By TIOL News Service

AHMEDABAD, APR 11, 2016: THE issue is - Whether exemption is available to sum of compensation received against compulstory acquisition of agricultural land situated within municipal limits. YES is the answer.

Facts of the case

The assessee had filed its return for A.Y 2008-09 declaring taxable income at ‘nil’ and showing agricultural income of Rs.1,77,000/-, and the same was processed u/s 143(1) accepting the returned income. Subsequently, the matter was taken up for scrutiny, wherein the AO noted that on a perusal of the TDS certificate enclosed with the return, the CIT, SMC, had deducted TDS of Rs.15,15,173/- from the payment of Rs.1,33,73,100/- made to the assessee on account of land acquisition. The assessee claimed refund of the entire amount of TDS and also claimed exemption of the income to the tune of Rs.1,42,93,050/- including agricultural income of Rs.1,77,000/-. The AO thereafter called upon the assessee to submit a copy of the sale deed in respect of the land so acquired by the SMC, which came to be furnished by the assessee. The AO noted that the land in question, had been acquired by the SMC for sewage treatment plant. According to the AO, since tax had been deducted at source by the SMC, the same itself proved that the land in question was not an agricultural land. He further noted that the sale deed of the land acquired by the SMC under compulsory acquisition, did not contain the word "agriculture" or "agricultural" in the entire deed, and was, accordingly, of the view that the SMC had rightly deducted TDS from the payments made to the assessee. Accordingly, the AO held that the SMC had rightly deducted TDS from the compensation paid to assessee because of the fact that the land in question was not an agricultural land. He, accordingly, held that the assessee failed to fulfill the conditions as provided u/s 10(37)(ii) and computed the long term capital gain at Rs.1,46,75,120/- and treated the agricultural income of Rs.1,77,000/- as income from other sources and added it to the total income of assessee.

On appeal, the CIT(A) found as a matter of fact that the land in question was an agricultural land within the municipal limits of Surat Municipal Corporation and was situated in an area referred to in item (a) of section 2(14)(ii) and, therefore, the assessee fulfilled the first condition laid down u/s 10(37). He further noted that the second condition, namely, that such land during the period of two years immediately preceding the date of the transfer should be used for agricultural purpose was established by the extract of 7/12 record. The third condition that transfer should be by way of compulsory acquisition under any law was an undisputed position as the land had been acquired by the SMC. The fourth condition was that the income arising from acquisition of such transfer should have been received by the assessee on or after 1.4.2004, which was also an undisputed fact. He, accordingly, was of the view that the compensation received by the assessee towards acquisition of his land by the SMC was exempt u/s 10(37).

Having heard the parties, the High Court held that,

++ in the present case, the assessee claimed exemption in respect of compensation received by it from the Surat Municipal Corporation for acquisition of its lands u/s 10(37). It is seen that, for the purpose of being entitled to exemption u/s 10(37), the assessee is required to satisfy four conditions enumerated thereunder. As can be seen from the impugned order, the Tribunal upon appreciation of the evidence on record has concurred with the findings of fact recorded by the CIT(A) and has found as a matter of fact that the assessee was carrying on agricultural activity on the land in question being Survey No.192, Block No.305 in village Dindoli. The Tribunal has also concurred with the finding recorded by the CIT(A) that the land in question is situated within the municipal limits of SMC in terms of item (a) section 2(14)(ii). Insofar as the land in question having been acquired by way of compulsory acquisition is concerned, that is an undisputed position. The fourth condition, namely, that the income arising out of the acquisition in relation to such transfer should have been received on or after 1.4.2004 is also an undisputed position. Thus, the Tribunal, after appreciation of the evidence on record, has recorded a concurrent finding of fact to the effect that the assessee fulfills all the requisites for the purpose of being entitled to exemption u/s 10(37) and has based its conclusion thereon. Except for the contention that in the sale deed, the subject land is not shown to an agricultural land, no other contention has been raised. Under the circumstances, it is not possible to state that the impugned order suffers from any legal infirmity warranting interference.

(See 2016-TIOL-718-HC-AHM-IT)