enhanced compensation.Similarly, Section 28 empowers the court in its discretion to award interest on the excess amount ofcompensation over and above what is awarded by the Collector. It includes additional amount underSection 23(1-A) and solatium under Section 23(2) of the said Act. Section 28 of the 1894 Actapplies only in respect of the excess amount determined by the court after reference under Section18 of the 1894 Act. It depends upon the claim, unlike interest under Section 34 which depends onundue delay in making the award.50. It is true that "interest" is not compensation. It is equally true that Section 45(5) of the 1961 Actrefers to compensation. But as discussed hereinabove, we have to go by the provisions of the 1894Act which awards "interest" both as an accretion in the value of the lands acquired and interest forundue delay. Interest under Section 28 unlike interest under Section 34 is an accretion to the value,hence it is a part of enhanced compensation or consideration which is not the case with interestunder Section 34 of the 1894 Act. So also, additional amount under Section 23(1-A) and solatiumunder Section 23(2) of the 1961 Act forms part of enhanced compensation under Section 45(5)(b)of the 1961 Act."Thus, the court has held that interest under section 28 of the Act of 1894 is an accretion to compensation andforms part of the compensation and, therefore, exigible to tax under section 45(5) of the Act. Such decisionwas, therefore, rendered in favour of the revenue.
8. The above referred decision in the case of Ghanshyam (HUF) (supra) came to be followed by the SupremeCourt in the case of CIT v. Govindbhai Mamaiya [2014] 52 taxmann.com 270/367 ITR 498/[2015] 229Taxman 138, wherein the court after referring to the above decision in the case of Ghanshyam (HUF) (supra)held that it is clear that whereas interest under section 34 of the Act of 1894 is not treated as a part of incomesubject to tax, the interest earned under section 28, which is on enhanced compensation, is treated as anaccretion to the value and, therefore, part of the enhanced compensation or consideration making it exigible totax under section 45(5) of the Income Tax Act.
9. Thus, the Supreme Court in the case of Ghanshyam (HUF) (supra) has held that the interest under section28 of the Act of 1894 unlike interest under section 34 is an accretion to the value and hence, it is a part of theenhanced compensation or consideration which is not the case with interest under section 34 of the 1894 Act.Therefore, interest under section 28 of the Act of 1894 would form part of the enhanced compensation andwould be exigible to capital gains under section 45(5) of the I.T. Act. In other words, in case of a transactionwhich is otherwise exigible to capital gains tax under section 45 of the I.T. Act, the interest received undersection 28 of the Act of 1894 being an accretion to the value, would form part of the compensation and wouldbe exigible to tax under section 45(5) of the I.T. Act, whereas the interest received under section 34 of the Actof 1894 would be "interest" within the meaning of such expression as Page 10 of 18 ITA No. 279 & 327 & 328/Rjt/2025 Babubhai P. Sakariya and others envisaged under section 145A of theI.T. Act and would be deemed to be the income of the year under consideration, chargeable to tax as incomefrom other sources under section 56 of the I.T. Act.
