Taxability of enhanced compensation interest on acquired agricultural land required fresh examination under land acquisition and income-tax principles.

Interest on enhanced compensation for compulsory acquisition of agricultural land was examined alongside the exemption principles applicable to capital gains from transfer of agricultural land, with the associated land acquisition components such as solatium and additional amount also needing consideration. The appellate authority treated the assessee's additional legal plea as admissible because it raised a pure legal question based on facts already on record. As the record did not clearly establish how the amount became taxable if it formed part of compensation for agricultural land, the issue required fresh examination. The matter was restored to the Assessing Officer for de novo adjudication in the light of the governing Supreme Court decision.

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Issues: Whether the interest received on enhanced compensation relating to compulsory acquisition of agricultural land was taxable in the year of receipt or was exempt as part of the compensation, and whether the assessee's additional legal plea could be entertained at the appellate stage.

Analysis: The dispute turned on the nature of amounts awarded under land acquisition proceedings and the applicability of the exemption for capital gains arising from transfer of agricultural land. The appellate authority treated the assessee's broader challenge to taxability as admissible because it raised a legal question supported by facts already on record. The reasoning proceeded on the basis that amounts awarded under the land acquisition award, including solatium, additional amount and interest linked to enhanced compensation, required examination in the light of the governing land acquisition and income-tax principles. Since the record did not contain a clear finding on how the amount became taxable if it formed part of the compensation for agricultural land, the issue required fresh consideration by the Assessing Officer.

Conclusion: The matter was restored to the Assessing Officer for de novo adjudication in the light of the governing Supreme Court decision and the assessee's claim was not finally rejected on merits.

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