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Issues: (i) Whether interest on enhanced compensation was taxable in the year of receipt; (ii) Whether interest received on enhanced compensation by the assessee's minor children was includible in the assessee's income under section 64(1A) of the Income-tax Act, 1961.
Issue (i): Whether interest on enhanced compensation was taxable in the year of receipt.
Analysis: The governing principle applied was that enhanced compensation becomes taxable in the year in which it is received. Interest awarded under section 28 of the Land Acquisition Act, 1894 forms part of the enhanced compensation and follows the same tax treatment. The prior view that the amount had not attained finality could not survive in light of the binding principle governing taxability of enhanced compensation.
Conclusion: The issue was decided in favour of the Revenue and against the assessee.
Issue (ii): Whether interest received on enhanced compensation by the assessee's minor children was includible in the assessee's income under section 64(1A) of the Income-tax Act, 1961.
Analysis: Section 64(1A) mandates clubbing of income arising or accruing to a minor child in the income of the parent, subject only to the statutory exceptions. The fact that the amount was kept in deposit until majority did not take the receipt outside the sweep of the provision. The assessee failed to show any basis for excluding the operation of the clubbing provision.
Conclusion: The issue was decided in favour of the Revenue and against the assessee.
Final Conclusion: The Tribunal's view was unsustainable and the Revenue's questions were answered in its favour, resulting in allowance of the appeal.
Ratio Decidendi: Enhanced compensation and the interest statutorily attached to it are taxable in the year of receipt, and section 64(1A) requires clubbing of a minor child's income in the hands of the parent unless a specific statutory exception applies.
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