10. In the facts of the present case, it is an admitted position that the interest on which the tax is sought to bededucted at source under section 194A of the Act is interest under section 28 of the Act of 1894 and not undersection 34 thereof. As noted hereinabove, the petitioner's application for a certificate under section 197 of theI.T. Act for no deduction of tax at source has been rejected on the ground that the interest amount receivedunder section 28 of the Act of 1894 is taxable as per the provisions of section 57(iv) read with section 56(2)(viii) and section 145A(b) of the I.T. Act. Section 145A of the I.T. bears the heading "Method of accounting incertain cases". Section 145A(b) provides that notwithstanding anything to the contrary contained in section145, interest received by an assessee on compensation or on enhanced compensation, as the case may be, shallbe deemed to be the income of the year in which it is received. Clause (viii) of sub-section (2) of section 56 ofthe I.T. Act provides for income by way of interest received on compensation or on enhanced compensationreferred to in clause (b) of section 145A which is chargeable as income from other sources. The firstrespondent Income Tax Officer seeks to tax the interest received by the petitioner under section 28 of the Actof 1894 as income from other sources under section 56(2)(viii) read with section 145A(b) of the I.T. Act. Inthe opinion of this court, in the light of the law laid down by the Supreme Court in the case of Ghanshyam (HUF) (supra), the interest received under section 28 of the Act of 1894 would not fall within the ambit of theexpression "interest" as envisaged under section 145A(b) of the I.T. Act, inasmuch as, the Supreme Court inthe above decision has held that interest under section 28 of the Act of 1894 is not in the nature of interest butis an accretion to the compensation and, therefore, forms part of the compensation. At this stage it may be aptto quote the following part of the decision of the Supreme Court in Ghanshyam (HUF)'s case (supra):"54. Section 45(5) read as a whole [including clause (c)] not only deals with reworking as urged onbehalf of the assessee but also with the change in the full value of the consideration (computation)and since the enhanced compensation/consideration (including interest under Section 28 of the1894 Act) becomes payable/paid under the 1894 Act at different stages, the receipt of suchenhanced compensation/consideration is to be taxed in the year of receipt subject to adjustment, ifany, under Section 155(16) of the 1961 Act, later on. Hence, the year in which enhancedcompensation is received is the year of taxability. Consequently, even in cases where pending appeal, the court/tribunal/authority before which appeal is pending, permits the claimant towithdraw against security or otherwise the enhanced compensation (which is in dispute), the sameis liable to be taxed under Section 45(5) of the 1961 Act. This is the scheme of Section 45(5) andSection 155(16) of the 1961 Act. We may clarify that even before the insertion of Section 45(5)(c)and Section 155(16) w.e.f. 1-4-2004, the receipt of enhanced compensation under Section 45(5)(b)was taxable in the year of receipt which is Page 11 of 18 ITA No. 279 & 327 & 328/Rjt/2025 Babubhai P. Sakariya and others only reinforced by insertion of clause (c) because theright to receive payment under the 1894 Act is not in doubt.55. It is important to note that compensation, including enhanced compensation/consideration under the1894 Act, is based on the full value of property as on the date of notification under Section 4 of thatAct. When the court/tribunal directs payment of enhanced compensation under Section 23(1-A), orSection 23(2) or under Section 28 of the 1894 Act it is on the basis that award of the Collector orthe court, under reference, has not compensated the owner for the full value of the property as ondate of notification."Thus, it is clear that the Supreme Court after considering the scheme of section 45(5) of the I.T. Act hascategorically held that payment made under section 28 of the Act of 1894 is enhanced compensation, as anecessary corollary, therefore, the contention that payment made under section 28 of the Act of 1894 isinterest as envisaged under section 145A of the I.T. Act and has to be treated as income from other sources,deserves to be rejected.
11. It has been vehemently contended on behalf of the first respondent that the above decision has beenrendered prior to the substitution of section 145A of the I.T. Act by Finance (No. 2) Act, 2009 with effectfrom 1st April, 2010, and hence, would have no applicability to the facts of the present case. The scope andeffect of the substitution (with effect from 1st April, 2010) of section 145A, as also amendment made insection 56(2) by Act 33 of 2009 have been elaborated in the following portion of the departmental circularNo. 5/2010, dated 3.6.2010, as follows:"Rationalizing the provisions for taxation of interest received on delayed compensation or on enhancedcompensation.