Taxability of interest on enhanced land acquisition compensation rejected as capital compensation, not income.

Interest awarded on enhanced land acquisition compensation was examined in substance rather than by label, and was treated as damages compensating the owner for deprivation of possession until payment. Applying the distinction between taxable income and a capital sum merely estimated in terms of interest, the receipt was held not to constitute income under the Indian Income-tax Act, 1922. The question was answered in the negative and in favour of the assessee.

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Issues: Whether interest awarded on enhanced land acquisition compensation under the relevant land acquisition law was taxable as income under the Indian Income-tax Act, 1922.

Analysis: The amount received was examined in substance, not by its label. Interest awarded on enhanced compensation for compulsory acquisition was treated as representing compensation for the deprivation of the owner's right to retain possession until payment, and therefore as damages assessed in the form of interest. The distinction between income and a capital sum estimated in terms of interest was applied, and the receipt was held not to fall within taxable income under the Act.

Conclusion: The receipt was not taxable as income; the question was answered in the negative and in favour of the assessee.

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