Enhanced compensation taxability on receipt under income tax law, with interest taxed by its statutory character.

Enhanced compensation received on acquisition of land is taxable in the year of receipt under Section 45(5) of the Income-tax Act, 1961, even if the compensation dispute has not attained finality. The Court applied the settled position that later authoritative rulings treat such receipt as taxable on receipt, and the pending dispute does not defer taxability. It further distinguished interest under Section 28 of the Land Acquisition Act, 1894, which partakes of the character of compensation, from interest on enhanced compensation, which is taxable as income from other sources under Section 56 of the Income-tax Act, 1961. The issue was answered in favour of the Revenue.

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Issues: Whether enhanced compensation received on acquisition of land, and the interest thereon, was taxable in the year of receipt notwithstanding that the dispute regarding compensation had not attained finality.

Analysis: The appeal turned on the effect of the amendment to Section 45(5) of the Income-tax Act, 1961 and the later authoritative ruling that enhanced compensation is taxable in the year in which it is received. The Court also noted the distinction between interest under Section 28 of the Land Acquisition Act, 1894, which partakes of the character of compensation, and interest on enhanced compensation, which is taxable as income from other sources under Section 56 of the Income-tax Act, 1961. Applying the settled position, the fact that the compensation dispute was pending did not defer taxability.

Conclusion: The issue was answered in favour of the Revenue; enhanced compensation was taxable on receipt and the appeal succeeded.

Ratio Decidendi: Enhanced compensation is chargeable to tax in the year of receipt under Section 45(5) of the Income-tax Act, 1961, and the character of interest depends on the statutory source, with interest on enhanced compensation taxable as income from other sources.

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