sir, we got part (50%) compensation amount from state govt. against compulsory accquisition of our agriculture land in response to district court decision in dec.2011. this amount includes basic plus soletium plus interest amount. land was acquired in 1992. Further case is in high court Aurangabad. both parties viz. govt & we have registered appeal in high court. final result is still not given but as a time being relief we got 50% amount through high court ( 25% against bank guarantee & 25% against self under taking). the subject land is 07 kms from municipalty limit. Earlier local C.A. advised there will not be any tax as the case is not finalised & it is compulsory acquisition of agriculture land. Now it is heard that above compensation is taxable. Can you please clarify the matter?
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Query on income tax for part payment received from govt.
AS PER THE PROVISIONS OF SECTION 45(5) COMPENSATION SO RECEIVED ON COMPULSORY ACQUISITION OF LAND IS TAXABLE IN THE YEAR IN WHICH SUCH INITIAL COMPENSATION IS RECEIVED.
THEREAFTER IF THERE IS ENHANCEMENT IN COMPESATION AMOUNT BY ANY COURT, IT WILL TAXABLE IN THE YEAR IN WHICH SUCH ENHANCED COMPENSATION IS RECEIVED.
BUT IN A CASE WHERE ANY INTERIM RELIEF IS RECEIVED FROM THE COURT AND A PART COMPENSATION IS RECIVED, SAME WILL TAXABLE IN THE YEAR IN WHICH FINAL ORDER OF THE COURT IS MADE.
IN YOUR CASE AS YOU SAID IT IS JUST AN INTERIM RELIEF FROM THE COURT AND FINAL ORDER IS AWAITED, COMPENSATION SO RECEIVED WILL BE TAXABLE IN THE YEAR IN WHICH FINAL ORDER WILL BE PASSED BY THE COURT.
Sir,
There are certain conditions for agriculture land to satisfy for not including same in capital asset in order to avoid capital gain tax.
Agriculture Land is normally excluded from capital asset except in following cases-
(a) If it it is within he jurisdiction of a municipality or cantonment board and has population not less than 10,000
(b) (i) If it is within 2 kilometers of distance from limits of municipality or cantonment board and has population more than 10,000 but not more than 1,00,000
(ii) If it it is within 6 kilometeres from limits of municipality or cantonment board and has population more than 1 lakh but not more than 10 lakhs
(iii) If it is with in 8 kilometers of limits of municipality or contanment board and has population more than 10 lakhs
In above cases agriculture land will be included in definition of capital asset.
In this case as land is 7 kms from municipal limits it will fall under b(iii). Kindly check the population according tolast preceding census and if it is more than 10 lakhs it will be taxable.
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