Taxability of enhanced compensation and interest remains a referable question of law amid conflicting High Court views.

Conflicting High Court views on the assessability of enhanced compensation for compulsory land acquisition meant the issue of accrual and the year of taxability remained unsettled. The same divergence existed on whether interest on enhanced compensation accrued in the year of the court decree or had to be allocated to the relevant years. In that setting, the Tribunal's order gave rise to a referable question of law under section 256(2) of the Income-tax Act, 1961, and the reference application was maintainable. The Tribunal was directed to state the case and refer both questions for opinion.

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Issues: Whether questions of law arose from the Tribunal's order on the assessability of enhanced compensation and on the taxability of interest, so as to justify a reference under section 256(2) of the Income-tax Act, 1961.

Analysis: The assessment of enhanced compensation on compulsory acquisition of land had attracted conflicting views among High Courts on the point of accrual and the year of taxability. Likewise, there was divergence on whether interest awarded on enhanced compensation accrued in the year of the court decree or had to be spread over the relevant years. In view of these competing authorities, the matter could not be treated as settled against the Revenue, and a referable question of law was held to arise from the Tribunal's order.

Conclusion: The reference application was maintainable and the Tribunal was directed to state the case and refer both questions for opinion.

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