-46.1 The existing provisions of Income Tax Act, 1961, provide that income chargeable under the head"Profits and gains of business or profession" or "Income from other sources", shall be computed inaccordance with either cash or mercantile system of accounting regularly employed by the assessee.Further the MansukhbhaiKanjibhai Sakariya Vs. Pr.CIT ITA No.318/RJT/2024 16 Hon'ble Supreme Court in the case of Smt. Rama Bai v. CIT (1990) 84 CTR (SC) 164 :(1990) 181 ITR 400 (SC) has held that arrears of interest computed on delayed or enhancedcompensation shall be taxable on accrual basis. This has caused undue hardship to the taxpayers.46.2 With a view to mitigate the hardship, section 145A is amended to provide that the interest receivedby an assessee on compensation or enhanced compensation shall be deemed to be his income forthe year in which it was received, irrespective of the method of accounting followed by theassessee.46.3 Further, clause (viii) is inserted in sub-section (2) of the section 56 so as to provide that income byway of interest received on compensation or enhanced compensation referred to in clause (b) ofsection 145A shall be assessed as "income from other sources" in the year in which it is received.46.4 Applicability. - This amendment has been made applicable with effect from 1st April, 2010, and itwill accordingly apply in relation to assessment year 2010-11 and subsequent assessment years."Thus, the substitution of section 145A by Finance (No. 2) Act, 2009 was not in connection with the decisionof the Supreme Court in Ghanshyam (HUF)'s case (supra) but was brought in to Page 12 of 18 ITA No. 279 & 327 & 328/Rjt/2025 Babubhai P. Sakariya and others mitigate the hardship causedto the assessee on account of the decision of the Supreme Court in Rama Bai v. CIT [1990] 181 ITR400/[1991] 54 Taxman 496 whereby it was held that arrears of interest computed on delayed or enhancedcompensation shall be taxable on accrual basis. Therefore, when one reads the words "interest received oncompensation or enhanced compensation"
in section 145A of the I.T. Act, the same have to be construed inthe manner interpreted by the Supreme Court in Ghanshyam (HUF)'s case (supra).
12. On behalf of the first respondent, reliance has been placed upon decisions of different High Courts takinga different view. This court is not in agreement with the view adopted by the other High Courts which are notconsistent with the law laid down in the case of Ghanshyam (HUF) (supra). In Manjet Singh (HUF) KartaManjeet Singh's case (supra), the Punjab and Haryana High Court has chosen to place reliance upon variousdecisions of the Supreme Court rendered during the period 1964 to 1997 and has chosen to brush aside thesubsequent decision of the Supreme Court in Ghanshyam (HUF)'s case (supra) which is directly on the issueby observing that the assessee cannot derive any benefit from the observations made by the Supreme Court asquoted therein. In Hari Kishan's case (supra), the Punjab and Haryana High Court has placed reliance upon itsearlier decision in the case of Manjet Singh (HUF) Karta Manjeet Singh (supra). In Bir Singh (HUF)'s case(supra), the Punjab and Haryana High Court has held that under the scheme of the 1894 Act, interest undersection 34 is part of compensation while interest under section 28 is not the interest which partakes thecharacter of compensation and is treated differently. In the opinion of this court, the above view of the Punjaband Haryana High Court is contrary to what has been held in the decision of the Supreme Court inGhanshyam (HUF)'s case (supra) wherein it has been held that interest under section 28 unlike interest undersection 34 is an accretion to the value, hence it is a part of enhanced compensation or consideration which isnot the case with interest under section 34 of the 1894 Act. This court is in agreement with the view adoptedby the Punjab and Haryana High Court in Jagmal Singh's case (supra), which has been extensively referred toin paragraph 4.1 above. The decision of the Delhi High Court in Sharda Kochhar's case (supra), having beenrendered in the context of a different controversy would have no applicability to the facts of the present case.
13. The upshot of the above discussion is that since interest under section 28 of the Act of 1894, partakes thecharacter of compensation, it does not fall within the ambit of the expression "interest" as contemplated insection 145A of the I.T. Act. The first respondent - Income Tax Officer was, therefore, not justified in refusingto grant a certificate under section 197 of the I.T. Act to the petitioner for non-deduction of tax at source,inasmuch as, the petitioner is not liable to pay any tax under the head "income from other sources" on theinterest paid to it under section 28 of the Act of 1894.
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14. The petitioner had earlier challenged the communication dated 9th February, 2015 whereby its applicationfor a certificate under section 197 of the I.T. Act had been rejected, and subsequently, tax on the interestpayable under section 28 of the Act of 1894 has already been deducted at source. Consequently, the challengeto the above communication has become infructuous and hence, the prayer clause came to be modified.However, since the amount paid under section 28 of the Act of 1894 forms part of the compensation and notinterest, the second respondent was not justified in deducting tax at source under section 194A of the I.T. Actin respect of such amount. The petitioner is, therefore, entitled to refund of the amount wrongly deductedunder section 194A of the I.T. Act.
