Taxability of interest on enhanced compensation: exemption for agricultural land compensation does not extend to the interest component.
Interest on enhanced compensation for acquired agricultural land is treated as taxable income under the amended Sections 56(2)(viii) and 145A(b) of the Income-tax Act, which deem such interest taxable in the year of receipt. The exemption under Section 10(37) applies only to compensation for transfer of agricultural land and does not extend to the interest component. The earlier Ghanshyam line of reasoning is not controlling after the statutory amendments, and the tax treatment applies irrespective of the accounting method. Accordingly, deduction of tax at source from the interest component is valid.
Issues: Whether tax was deductible at source from interest on enhanced compensation paid in respect of acquired agricultural land, and whether such interest could claim exemption as part of compensation.
Analysis: The interest awarded on enhanced compensation was treated as taxable income by reason of the statutory amendments to Section 56(2)(viii) and Section 145A(b) of the Income-tax Act, 1961, which deem interest on compensation or enhanced compensation to be income of the year of receipt. The exemption under Section 10(37) of the Income-tax Act, 1961 was held to apply only to compensation for transfer of agricultural land and not to the interest component. The earlier view in Ghanshyam was held not to assist the petitioners after the subsequent amendments, and the interest component was held to be chargeable irrespective of the accounting method.
Conclusion: The deduction of tax at source from interest on enhanced compensation was held valid, and the challenge to the deduction failed.
Final Conclusion: The writ petition was rejected because the interest component on enhanced compensation was held taxable in the year of receipt and outside the exemption claimed for agricultural land compensation.
Ratio Decidendi: Interest received on compensation or enhanced compensation is deemed taxable income in the year of receipt under the amended provisions, and the exemption for agricultural land compensation does not extend to the interest component.
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