Is interest received under Section 28 of the Land Acquisition Act, 1894, taxable under Section 56(2)(viii) of the Income Tax Act?

No, if the interest is part of enhanced compensation for compulsory acquisition of agricultural land and the land and assessing officer fall within the jurisdiction of the Bombay High Court, Bombay Bench. The Supreme Court in CIT v. Ghanshyam (HUF) held such interest is an accretion to compensation, not a separate income, and the statutory amendment to Section 56(2)(viii) does not override this principle.

Can a non-jurisdictional High Court’s decision override the jurisdictional High Court’s ruling on taxability of Section 28 interest?

No. The ITAT is bound by the decisions of its jurisdictional High Court. A ruling from the Bombay High Court, Bombay Bench, prevails over conflicting decisions from the Aurangabad Bench or other High Courts like Punjab & Haryana.

Does the dismissal of an SLP by the Supreme Court in Mahendra Pal Narang v. CBDT mean that Section 28 interest is taxable?

No. The Supreme Court’s dismissal of an SLP without a speaking order does not constitute a precedent or overrule a binding judgment of a High Court. It merely indicates no substantial question of law was found, and does not alter the legal position established in CIT v. Ghanshyam (HUF).

Can the Finance (No. 2) Act, 2009, be used to tax interest under Section 28 of the Land Acquisition Act?

The amendment inserting Section 56(2)(viii) was intended to address the accrual issue in Rama Bai v. CIT, not to negate the Supreme Court’s holding in Ghanshyam (HUF) that Section 28 interest is part of compensation. Courts have held that the amendment must be read harmoniously with Ghanshyam.

Interest on Enhanced Compensation for Agricultural Land Exempt Under Section 56(2)(viii) : ITAT Pune

The Income Tax Appellate Tribunal, Pune, has delivered a significant ruling clarifying the tax treatment of interest received on enhanced compensation for compulsory acquisition of agricultural land. In a consolidated order disposing of three appeals, the Tribunal held that such interest is not taxable under Section 56(2)(viii) of the Income Tax Act, 1961, provided the land and the assessing officer fall within the territorial jurisdiction of the Bombay High Court, Bombay Bench. This decision reinforces the primacy of jurisdictional precedent over conflicting rulings from non-jurisdictional courts and reaffirms the binding nature of the Supreme Court’s decision in CIT v. Ghanshyam (HUF).

Background & Facts

The Dispute

The three appeals before the Tribunal involve individual assessees who received interest on enhanced compensation awarded under the Land Acquisition Act, 1894, following the compulsory acquisition of their agricultural land in Village Dhutum, Taluka Uran, District Raigad. The Assessing Officer (AO) treated this interest as taxable under Section 56(2)(viii) as "income from other sources," despite the assessees claiming it as part of the exempt compensation under Section 10(37) and the precedent in CIT v. Ghanshyam (HUF). The Commissioner of Income Tax (Appeals) / National Faceless Assessment Centre (CIT(A)/NFAC) upheld the AO’s addition, prompting appeals to the Tribunal.

Key Facts

The agricultural land of all three assessees was compulsorily acquired by the Special Land Acquisition Officer (SLAO), Metro Centre-2, Uran, in 1997.
Enhanced compensation and interest were awarded by the Civil Court, Alibag, vide order dated 14.09.2011.
The assessees received the enhanced compensation and interest during the financial year relevant to Assessment Year 2013-14 (Pandurang Gopal Thakur) and 2015-16 (Arun Satyawan Thakur and Rajendra Shravan Thakur).
The total interest received by Pandurang Gopal Thakur was Rs. 66,26,598/-, of which Rs. 33,13,299/- was added as income.
Arun Satyawan Thakur received Rs. 1,84,90,236/- in interest, with Rs. 92,45,118/- added.
Rajendra Shravan Thakur received Rs. 1,07,62,305/- in interest, with Rs. 53,81,153/- added.
All assessees filed their returns declaring the interest as exempt, relying on CIT v. Ghanshyam (HUF) [2009] 315 ITR 1 (SC).
The Assessing Officer for all three assessees is ITO, Ward-4, Panvel, which falls under the territorial jurisdiction of the Bombay High Court, Bombay Bench.
Tax Deducted at Source (TDS) of Rs. 10,80,303/- was deducted by the SLAO on the total amount received.

Procedural History

14.09.2011: Civil Court, Alibag, awarded enhanced compensation and interest to the assessees.
24.07.2013: Pandurang Gopal Thakur filed return for A.Y. 2013-14 declaring total income of Rs. 2,45,410/- and claiming exemption for Rs. 95,60,208/- (enhanced compensation and interest).
10.06.2016: Notice under Section 148 issued by AO for reopening assessment.
28.11.2017: Assessment order passed by ITO, Ward-4, Panvel, adding Rs. 33,13,299/- as income under Section 56(2)(viii).
24.04.2023: CIT(A)/NFAC order upholding the addition.
10.03.2023: CIT(A)/NFAC order for Arun Satyawan Thakur (A.Y. 2015-16) upholding addition of Rs. 92,45,118/-.
15.05.2023: CIT(A)/NFAC order for Rajendra Shravan Thakur (A.Y. 2013-14) upholding addition of Rs. 53,81,153/-.
16.08.2024: Recovery notices issued to all assessees, prompting them to become aware of the CIT(A)/NFAC orders.
14.05.2026: Hearing before ITAT Pune.
15.06.2026: Judgment pronounced.

