Taxability of interest on enhanced compensation upheld in the year of receipt under cash system accounting principles.

Interest received on enhanced compensation was held taxable on receipt where the assessee did not maintain books under any specific method, so the case was treated as cash system accounting. The Court applied Section 45(5)(b) of the Income-tax Act, 1961 to treat interest awarded on enhanced compensation as partaking the character of compensation and therefore taxable in the year of receipt. Interest under Section 28 of the Land Acquisition Act, 1894 was also held assessable as income from other sources under Section 56 of the Income-tax Act, 1961 in the year of receipt. The issue was answered in favour of the Revenue.

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

Analysis: The Court followed its earlier decision on the same question and held that where the assessee does not maintain books of account by any specific method, the case is treated as one of cash system of accountancy. Interest awarded on enhanced compensation partakes the character of compensation and, by virtue of Section 45(5)(b) of the Income-tax Act, 1961, is taxable in the year of receipt. The element of interest received on enhanced compensation under Section 28 of the Land Acquisition Act, 1894 also falls to be assessed as income from other sources under Section 56 of the Income-tax Act, 1961 in the year of receipt.

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

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