Taxability of interest on enhanced land compensation: receipt basis applies under section 45(5), not accrual basis.

Interest received on enhanced compensation for acquired land was treated as taxable on receipt basis under section 45(5) of the Income-tax Act, 1961, because the later Supreme Court ruling in Ghanshyam (HUF) governed the treatment of interest forming part of enhanced compensation under section 28 of the Land Acquisition Act. The distinction made by the first appellate authority was rejected, and the earlier decision in Rama Bai was held inapplicable since it did not consider section 45(5). The result was that the assessee's claim to assess the interest on accrual basis for assessment year 2006-07 failed.

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Issues: Whether interest received on enhanced compensation for acquired land was taxable in the year of receipt or on accrual basis for the assessment year 2006-07.

Analysis: The dispute concerned interest received along with enhanced compensation on acquisition of land. The Revenue relied on the later Supreme Court ruling in Ghanshyam (HUF), which treated interest forming part of enhanced compensation under section 28 of the Land Acquisition Act as taxable on receipt basis under section 45(5) of the Income-tax Act, 1961. The Tribunal held that Ghanshyam (HUF) directly governed the issue and that the distinction drawn by the first appellate authority was not sustainable. It also held that the earlier decision in Rama Bai did not govern this situation because it did not consider the effect of section 45(5).

Conclusion: The interest on enhanced compensation was taxable on receipt basis and not on accrual basis. The assessee's claim was rejected and the Revenue succeeded.

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