Enhanced compensation rights are transferable as actionable claims, but retained compensation remained taxable as income in the recipient's hands.

A right to receive enhanced land acquisition compensation was treated as an actionable claim and, therefore, a transferable species of property; on that basis, its gift to a trust was legally valid. However, where the assessee received the enhanced compensation and retained it for about six years before passing it on, the amount was treated as income in his hands for the relevant period. The delayed transfer did not change the tax character of the receipt while it remained with him, so the compensation was correctly assessed in his hands.

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Issues: (i) Whether the right to receive enhanced compensation under a land acquisition reference and appeal could validly be transferred by way of gift to a trust. (ii) Whether the enhanced compensation retained by the assessee for several years was liable to be assessed as income in his hands.

Issue (i): Whether the right to receive enhanced compensation under a land acquisition reference and appeal could validly be transferred by way of gift to a trust.

Analysis: The right to receive compensation was treated as an actionable claim and, therefore, as a transferable species of property. A mere uncertain claim for damages would stand on a different footing, but where compensation had already been enhanced by the trial court and only the final quantum remained subject to appeal, the subject matter of the trust deed was not a bare hope. The law of gifts under the Transfer of Property Act permits transfer of existing movable property, and actionable claims are capable of transfer. On that basis, the settlement in favour of the trust was legally permissible.

Conclusion: The gift of the right to receive enhanced compensation was valid in law, and this issue was answered in favour of the assessee.

Issue (ii): Whether the enhanced compensation retained by the assessee for several years was liable to be assessed as income in his hands.

Analysis: Although the amount was ultimately intended for the trust, the assessee received the enhanced compensation and retained it for about six years before passing it on. During that period, the amount remained with him and assumed the character of income in his hands. The delayed transfer did not alter the tax consequence for the year in which the amount was held and enjoyed by him.

Conclusion: The enhanced compensation was rightly assessed as income in the assessee's hands, and this issue was answered against the assessee.

Final Conclusion: The legal character of the right to receive compensation was recognized as transferable, but the assessee obtained no relief because the retained amount was correctly brought to tax; the reference was rejected.

Ratio Decidendi: A right to receive enhanced compensation under land acquisition proceedings is an actionable claim capable of transfer or gift, but if the assessee retains the received amount instead of handing it over to the transferee trust, the amount remains taxable as income in his hands for the relevant period.

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