Indian Kanoon - Search engine for Indian Law

[12] Further since the issue relates to a claim of exemption under Section 10(37) of the Act, the taxability of compensation received by the land owners under acquisition. The relevant provisions, we deem it proper to quote hereunder:-

"Taxability of compensation received by land owners for land acquired under Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 (RFCTLARR ACT) - Under the existing provisions of the Income-tax Act, 1961 ('the Act') an agricultural land which is not situated in specified urban area, is not regarded as a capital asset. Hence, capital gains arising from the transfer (including compulsory acquisition) of such agricitural land is not taxable. Finance (No. 2) Act, 2004 inserted section 10(37) in the Act from 1-4-2005 to provide specific exemption to the capital gains arising to an Individual or a HUF from compulsory acquisition of an agricultural land situated in specified urban limit, subject to fulfilment of certain conditions. Therefore, compensation received from compulsory acquisition of an agricultural land is not C/SCA/3526/2022 CAV JUDGMENT DATED: 23/06/2023 taxable under the Act (subject to fulfilment of certain conditions for spcified urban land).

2. The RFCTLARR Act which came into effect from Ist January, 2014, in section 96, inter alia provides that income-tax shall not be levied on any award or agreement made (except those wade under section 46) under the RFCTLARR Act. Therefore, compensation received for compulsory acquisition of land under the RFCTLARR Act (except those made under section 46 of RFCTLARR Act), is exempted from the levy of income-tax.

3. As no distinction has been made between compensation received for compulsory acquisition of agricultural land and non-agricultural land in the matter of providing exemption from income-tax under the RFCTLARR Act, the exemption provided under section 96 of the RFCTLARR Act is wider in scope than the tax exemption provided under the existing provisions of Income-tax Act, 1961. This has created uncertainty in the matter of taxability of compensation received on compulsory acquisition of land, especially those relating to acquisition of non-agricultural land. The matter has been examined by the Board and it is hereby clarified that compensation received in respect of award or agreement which has been exempted from levy of income-tax vide section 96 of the RFCTLARR Act shall also not be taxable under the provisions of income-tax Act, 1961 even if there is no specific provision of exemption for such compensation in the Income-tax Act, 1961--Circular No. 36 2016, dated 25-10-2016"

C/SCA/3526/2022 CAV JUDGMENT DATED: 23/06/2023 [13] In addition to this, a reference also deserves to be made to a similar CBDT Circular dated 25.10.2016 reflecting on page 181 in which the subject of taxability of compensation received is clarified and observed that in view of uncertainty which was prevailing on the issue of taxability of compensation the matter was examined by the Board and it has been clarified that compensation received in respect of award or agreement which has been levied of income tax vide Section 96 of the RFCTLARR Act shall not be taxable under the provisions of the Income Tax Act and even if there is no specific provisions of exemption for such compensation as has been mentioned in the said circular. We deem it proper to quote the said circular hereunder:-

2. The RFCTLARR Act which came into effect from 1st January, 2014, in section 96, infer alia provides that income-tax shall not be levied on any award or agreement made [except those made under section 46) under the RFCTLARR Act Therefore, compensation received for compulsory acquisition of land under the RFCTLARR Act (except those made under section 46 of RFCTLARR Act), is exempted from the levy of incone-tax.

3. As no distinction has been made between compensation received for compulsory acquisition of agricultural land and non-agricultural land in the matter of providing exemption from income-tax under the RFCTLARR Act, the exemption provided under section 96 of the RFCTLARR Act is wider in scope than the tax-exemption provided under the existing provisions of Income-tax Act, 1961. This has created uncertainty in the matter of taxability of C/SCA/3526/2022 CAV JUDGMENT DATED: 23/06/2023 compensation received on compulsory acquisition of land, especially those relating to acquisition of non-agricultural land. The matter has been examined by the Baard and it is hereby clarified that compensation received in respect of award or agreement which has been exempted from levy of income-tax vide section 96 of the RFCTLARR Act shall also not be taxable under the provisions of income-tax Act, 1961 even if there is no specific provision of exemption for such compensation in the Income-tax Act, 1961.