Section 10(37) of the Income-tax Act, 1961 – Exemption—Interest awarded u/s. 28 of the Land Acquisition Act, 1894 partook the character of compensation for land acquired and fell within the ambit of section 10(37) and was exempt.

Facts: The question before the AO was with regard to exemption u/s.10(37) of the Act in respect of a sum of Rs.4,58,03,417 (comprising of Rs.28,94,936 + Rs.4,29,08,481) received as interest on enhanced compensation u/s.28 of the Land Acquisition Act, 1894.Under the provisions of section 10(37), enhanced compensation received on acquisition of agricultural lands is exempt. Assessee claimed that interest received by him on enhanced compensation is nothing but compensation and therefore even for the interest portion received, was eligible for exemption u/s. 10(37). AO rejected claim and held that interest is chargeable to tax in the year of receipt, irrespective of the period for which the interest is calculated. CIT(Appeals) did not accept the plea of Assessee and confirmed the order of the AO. Hence this appeal by the Assessee before the Tribunal.

Held, that assessee contended that interest awarded u/s. 28 of the Land Acquisition Act, 1894 partook the character of compensation for land acquired and fell within the ambit of section 10(37) and to that exempt was exempt. With a view to mitigate the hardship, section 145A is amended to provide that the interest received by an assessee on compensation or enhanced compensation shall be deemed to be his income for the year in which it was received, irrespective of the method of accounting followed by the assessee, therefore, we are of the view that assessee is entitled to exemption u/s. 10(37) on the interest received u/s. 28 of the Land Acquisition Act, 1894. Consequently, appeal of assessee is allowed. - LAKSHMAMMA (SMT.) V/s ITO - [2020] 182 ITD 408 (ITAT-BANGALORE)