Interest on enhanced compensation taxed on accrual basis where statutory liability made year-wise liability taxable.

Interest on enhanced compensation was treated as a revenue receipt, not a capital receipt, and the taxable amount was linked to accrual rather than mere receipt. Where no regular method of accounting was employed, Section 145 did not prevent assessment on the basis supported by the statutory liability under Section 34 of the Land Acquisition Act. The court accepted that interest on enhanced compensation accrues year by year after dispossession, so only the proportionate interest referable to the relevant assessment years was taxable on an accrual basis. The distinction between trader and non-trader did not alter that result for this statutory interest.

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Issues: Whether interest received on enhanced compensation under the Land Acquisition Act, where the assessee maintained no regular books of account, was assessable on receipt basis or only to the extent it accrued year by year on accrual basis.

Analysis: Interest on enhanced compensation is chargeable as income from other sources. Where no method of accounting is regularly employed, section 145 of the Income-tax Act, 1961 permits assessment on a basis adopted by the Income-tax Officer, including best judgment assessment under section 144. The cases treating non-traders and contractual receipts on a cash basis were held inapplicable because the present interest arose from a statutory obligation under section 34 of the Land Acquisition Act, 1894. Since the liability to pay interest was statutory and absolute, the right to receive interest arose year after year after dispossession and acquisition, and the income was not confined to the year of actual receipt.

Conclusion: The proportionate interest referable to each relevant year alone was taxable on accrual basis, and not the entire amount in the year of receipt. The question was answered against the Revenue and in favour of the assessee.

Ratio Decidendi: Interest payable under a statutory obligation on delayed compensation accrues from year to year after acquisition and is assessable on accrual basis to the extent it relates to each year, irrespective of actual receipt.

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