Land acquisition compensation interest accrues year by year from dispossession and is taxable on accrual, not only on receipt.

Interest on land acquisition compensation accrues from the date of dispossession because sections 28 and 34 of the Land Acquisition Act treat it as compensation for withholding money due to the owner after possession is taken. Under section 5 of the Income-tax Act, the amount is taxable on accrual or receipt, and an enforceable right to receive the interest arises year by year from dispossession. A pending claim for enhanced compensation does not postpone that accrual or shift taxation to the year of final quantification or receipt. The interest was therefore assessable in the relevant previous years on an accrual basis.

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Issues: Whether interest payable on compensation for acquired land accrued year by year from the date of dispossession and was assessable under the Income-tax Act in the relevant previous years, or whether it could be taxed only when finally quantified or received; and whether the assessee's claim for higher compensation could form the basis for computing such interest.

Analysis: Under the Land Acquisition Act, 1894, the owner has one continuing right to receive proper compensation for the acquired land, and interest under sections 28 and 34 is compensation for keeping back money due to the owner after possession is taken. The right to interest arises from the date of dispossession and is not created only when the civil court later enhances compensation. Under section 5 of the Income-tax Act, 1961, income is taxed on accrual or receipt, and accrual requires an enforceable right to receive the income. A mere claim for higher compensation does not itself create accrued income, but the interest on the amount payable under the award accrues year by year from the date of taking possession, even while enhancement proceedings remain pending. The later determination of compensation does not shift the accrual of already running interest to the year of receipt.

Conclusion: The interest on compensation accrued from year to year from the date of dispossession and was taxable in the respective assessment years, not merely in the year of receipt or final quantification; the assessee's claim for higher compensation could not displace the award-based accrual basis. The answer was against the Department and in favour of the assessee.

Ratio Decidendi: Interest payable on land acquisition compensation under sections 28 and 34 of the Land Acquisition Act, 1894 accrues from the date of dispossession and is taxable year by year on accrual, because the assessee's enforceable right to receive it arises continuously from that date.

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