Archive · 14 Sep 2026
ITAT Says Land Acquisition Interest May Be Tax-Exempt
The government acquired a family’s agricultural land and paid extra compensation after a court decision.
The family received ₹2.69 crore as its share of the enhanced compensation.
Part of this amount, ₹1.89 crore, was called interest under Section 28 of the Land Acquisition Act.
Tax officials disagreed about whether this interest should be taxed separately.
The ITAT Rajkot Bench said this type of interest is actually part of the compensation.
It relied on earlier decisions by the Gujarat High Court and the Supreme Court.
The tribunal said the amount could qualify for the exemption available for certain compulsory land acquisitions.
It also said taxing the same compensation again in another co-owner’s hands could result in double taxation.
The tribunal therefore cancelled the revision proceedings and allowed the taxpayer’s appeal.
The ITAT Rajkot Bench ruled that Section 28 interest on enhanced compensation forms part of compensation.
The decision concerns Kishorbhai Nathabhai Makani’s assessment for the 2016-17 financial year.
The taxpayer received a 25% share of ₹2.69 crore in enhanced compensation for acquired ancestral agricultural land.
Of that amount, ₹1.89 crore was interest awarded under Section 28 of the Land Acquisition Act.
The tribunal quashed revision proceedings, relying on Gujarat High Court precedent and rejecting concerns about taxing the amount again.
- Who
- Kishorbhai Nathabhai Makani and the Income Tax Appellate Tribunal’s Rajkot Bench were central to the case; the Revenue opposed the taxpayer’s position.
- What
- The tribunal held that interest awarded under Section 28 forms part of enhanced compensation and may qualify for exemption under Section 10(37) of the Income Tax Act.
- When
- The case concerned assessment year 2016-17.
- Where
- The ruling was issued by the ITAT Rajkot Bench under the jurisdiction of the Gujarat High Court.
- Why
- The tribunal followed Gujarat High Court precedent that Section 28 interest has the character of compensation rather than taxable interest, and noted the risk of double taxation.
Taxpayer and Tribunal’s Position
Revenue’s Position
Tax treatment of Section 28 interest
Taxpayer and Tribunal’s Position
Interest linked to enhanced compensation is an accretion to the land’s value, forms part of compensation, and may qualify for Section 10(37) exemption.
Revenue’s Position
The Revenue relied on provisions treating interest on compensation as income from other sources, including Section 56(2)(viii).
Validity of the assessment officer’s view
Taxpayer and Tribunal’s Position
The assessing officer had made the necessary inquiries and adopted a legally plausible view supported by binding Gujarat High Court precedent.
Revenue’s Position
The Principal Commissioner of Income Tax invoked Section 263 to revise the assessment after disagreeing with the treatment of the interest component.
Applicability of contrary precedent
Taxpayer and Tribunal’s Position
The tribunal said the Punjab and Haryana High Court’s ruling in Manjeet Singh (HUF) was not binding in Gujarat, where Gujarat High Court decisions control.
Revenue’s Position
The Revenue relied on the contrary Manjeet Singh (HUF) ruling to support its position.
- Tribunal
- Income Tax Appellate Tribunal, Rajkot Bench
- Taxpayer
- Kishorbhai Nathabhai Makani
- Assessment year
- 2016-17
- Enhanced compensation
- ₹2.69 crore, representing the taxpayer’s 25% share
- Section 28 interest
- ₹1.89 crore
- Relevant exemption
- Section 10(37) of the Income Tax Act
- Key precedent
- Movaliya Bhikhubhai Balabhai v. ITO, Gujarat High Court