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Issues: Whether interest received on enhanced compensation under the Land Acquisition Act was taxable in the year of receipt or had to be spread over and assessed in the respective years to which it pertained.
Analysis: Interest on compensation is chargeable under the Income-tax Act on the basis of accrual or receipt, as the case may be, and the expressions "accrue", "arise" and "is received" are not synonymous. Interest on enhanced compensation under the Land Acquisition Act accrues from year to year from the date of dispossession until payment, and not as a single amount on the date of the court's order or on actual receipt. Where enhanced compensation is ultimately awarded, the related interest must be attributed to the relevant previous years in proportion to the period for which it became due. The amount cannot be taxed in one lump sum merely because it was received together.
Conclusion: The interest on enhanced compensation was not taxable wholly in the year of receipt and had to be spread over the relevant years on accrual basis; the assessee succeeded on this issue.
Ratio Decidendi: Interest on delayed payment of enhanced compensation under the Land Acquisition Act accrues year by year from the date of dispossession until payment and is taxable in the respective assessment years to which it pertains, not entirely in the year of receipt.
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