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Issues: (i) Whether the interest awarded to the assessee was interest on enhanced compensation and not initial interest; (ii) whether the entire interest amount was taxable in the assessment year in which it was received.
Issue (i): Whether the interest awarded to the assessee was interest on enhanced compensation and not initial interest.
Analysis: The interest was treated as a replacement for the loss of income suffered during the period when neither the land nor the compensation was with the assessee. The reasoning followed the principle applicable to delayed compensation, under which interest represents the deprivation of the use of property and money, analogous to interest under section 34 of the Land Acquisition Act.
Conclusion: The interest was correctly characterised as interest on enhanced compensation and not as initial interest.
Issue (ii): Whether the entire interest amount was taxable in the assessment year in which it was received.
Analysis: Since the interest represented compensation for loss of income over the entire period of deprivation, it related to that period and not exclusively to the year of receipt. It therefore could not be treated as a lump sum revenue receipt of a single assessment year, but had to be spread over the period to which it pertained.
Conclusion: The entire amount was not taxable in the year of receipt and had to be assessed by spreading it over the relevant period of 22 years.
Final Conclusion: The reference was answered in favour of the assessee, and the interest was held to be assessable on a spread-over basis rather than as a single-year receipt.
Ratio Decidendi: Interest paid for delayed compensation for acquisition represents recompense for the deprivation of the use of property and money, and where it relates to a definite past period, it must be assessed as income referable to that period rather than as a lump sum of the year of receipt.
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