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Issues: Whether the amount received under section 28 of the Land Acquisition Act, 1894 on compulsory acquisition of agricultural land was taxable as interest under section 56 of the Income-tax Act, 1961, or was to be treated as part of compensation exempt under section 10(37) of that Act.
Analysis: The amount in question was received under section 28 of the Land Acquisition Act, 1894. The settled legal position, as reiterated by the Supreme Court, is that interest awarded under section 28 is not interest in the ordinary sense but an accretion to the value of the acquired land and forms part of the enhanced compensation. It is distinguishable from interest under section 34, which is compensatory for delay in payment and is not treated as part of compensation. Since the amount was received as part of enhanced compensation, it could not be brought to tax under the head income from other sources under section 56 of the Income-tax Act, 1961.
Conclusion: The amount received under section 28 was part of compensation and not taxable as interest under section 56 of the Income-tax Act, 1961; the addition was unsustainable and the assessee succeeded.
Ratio Decidendi: Amounts awarded under section 28 of the Land Acquisition Act, 1894 are to be treated as part of enhanced compensation, taxable on receipt basis as compensation and not as interest under section 56 of the Income-tax Act, 1961.
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