Taxability of interest on enhanced compensation arises on actual receipt; retrospective levy of interest was not permitted.

Interest on enhanced compensation and the related interest income was taxable only on actual receipt, and the compensatory levy under sections 234A, 234B and 234C could not be imposed retrospectively for assessment years before receipt. Because the assessee had no real income in the earlier years, the interest charge could arise only in the year when the additional compensation was actually received pursuant to the later judicial determination. The matter was therefore decided in favour of the assessee, with any interest liability to be worked out only in the year of receipt.

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Issues: (i) Whether interest under sections 234A, 234B and 234C of the Income-tax Act, 1961 could be levied on interest received on additional compensation for acquisition of land for the assessment years prior to actual receipt of that income.

Analysis: The additional compensation and the interest thereon became taxable only when the assessee actually received the amount pursuant to the later judicial determination. The governing principle applied was that income arising from enhanced compensation is taxable on receipt basis, and interest under the income-tax provisions is compensatory in nature and can follow only the existence of real income. Since there was no receipt in the earlier years, the levy could not be fastened retrospectively for those years. The charge of interest, if otherwise attracted, had to be worked out in the year in which the income was actually received.

Conclusion: The issue was answered in favour of the assessee; interest under sections 234A, 234B and 234C could not be charged retrospectively for the earlier assessment years and was to be considered only in the year of actual receipt of the income.

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