15. For the foregoing reasons, the petition succeeds and is accordingly allowed. The second respondenthaving wrongly deducted an amount of Rs. 2,07,416/- by way of tax deducted at source out of the amount ofRs. 20,74,157/- payable to the petitioner under section 28 of the Act of 1894 and having deposited the samewith the income-tax authorities, taking a cue from the decision of the Punjab and Haryana High Court inJagmal Singh's case (supra), the first respondent is directed to forthwith deposit such amount with theReference Court, which shall thereafter disburse such amount to the petitioner herein. Rule is made absoluteaccordingly with costs.
14. So far as facts are concerned we note that during the assessment proceedings, the assessing officer has made enough inquiries, as we have noted above, the assessing officer issued notice under section 142(1) of the Act, dated 16.02.2022, which is placed at PB Page no.18.Therefore, respectfully following the judgment of the Hon'ble jurisdictional High Court in the case of Movaliya Bhikhubhai Balabhai Vs. ITO(supra), we note that there is no any case of lack of inquiry on the part of the assessing officer, and the assessing officer has passed order as per the judgement of jurisdictional High Court cited (supra).Besides, the original compensation and enhanced compensation and interest thereon have already been suffered taxation in the hands of one of the co- owners, therefore, there is no loss to the revenue. Now, to tax such compensation/ enhanced compensation, and interest thereon, in the hands of other co-owner, would be tantamount to double taxation. Therefore, the order passed by the assessing officer is sustainable in the eyes of law.
15. We note that the assessee had filed return of income, declaring total income of Rs. 10,26,350/-. The assessee is earning share in profit, interest and remuneration from a partnership firm, Parmeshwar Impex, capital gain and income from other sources. Besides during the year, assessee received 25% share in enhanced compensation, totalling to Rs. 2,69,41,878/-, on compulsory acquisition of ancestral agricultural land of his family.The above compensation of Rs. 2,69,41,878/- was inclusive of interest of Rs. 1,89,62,258/-, granted u/s. 28 of the Land Acquisition Act. 1884 (the LA Act).As submitted by ld Counsel for the assessee that the enhanced compensation, was received in respect of their ancestral agricultural land, which is fully satisfying the prescribed conditions to be an agricultural land in terms of section 2(14)(iii) of the Act, and thereby Page 14 of 18 ITA No. 279 & 327 & 328/Rjt/2025 Babubhai P. Sakariya and others the land is not a capital asset. The Collector had made payment of entire enhanced compensation with interest to his brother Shri Babubhai K Sakariya.An assessment has been made in case of Shri Babubhai, the relevant land was held as an agricultural land, not a capital asset as per section 2(14) of the Act.However, the interest awarded as per section 28 of the Act, has been considered as chargeable to tax u/s 56(2)(viii) of the Act. Substantial addition for 25% share in interest and protective addition for 75% share in interest has been made in hands of Babubhai.Accordingly, information was given to the assessing officer of remaining co-owners, directing to reject claim of exempt interest income, making a substantial addition for 25% share in interest awarded in hands of respective coowners.A notice u/s 148 of the Act has been issued, reopening the assessment. In re-assessment proceedings, the assessing officer had made necessary inquiry and verification in respect of interest awarded by the Court with enhanced compensation.In response, the assessee had furnished all the information related to the transaction under consideration. It was requested that his share in the interest awarded as per section 28 of the Act, might be considered as part of full value of consideration received on compulsory acquisition of agricultural land, relying upon the judgments of the Hon'ble Supreme Court in case of CIT vs. Ghanshyam (HUF) (2009) 315 ITR 1, the Hon'ble Gujarat High Court in case of Movaliya Bhikhubhai Balabhai v. ITO (2016) 388 ITR 343 and the Hon'ble ITAT, Ahmedabad in case of Mukeshkumar K. Patel in ITA No. 246/AHD/2015 dated 26.09.2017. After examination of the facts and evidences, as collected and the binding law as settled by the Hon'ble Supreme Court, Jurisdictional Gujarat High Court and the Jurisdictional Bench of the Hon'ble ITAT ( supra), the assessing officer had held that the interest awarded as per section 28 of the Act, is part of full value of consideration received on compulsory acquisition of agricultural land, hence, the provisions of section 56(2) (viii) r.w.s. 145B of the Act are not applicable in the case.
