Section 28 interest on land acquisition compensation is exempt as part of compensation, not taxable as other sources income.

Interest awarded under section 28 of the Land Acquisition Act, 1894 on enhanced compensation for acquired agricultural land was treated as an accretion to compensation, not as independent interest income. Because the statutory conditions for exemption under section 10(37) of the Income-tax Act, 1961 were satisfied, the amount retained the character of compensation and was not taxable under section 56(2)(viii) read with section 145A(b) and section 57(iv). The revenue appeals therefore failed and the exemption granted by the appellate authority was sustained.

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Issues: Whether interest awarded under section 28 of the Land Acquisition Act, 1894 on enhanced compensation for acquisition of agricultural land is to be treated as part of compensation and exempt under section 10(37) of the Income-tax Act, 1961, or taxed as income from other sources under section 56(2)(viii) read with section 145A(b) and section 57(iv).

Analysis: The acquired land was agricultural land and the statutory conditions for exemption under section 10(37) were satisfied. The interest in dispute was specifically interest awarded under section 28 of the Land Acquisition Act, 1894. The Court followed the principle that interest under section 28 is an accretion to compensation and forms part of the enhanced compensation, whereas the provisions taxing interest received on compensation or enhanced compensation under section 56(2)(viii) and section 145A(b) do not apply to such interest because it is not independent interest income but part of the compensation itself. The reasoning was supported by the binding view that section 28 interest partakes the character of compensation.

Conclusion: Interest received under section 28 of the Land Acquisition Act, 1894 was held to be exempt under section 10(37) of the Income-tax Act, 1961 and not taxable as income from other sources.

Final Conclusion: The revenue appeals failed, and the exemption granted by the appellate authority was sustained.

Ratio Decidendi: Interest awarded under section 28 of the Land Acquisition Act, 1894 is part of the compensation itself and, where the statutory conditions are met, is exempt under section 10(37) of the Income-tax Act, 1961 rather than taxable under the provisions dealing with interest on compensation.

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