Taxability of interest on enhanced compensation determined in the year of receipt under income-tax law.

Interest on enhanced land acquisition compensation was treated as taxable in the year of receipt. The High Court followed its earlier view that interest awarded under Section 34 of the Land Acquisition Act, 1894 partakes of the character of compensation and is taxable under Section 45(5)(b) of the Income-tax Act, 1961 when received. It further noted that, where the assessee follows the cash system of accountancy, interest on the enhanced compensation awarded under Section 28 of the Land Acquisition Act, 1894 is assessable as income from other sources under Section 56 of the Income-tax Act, 1961 in the year of receipt.

---

---

Issues: Whether interest on enhanced compensation is taxable in the hands of the assessee in the year of receipt.

Analysis: The appeal turned on the treatment of interest received on enhanced compensation. The Court followed its earlier decision holding that interest awarded under Section 34 of the Land Acquisition Act, 1894 partakes of the character of compensation and is taxable in the year of receipt under Section 45(5)(b) of the Income-tax Act, 1961. It was also held that where the assessee follows the cash system of accountancy, the interest awarded on the enhanced amount of compensation under Section 28 of the Land Acquisition Act, 1894 falls under Section 56 of the Income-tax Act, 1961 as income from other sources in the year of receipt.

Conclusion: The question was answered in favour of the Revenue and against the assessee, and the appeal was allowed.

---