16.Subsequently, the Ld. Pr. CIT-1, has issued a notice u/s. 263 of the Act, alleging that the assessing officer has not properly verified/ examined the facts of the case and the issue under consideration.However, we note that assessing officer had made all necessary inquiry and verification in respect of the interest under consideration and taken a judicious judgment relying upon the binding law as settled by the Hon'ble Supreme Court, Jurisdictional Gujarat High Court and the Jurisdictional Bench of the Hon'ble ITAT (supra). The assessing officer has taken a plausible view, duly supported by the law settled by the Judicial pronouncements, holding that the interest awarded as per section 28 of the Act, is part of full value of consideration received on compulsory acquisition of agricultural land, hence, the provisions of section 56(2)(viii) r.w.s. 145B of the Act are not applicable. Hence, the order is neither erroneous as provided in Explanation 2 to section 263 of the Income-tax Act, nor the order is prejudice to interest of the Revenue.
17.We note that the sole reason, as coming out from the order u/s. 263 of the Act is that the assessment should have been made, relying upon order of the Hon'ble Punjab and Haryana High Court in the case of Manjeet Singh (HUF) Karta Manjeet Singh vs. Union of India (CWP No. 15506 of 2013) (65 Taxman.com 160)(2016) on 29/01/2016. We note that the Hon'ble Principal Senior Civil Court has directed to pay the interest u/s. 28 of Page 15 of 18 ITA No. 279 & 327 & 328/Rjt/2025 Babubhai P. Sakariya and others the land acquisition (LA) Act along with enhanced compensation and solatium. The ratio settled by the Hon'ble Gujarat High Court in the case of Movaliya Bhikhubhai Balabhai v. ITO (Supra) is squarely applicable to the facts of the present case. The said judgment was not accepted by the Department, but the SLP filed by the Department but the SLP of the Department has been decided against the revenue by the Hon'ble Supreme Court in a speaking and detailed judgment dated 15.09.2017 along with other cases and reported as case inUnion of India vs. Hari Singh [2018] 91 taxmann.com 20 (SC). Under the circumstances, the ratio upheld by the Hon'ble Supreme Court has become law of the land and binding upon all the authorities. We note that ld.PCIT relied on the judgement ofHon'ble Punjab and Haryana High Court in the case of Manjeet Singh (HUF) Karta Manjeet Singh vs. Union of India (CWP No. 15506 of 2013) (65 Taxman.com 160)(2016) on 29/01/2016, which is not the judgement of jurisdictional High Court, therefore does not have binding force. As per the Doctrine of Stare Decisis and Doctrine of Precedent, all lower Courts, Tribunals and authorities, exercising judicial or quasi-Judicial functions, are duty bound by the decisions of the High Court within whose territorial jurisdiction they function. The Doctrine of Stare decisis is a whole some doctrine which gives certainty to law and guides the people to mould their affairs in future. The Hon'ble Supreme Court in Sakhi vs. Union of India AIR 2004 SC 3566 as observed and recorded in Para 23 that:
"Stare decisis is a well-known doctrine in legal jurisprudence. The Doctrine of Stare decisis, meaning to stand by decided cases, rests upon the principle that law by which men are governed should be fixed, define and known, and that, when the law is declared by Court of competent jurisdiction authorised to construe it."
