Interest on enhanced compensation is taxable on receipt, even while acquisition proceedings remain pending.

Interest on enhanced compensation received on compulsory acquisition is treated as a separate receipt, not as deferred exempt compensation, and the tax treatment depends on its character under the Land Acquisition Act. Applying the distinction between interest under Section 28 and Section 34 and the Supreme Court ruling in Ghanshyam (HUF), the component relating to enhanced compensation is assessable independently under Section 56 of the Income-tax Act. It is taxable in the year of receipt even if proceedings for enhancement remain pending, so the receipt is not postponed until finality of the acquisition dispute.

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Issues: Whether interest on enhanced compensation received on compulsory acquisition of land is taxable as income from other sources under Section 56 of the Income-tax Act, 1961, and whether such interest is chargeable in the year of receipt notwithstanding pendency of proceedings relating to enhanced compensation.

Analysis: In view of the Supreme Court ruling in Ghanshyam (HUF), interest forming part of enhanced compensation under the Land Acquisition Act is distinct from ordinary compensation, and the tax treatment depends on the character of the receipt. Interest on enhanced compensation does not retain the character of exempt compensation merely because the compensation dispute remains pending. The distinction between interest under Section 28 and interest under Section 34 of the Land Acquisition Act was applied to hold that the component on enhanced compensation is assessable separately and is not deferred until finality of the acquisition proceedings.

Conclusion: The interest component on enhanced compensation is taxable under Section 56 of the Income-tax Act, 1961, and is assessable in the year of receipt. The issue is decided in favour of the Revenue.

Final Conclusion: The order was modified to recognize that interest on enhanced compensation constitutes taxable income in the hands of the assessee when received, regardless of the pendency of the enhancement proceedings.

Ratio Decidendi: Interest on enhanced compensation under the Land Acquisition Act is taxable as income from other sources under the Income-tax Act and is chargeable on receipt, because it is not treated as deferred compensation merely due to pending acquisition litigation.

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