The Parties' Positions

For the Appellants

The assessees contended that:

The interest under Section 28 of the Land Acquisition Act, 1894, is not a separate income but an accretion to the enhanced compensation, as held in CIT v. Ghanshyam (HUF).
The statutory amendment inserting Section 56(2)(viii) in 2010 was not intended to override the Supreme Court’s interpretation that such interest forms part of the compensation.
The Bombay High Court, Bombay Bench, in Rupesh Rashmikant Shah v. Union of India [2019] 417 ITR 169, held that such interest is not taxable.
The jurisdictional precedent of the Bombay High Court, Bombay Bench, must prevail over conflicting decisions from the Aurangabad Bench or Punjab & Haryana High Court.
The ITAT Pune’s own coordinate benches in Sanjay Bhimrao Patil, Sushila M. Mhatre, and Kusum J. Thakur had consistently held in favor of the assessee.

For the Respondent (Department)

The Department relied on:

CIT v. Ghanshyam (HUF) [2009] 315 ITR 1 (SC) - but argued it was superseded by statutory amendment.
Shivajirao S/o Dnyanoba Ghanwat v. State of Maharashtra (WP No. 5402/2013) - Aurangabad Bench of Bombay HC, which held interest taxable.
Mahendra Pal Narang v. CBDT [2020] 423 ITR 13 (P&H) - Punjab & Haryana HC, upholding taxability.
Manjet Singh (HUF) v. Union of India - SLP dismissed by SC in 2014.
Bikram Singh v. Land Acquisition Collector [1997] 224 ITR 551 (SC) - held interest as revenue receipt.
Argued that the statutory amendment to Section 56(2)(viii) clearly brought such interest within taxable ambit.

Relief Sought

The assessees sought:

Setting aside of the CIT(A)/NFAC orders dated 24.04.2023, 10.03.2023, and 15.05.2023.
Deletion of the additions of Rs. 33,13,299/-, Rs. 92,45,118/-, and Rs. 53,81,153/- respectively.
Recognition of interest under Section 28 of the Land Acquisition Act as part of exempt compensation under Section 10(37).
Condonation of delay in filing appeals due to non-receipt of CIT(A)/NFAC orders.

The Legal Issue

Is interest received under Section 28 of the Land Acquisition Act, 1894, on enhanced compensation for compulsory acquisition of agricultural land taxable under Section 56(2)(viii) of the Income Tax Act, 1961, when the land and the assessing officer fall within the territorial jurisdiction of the Bombay High Court, Bombay Bench, and the Supreme Court in CIT v. Ghanshyam (HUF) has held such interest to be part of the compensation?

Arguments Presented

For the Appellant/Petitioner

The assessees relied on the binding precedent of CIT v. Ghanshyam (HUF) [2009] 315 ITR 1 (SC), which held that interest under Section 28 is an accretion to the enhanced compensation and not a separate income. They emphasized that the Finance (No. 2) Act, 2009, which inserted Section 56(2)(viii), was introduced to mitigate hardship caused by Rama Bai v. CIT [1990] 181 ITR 400, not to overrule Ghanshyam. The Gujarat High Court in Movaliya Bhikhubhai Balabhai v. ITO [2016] 388 ITR 343 affirmed this view. The Bombay High Court, Bombay Bench, in Rupesh Rashmikant Shah v. Union of India [2019] 417 ITR 169, held that such interest is not taxable under Section 56(2)(viii). The ITAT Pune’s coordinate benches in Sanjay Bhimrao Patil [2023] 200 ITD 575 and Sushila M. Mhatre [2026] (ITA Nos. 2786 & 2787/PUN/2025) followed this view. The assessees argued that since the land and the assessing officer are within the jurisdiction of the Bombay High Court, Bombay Bench, its decision is binding and must prevail over conflicting rulings from non-jurisdictional courts.

For the Respondent/State

The Department contended that the statutory amendment to Section 56(2)(viii) in 2010 clearly brought interest on enhanced compensation within the taxable ambit, irrespective of Ghanshyam. It relied on Shivajirao v. State of Maharashtra (Aurangabad Bench), which held such interest taxable, and Mahendra Pal Narang v. CBDT (P&H HC), which was upheld by the Supreme Court’s dismissal of the SLP. The Department argued that the Supreme Court’s dismissal of the SLP in Mahendra Pal Narang amounted to affirmation of the P&H HC’s view. It further cited Bikram Singh v. Land Acquisition Collector [1997] 224 ITR 551 (SC) to argue that interest under Section 28 is a revenue receipt. The Department maintained that the jurisdictional precedent of the Aurangabad Bench should be followed, or in its absence, the P&H HC’s view should prevail.