Further, the Doctrine of Stare Decisis is applicable in case under Income Tax Act, 1961, also as held in CIT vs. Thana Electricity Supply Ltd. (1994) 206 ITR 727 (Bom.) and Consolidated Pneumatic Tool Co. (India) Ltd. vs. CIT (1994) 209 ITR 277 (Bom.).We note that Ld. Pr. CIT has passed impugned order u/s. 263 of the Act, relying upon order of the Hon'ble Punjab and Haryana High Court in the case of Manjeet Singh (HUF) vs. Union of India (Supra). However, with due respect, the above cited decision of the Hon'ble Punjab and Haryana High Court is not binding on the Authorities, falling under jurisdiction of the Hon'ble Gujarat High Court.Therefore, assessing officer was right in following the judgement of the jurisdictional High Court of Gujarat in the case ofMovaliya Bhikhubhai Balabhai (supra). Therefore, we note that the Hon'ble Supreme Court has laid down law through judgment in case of Malabar Industrial Co. Ltd. vs. CIT (2000) 243 ITR 83, wherein it was held as under:
"When an Income Tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue or where two views are possible and the Income Tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interest of the Revenue unless the view taken by the Income Tax Officer is unsustainable in law."Page 16 of 18
ITA No. 279 & 327 & 328/Rjt/2025 Babubhai P. Sakariya and others Our view is further fortified from the judgement of the Hon'ble Punjab & Haryana High Court in the case of CIT v. Indo German Fabs in IT Appeal No. 248 of 2012, dated 24- 12-2014, where in, it was held as follows:
"Section 263 of the Act confers power to examine an assessment order so as to ascertain whether it is erroneous and prejudicial to the interest of the revenue but does not confer jurisdiction upon the CIT to substitute his opinion for the opinion of the Assessing Officer. The words prejudicial and erroneous have to be read in conjunction and therefore, it is not each and every error in an assessment that invites exercise of powers under Section 263 of the Act, but only orders that are erroneous and prejudicial to the interest of the revenue."
18.Therefore, we note that when the Assessing Officer has taken a legally plausible view, duly supported by judicial precedents, then, the Ld. Pr. CIT is precluded from taking recourse to revisionary proceedings u/s. 263 of the Act. He cannot thrust his view to substitute view taken by the assessing officer, unless such view taken by the assessing officer is wholly unsustainable in law. Since in the assessee`s case, the view taken by the assessing officer is a plausible view; legally sustainable, therefore, in our view the Ld. Pr. CIT has erred in invoking revisionary jurisdiction u/s 263 of the Act, hence, we quash the order passed by the learned PCIT under section 263 of the Act.
19.In the result, appeal filed by the assessee is allowed."
9. As the issue of interest on enhanced compensation in the case of agricultural land is squarely covered in favour of the assessee by the judgements of the Jurisdictional High Court of Gujarat, in the case of Movalliya Bhikhubhai Balabhai (supra) and this is also covered by the recent order of the Jurisdictional ITAT, Rajkot in the case of Mansukhbhai Kanjibhai Sakariyan (supra), and there is no change in facts and law, and the revenue unable to produce any material to controvert above said findings of the judgement of the Jurisdictional High Court of Gujarat in the case of Movalliya Bhikhubhai Balabhai (supra), therefore, respectfully following the binding judgement of the Hon'ble High Court of Gujarat in the case of Movalliya Bhikhubhai Balabhai (supra), we delete the addition on account of interest on enhanced compensation and we allow these three appeals.
Page 17 of 18ITA No. 279 & 327 & 328/Rjt/2025 Babubhai P. Sakariya and others
10. In the result, these three appeals filed by the assessee (ITA Nos. 279 & 327& 328/ Rjt/2025 for AY 2016-17) are allowed.
Order is pronounced in the open court on 30/03/2026.
Sd/- Sd/-
(Dr. Dinesh Mohan Sinha) (Dr. Arjun Lal Saini)
Judicial Member Accountant Member
राजकोट/Rajkot //True Copy//
िदनांक/ Date: 30/03/2026
Copy of the order forwarded to :
The assessee
The Respondent
CIT
The CIT(A)
DR, ITAT, RAJKOT
Guard File
/True copy/ By order
//True Copy//
Assistant Registrar/Sr. PS/PS
ITAT, Rajkot
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