Enhanced compensation taxable only on final determination, with section 45(5) amendments applying prospectively from assessment year 2004-05.

Enhanced compensation is taxable under section 45(5) only when received pursuant to a final award or order of the competent authority; amounts received under interim or non-final orders do not acquire taxable character until finality is reached. The amendment inserting clause (c) to section 45(5) and sub-section (16) to section 155 applies from 1-4-2004 and assessment year 2004-05 onwards, and is not retrospective unless expressly stated. As the amounts in question related to periods before assessment year 2004-05 and remained under challenge, the enhanced compensation and related interest were not taxable in the years under appeal.

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Issues: Whether enhanced compensation and interest received during pendency of appeals were taxable in the year of receipt under section 45(5) of the Income-tax Act, 1961, before the amended provisions inserted by the Finance Act, 2003 became operative.

Analysis: The jurisdictional High Court's ruling was followed. Section 45(5) was held to bring enhanced compensation to tax in the year of receipt, but only when the assessee receives the amount pursuant to a final award or order of the competent authority. Amounts received under interim orders, subject to the final outcome, do not acquire the character of taxable enhanced compensation until finality is reached. The amendments inserting clause (c) to section 45(5) and sub-section (16) to section 155 were effective from 1-4-2004 and applied from assessment year 2004-05 onwards, and could not be treated as retrospective. On the facts, the amounts in dispute pertained to assessment years prior to 2004-05 and remained under challenge before higher forums.

Conclusion: The enhanced compensation and interest received under interim or non-final orders were not taxable in the assessment years under appeal; the issue was decided in favour of the assessee and against the revenue.

Ratio Decidendi: Enhanced compensation is chargeable to tax under section 45(5) only upon receipt pursuant to a final determination, and amendments enlarging or altering that charging scheme do not operate retrospectively unless the statute expressly so provides.

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