Receipt basis taxation of interest on compensation confirmed where compensation was unquantified and the assessee followed cash accounting.

Interest on compensation under the Land Acquisition Act was held taxable in the year of actual receipt where the assessee followed the cash system of accounting and had not returned the interest on accrual basis in earlier years. The court distinguished the authority relied on for spreading the amount over earlier assessment years because it arose in a different statutory context and involved an assessee not previously assessed on that basis. As compensation had not been finally quantified, the right to interest did not mature year by year, so apportionment over supposed earlier accrual periods was rejected.

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Issues: Whether interest received by an assessee on compensation awarded under the Land Acquisition Act is taxable in the year of receipt or can be spread over the assessment years in which it is said to have accrued.

Analysis: The assessee was following the cash system of accounting and had never disclosed the interest on accrual basis in earlier returns. The decision relied upon for spreading the interest over earlier years was distinguished because, on its facts, it concerned a different statutory setting and an assessee who was not otherwise assessed earlier. The governing principle applied was that where compensation is not quantified, the right to interest does not mature on a yearly basis, and in the case of an assessee following cash basis, the amount actually received is taxable in the year of receipt.

Conclusion: The interest was taxable in the year of actual receipt and not in the assessment years to which it was said to relate. The question was answered in the negative and against the assessee.

Final Conclusion: The Tribunal's direction to spread the interest over earlier assessment years was set aside, and taxation of the interest on receipt basis was upheld.

Ratio Decidendi: Where an assessee follows the cash system of accounting and the right to interest on enhanced compensation becomes quantifiable only when compensation is finally determined, the interest is chargeable to tax on receipt and not by apportionment over earlier years of supposed accrual.

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