Tarun,
Compensation amount received or receivable from Central Or State Govt. or Local authority on account of "disaster" is just like an ex-gratia amount given to the victim. This amount is not included as income either in the definition of Income under Sec.2(24) or Sec. 28 or in Sec. 56(2) of Income Tax Act, 1961. Thus this cannot be termed as income for purpose of taxation.
In order to remove the ambiguity regarding taxing of the compensation received on account of disaster, the Finance Act, 2007 has inserted a new clause (10BBC) in section 10 of IT Act. This clause provides that any amount recieved or recievable from the Central Government or a State Govt. or a local authority by an individual or his legal heir by way of compensation on account of disaster shall be exempt. This exemption is applicable from the assessment year 2005-06, i.e. amounts recieved/recievable from 1-4-2004.
However, out of this compensation, the amount which was allowed as deduction either in business or otherwise, allowed as deduction under the other provisions of the Act, is to be excluded and only the balance is exempt.
The expression "disaster" shall have the same meaning as defined under clause(d) of section 2 of the Disaster Management Act, 2005. Under this clause "disaster" means catastrophe, mishap, calamity or grave occurance in any area, arising from natural or man0de causes, or by accident or negligance which results in substantial loss or life or human suffering or damage to and destruction of property or damage to or degradation of environment and is of such a nature or magnitude as to be beyond the coping capacity of the community of the affected area.
In view of the exemption allowed U/s 10(10BC) the amount is includable as income in the computation of income for tax purposes. However the amount recieved is to be shown as exempted income. Since entire amount recieved is exempt for tax purposes, there is no tax deduction under any provisions of the Act, i.e from 192 to 194LA.
