CBDT clarifies that compensation received in respect of Compulsory Acquisition of Non agricultural Land is Tax Free, as under:
CBDT Income Tax Circular 36/2016 dt. 25/10/2016: Compulsory Acquisition of Non agricultural Land is Tax Free
1. 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 agricultural land is not taxable. Finance (No. 2) Act, 2004 inserted section 10(37) in the Act from 01.04.2005 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 fulfillment of certain conditions. Therefore, compensation received from compulsory acquisition of an agricultural land is not taxable under the Act (subject to fulfillment of certain conditions for specified urban land).
2. The RFCTLARR Act which came into effect from 1st January, 2014, in section 96, inter cilia 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 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.
Section 96 of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 provides for exemption form income tax for all compensation against compulsory acquisition of land whether rural or urban and whether agricultural or non-agricultural to all assessees irrespective of status whereas s. 10(37) of Income Tax Act, 1961 provided for exemption to Individuals and HUFs only for agricultural land. This provision is a special provision. There should not be any TDS also form compensation for compulsory acquisition of land.
A PARTNERSHIP FIRM HOLDS/ OWNS A LAND WHICH IS BEING ACQUIRED UNDER COMPULSORY LAND ACQUISITION BY CENTRAL GOVT. THE FIRM HAS RECEIVED A COMPENSATION FOR COMPULSORY LAND ACQUISITION. WHETHER THE AMOUNT RECEIVED BY THE FIRM IS LIABLE FOR INCOME TAX UNDER THE ACT?
The provisions are very clear and applicable to the INDIVIDUAL AND HUF ONLY. Therefore, no assessee other than Individual and HUF can claim the exemption.
under which section the above exemption to be taken?