The Court's Analysis

The Tribunal began by noting that the issue had been extensively litigated across various forums, with conflicting decisions emerging from different High Courts and coordinate benches of the ITAT. The key question was whether the jurisdictional precedent of the Bombay High Court, Bombay Bench, in Rupesh Rashmikant Shah [2019] 417 ITR 169, which held that interest under Section 28 is not taxable under Section 56(2)(viii), must prevail over the contrary view of the Aurangabad Bench in Shivajirao.

The Tribunal emphasized the settled principle that a tribunal is bound by the decisions of its jurisdictional High Court. The assessees’ land and the assessing officer are located in Panvel, which falls squarely within the territorial jurisdiction of the Bombay High Court, Bombay Bench. The Tribunal observed:

"The jurisdictional High Court’s decision in Rupesh Rashmikant Shah (supra) has held that interest received under Section 28 of the Land Acquisition Act is part of the enhanced compensation and not taxable under Section 56(2)(viii). This view is consistent with the Supreme Court’s decision in Ghanshyam (HUF) and the Gujarat High Court’s ruling in Movaliya Bhikhubhai Balabhai."

The Tribunal further noted that the Supreme Court’s dismissal of the SLP in Mahendra Pal Narang did not constitute a ruling on the merits and could not override a binding judgment of a jurisdictional High Court. The Tribunal also rejected the Department’s reliance on Bikram Singh, observing that Ghanshyam had clarified the nature of Section 28 interest as an accretion to compensation, not as interest in the ordinary sense.

The Tribunal acknowledged the statutory amendment to Section 56(2)(viii) but held that it must be read in harmony with Ghanshyam. The Gujarat High Court had already held that the amendment was introduced to address the accrual issue in Rama Bai, not to negate the principle that Section 28 interest is part of compensation. The Tribunal cited Sushila M. Mhatre [2026] and Sanjay Bhimrao Patil [2023] as recent coordinate bench decisions affirming this position.

The Tribunal concluded that the Aurangabad Bench’s decision in Shivajirao could not override the Bombay Bench’s ruling, as both are benches of the same High Court, and the Bombay Bench’s decision was more recent and directly applicable to the facts. The Tribunal held:

"In the absence of any overruling by the Supreme Court or a larger bench of the Bombay High Court, the decision of the Bombay Bench in Rupesh Rashmikant Shah must be followed. The assessee’s interest income under Section 28 is not taxable under Section 56(2)(viii)."

The Verdict

The appeals were allowed. The Tribunal set aside the orders of the CIT(A)/NFAC dated 24.04.2023, 10.03.2023, and 15.05.2023. The additions of Rs. 33,13,299/-, Rs. 92,45,118/-, and Rs. 53,81,153/- under Section 56(2)(viii) were deleted. The interest received under Section 28 of the Land Acquisition Act, 1894, on enhanced compensation for compulsory acquisition of agricultural land is not taxable under Section 56(2)(viii) of the Income Tax Act, 1961, when the land and assessing officer fall within the territorial jurisdiction of the Bombay High Court, Bombay Bench.

What This Means For Similar Cases

Jurisdictional Precedent Overrides Non-Jurisdictional Rulings

Practitioners must identify the territorial jurisdiction of the assessing officer and the location of the land to determine which High Court’s precedent applies.
A decision by the Bombay High Court, Bombay Bench, binds all assessees within its jurisdiction, even if the Aurangabad Bench has ruled differently.
Coordinate benches of the ITAT must follow the jurisdictional High Court’s view, even if other ITAT benches have held otherwise.

Section 28 Interest Is Not Automatically Taxable

The insertion of Section 56(2)(viii) does not automatically make interest under Section 28 taxable; its nature as part of compensation must be examined.
The Ghanshyam (HUF) precedent remains valid and must be applied unless expressly overruled by the Supreme Court.
The Finance (No. 2) Act, 2009, was intended to address accrual issues under Rama Bai, not to negate the principle that Section 28 interest is part of compensation.

Strategic Use of Coordinate Bench Decisions

Taxpayers should cite recent ITAT Pune decisions in favor of exemption (e.g., Sushila M. Mhatre, Sanjay Bhimrao Patil) to strengthen their case.
Where the jurisdictional High Court has ruled in favor of exemption, the Department’s reliance on non-jurisdictional decisions (e.g., P&H HC) is legally untenable.
Delay in filing appeals may be condoned if the assessee can prove non-receipt of the order and prompt action upon discovery.

Interest on Enhanced Compensation for Agricultural Land Exempt Under Section 56(2)(viii) : ITAT Pune