Section 28 land acquisition interest treated as part of exempt enhanced compensation, not separately taxable.

Interest received under section 28 of the Land Acquisition Act on enhanced compensation was treated as an accretion to the value of the acquired land and, on that basis, formed part of the compensation itself rather than separate taxable interest. The Tribunal distinguished this from interest under section 34, which has a different character. Because the principal enhanced compensation was already exempt under section 10(37) of the Income-tax Act, the section 28 interest inherited the same exempt character. The addition made by the assessing authority was therefore deleted, and the interest was not separately taxable.

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Issues: Whether interest received under section 28 of the Land Acquisition Act on enhanced compensation was taxable under the Income-tax Act, or formed part of the exempt compensation under section 10(37).

Analysis: The assessee received enhanced compensation together with interest under section 28 of the Land Acquisition Act. The assessing authority treated the interest as taxable under the provisions inserted by the Finance Act, 2009 governing interest on compensation and enhanced compensation, while allowing exemption for the compensation itself. The Tribunal relied on the Supreme Court's exposition that interest awarded under section 28 is an accretion to the value of the acquired land and constitutes part of enhanced compensation, unlike interest under section 34. Since the principal compensation was already accepted as exempt under section 10(37), the same character attached to the interest component received under section 28.

Conclusion: The interest on enhanced compensation received under section 28 of the Land Acquisition Act was not separately taxable and was to be treated as part of the exempt compensation; the addition was deleted in favour of the assessee.

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