Compensation measured as interest for compulsory acquisition was held not to be taxable income under the Income-tax Act

Interest awarded under Section 28 of the Land Acquisition Act was treated as compensation for compulsory deprivation of possession, measured by reference to interest but not arising from any investment, business, or definite source of revenue. The receipt was characterised as damages for loss of the owner's right to retain the property, not as income, profits or gains under the Income-tax Act. On that basis, the amount was held not taxable, and the exemption argument did not alter the result.

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Issues: Whether interest awarded under Section 28 of the Land Acquisition Act as compensation for compulsory acquisition of property constitutes income, profits or gains taxable under the Income-tax Act, and whether it can be treated as a casual and non-recurring receipt exempt under the relevant exemption provision.

Analysis: The interest awarded under Section 28 was held to be compensation measured in terms of interest for the loss of the owner's right to retain possession of the property, rather than interest arising from any investment or definite source producing a periodical monetary return. The receipt was treated as damages for deprivation of property, not as the fruit of capital or as income derived from the property or its monetary equivalent. The Court also considered that, since the award was not a receipt arising from business or profession and did not represent taxable income in substance, the exemption contention need not alter the result.

Conclusion: The sum received as interest was not income, profits or gains within the meaning of the Act and was not assessable to tax.

Final Conclusion: The reference was answered in favour of the assessee, and the impugned receipt was held not to be taxable as income.

Ratio Decidendi: An amount awarded under Section 28 of the Land Acquisition Act as compensation for being kept out of possession is a capital compensation measured by reference to interest, and not taxable income unless it arises from a definite source producing a real revenue return.

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