Crystallised entitlement to enhanced compensation governs taxability; unresolved land acquisition claims defer income and wealth tax treatment.

Enhanced compensation is taxable on receipt under section 45(5)(b) only when the assessee's right to receive it has crystallised; where entitlement itself remains sub judice in pending land acquisition proceedings, taxation must await final adjudication. Section 45(5) therefore does not apply as a complete answer if the underlying claim to compensation is still uncertain and inchoate. Interest on the enhanced compensation follows the same treatment and is not taxable in the same year while the principal right remains unresolved. For wealth tax purposes, a contingent and disputable receipt not beneficially owned on the valuation date is not includible in net wealth.

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Issues: (i) Whether enhanced compensation received by the assessee was taxable as capital gains under section 45(5)(b) of the Income-tax Act, 1961 while the assessee's entitlement to receive such compensation remained sub judice in the land acquisition proceedings under section 31(2) of the Land Acquisition Act, 1894; (ii) whether the rule in Hindustan Housing continued to govern the case notwithstanding section 45(5); (iii) whether interest received on the enhanced compensation was taxable in the same year; and (iv) whether the amount received was includible in net wealth under the Wealth Tax Act.

Issue (i): Whether enhanced compensation received by the assessee was taxable as capital gains under section 45(5)(b) of the Income-tax Act, 1961 while the assessee's entitlement to receive such compensation remained sub judice in the land acquisition proceedings under section 31(2) of the Land Acquisition Act, 1894.

Analysis: Section 45(5) generally taxes enhanced compensation in the year of receipt, and the Supreme Court authority on enhanced compensation makes it clear that pendency of an appeal against quantum does not by itself prevent taxation. However, the present case involved a prior and distinct controversy as to whether the assessee had any finally adjudicated right to receive compensation at all. That entitlement depended upon the pending appeals arising from the section 31(2) reference, and the assessee's right to the disputed sums remained uncertain and inchoate. Where the very right to receive the amount is unresolved, the receipt cannot be treated as having crystallised for tax purposes.

Conclusion: The enhanced compensation was not liable to be taxed at this stage, and taxation had to await final determination of the assessee's entitlement in the pending land acquisition proceedings.

Issue (ii): Whether the rule in Hindustan Housing continued to govern the case notwithstanding section 45(5).

Analysis: Section 45(5) had altered the earlier regime by making enhanced compensation taxable on receipt, and therefore the Tribunal was wrong in applying Hindustan Housing as an overriding rule in a case where the statutory provision was otherwise applicable. At the same time, the assessee's case was not rejected on that basis because the decisive factor was not merely the pendency of enhancement proceedings but the unresolved character of the assessee's underlying right to compensation.

Conclusion: Hindustan Housing could not be applied as a general answer to defeat section 45(5), though the assessee still succeeded on the separate ground that entitlement itself was unsettled.

Issue (iii): Whether interest received on the enhanced compensation was taxable in the same year.

Analysis: Interest received together with enhanced compensation follows the tax treatment of the underlying receipt where the entitlement to the principal amount has not yet become final. Since the assessee's right to the enhanced compensation itself remained unresolved, the treatment of the interest component could not be separated from that uncertainty. The question of taxing the interest in the same year therefore also depended on the outcome of the pending proceedings.

Conclusion: The interest on enhanced compensation was also not taxable at this stage and had to await the final outcome of the pending proceedings.

Issue (iv): Whether the amount received was includible in net wealth under the Wealth Tax Act.

Analysis: For wealth tax purposes, the amount had to belong to the assessee as on the valuation date. The sum in question was received in a contingent and disputable context and could be required to be returned if the assessee failed in the pending proceedings. On that footing, the receipt bore the character of trust money rather than an asset beneficially owned by the assessee on the relevant date.

Conclusion: The amount was not includible in the assessee's net wealth at that stage.

Final Conclusion: The appeals failed overall, but the decision turned on the unresolved nature of the assessee's entitlement to the compensation and related amounts, leaving taxation to await the final determination in the pending land acquisition litigation.

Ratio Decidendi: Enhanced compensation is taxable on receipt under section 45(5) only where the assessee's entitlement to receive it has crystallised; if the right to receive the compensation itself remains sub judice and inchoate, taxability must await final adjudication.

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