Interest on enhanced compensation is taxable on receipt under income tax deeming rules and receipt-based assessment.

Interest received under section 28 of the Land Acquisition Act, 1894 on compensation or enhanced compensation falls within the deeming provision in section 56(2)(viii) of the Income-tax Act, 1961 and, read with section 145A(b), is taxable in the year of receipt. The exemption claim was untenable because the jurisdictional High Court supported assessment on receipt basis. The interest was therefore rightly treated as chargeable to tax in the year it was received.

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Issues: Whether interest received under section 28 of the Land Acquisition Act, 1894 on compensation or enhanced compensation is chargeable to tax as income in the year of receipt under section 56(2)(viii) of the Income-tax Act, 1961 read with section 145A(b) of that Act.

Analysis: The amount of interest on compensation or enhanced compensation falls within the deeming provision inserted by clause (viii) of section 56(2) with effect from 01.04.2010. Read with section 145A(b), it is to be assessed as income of the year in which it is received. The jurisdictional High Court decision relied upon supported this treatment. The exemption claim was therefore untenable.

Conclusion: The interest was rightly treated as chargeable to tax in the year of receipt.

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