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Issues: Whether enhanced compensation and interest received thereon were taxable in the year of receipt under section 45(5) of the Income-tax Act, 1961, and whether the protective assessments for earlier years could survive.
Analysis: The amount of enhanced compensation is chargeable as deemed income in the year in which it is received under section 45(5) of the Income-tax Act, 1961. The subsequent insertion of section 45(5)(c) and section 155(16) reinforces the receipt-basis taxation scheme. Interest forming part of the enhanced compensation under section 28 of the Land Acquisition Act, 1894 is also assessable on receipt, as it is part of the enhanced value of the land and not mere interest for delay. The protective inclusion of the same amount in earlier years cannot stand once taxability is fixed in the year of receipt.
Conclusion: The enhanced compensation and the related interest were rightly held taxable in the year of receipt, and the contrary view based on pending litigation was rejected.
Final Conclusion: The Revenue succeeded on the substantive question of taxability, and the assessments were to be aligned with the receipt year, with earlier protective additions to be deleted.
Ratio Decidendi: Enhanced compensation under section 45(5) of the Income-tax Act, 1961 is taxable in the year of receipt, and interest that forms part of such enhanced compensation is also taxable on receipt basis.
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