Enhanced compensation taxed on receipt, and interest on such compensation also follows the same tax treatment.

Enhanced compensation received against security is taxable in the year of receipt under Section 45(5)(b) of the Income-tax Act, 1961, even if related litigation remains pending. Interest awarded on such enhanced compensation follows the same character and is also taxable on receipt. The taxability issue was decided against the assessee and in favour of the Revenue. The claim for deduction under Sections 54B and 54F was remitted for fresh adjudication, leaving that aspect unresolved.

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Issues: Whether enhanced compensation released against security and the interest received thereon were taxable in the year of receipt.

Analysis: The issue was governed by the rule that enhanced compensation is chargeable to tax on receipt under Section 45(5)(b) of the Income-tax Act, 1961. The Court followed the settled position that the amount of enhanced compensation received by the assessee is taxable in the year of receipt, irrespective of pending litigation. It also relied on the principle that interest awarded on enhanced compensation partakes the character of compensation and is taxable accordingly.

Conclusion: The issue was decided against the assessee and in favour of the Revenue.

Final Conclusion: The appeal succeeded on the taxability issue, while the claim for deduction under Sections 54B and 54F was sent back for adjudication, leaving the matter only partly concluded.

Ratio Decidendi: Enhanced compensation and interest thereon are taxable in the year of receipt under Section 45(5)(b) of the Income-tax Act, 1961.

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