Section 28 land acquisition interest is part of enhanced compensation and, if taxable, is taxed on receipt basis only.

Interest awarded under section 28 of the Land Acquisition Act, 1894 on enhanced compensation is treated as an accretion to the value of the acquired land and not as a separate revenue receipt taxable as income from other sources. The distinction from section 34 interest was applied: section 28 compensates for enhanced compensation, while section 34 compensates for delay in payment. For tax purposes, the section 28 component, where taxable at all, is assessable on receipt basis in the year of receipt and not by year-wise accrual or apportionment. On that basis, the additions made on account of interest on enhanced compensation were held unsustainable.

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Issues: (i) Whether interest awarded under section 28 of the Land Acquisition Act, 1894 on enhanced compensation is taxable separately as income from other sources or forms part of the enhanced compensation; (ii) Whether such amount is taxable on receipt basis in the year of receipt or on proportionate accrual year after year.

Issue (i): Whether interest awarded under section 28 of the Land Acquisition Act, 1894 on enhanced compensation is taxable separately as income from other sources or forms part of the enhanced compensation.

Analysis: Interest under section 28 is distinct from interest under section 34. The former is awarded on the excess compensation determined by the court and is an accretion to the value of the acquired land, whereas section 34 compensates for delay in payment. The governing principle applied was that section 28 interest partakes the character of enhanced compensation and is not a separate revenue receipt assessable as interest income. Since the compensation for the acquired rural agricultural land was exempt, the component attributable to section 28 also could not be taxed separately as income from other sources.

Conclusion: The amount received under section 28 was held to be part of enhanced compensation and not separately taxable as income from other sources.

Issue (ii): Whether such amount is taxable on receipt basis in the year of receipt or on proportionate accrual year after year.

Analysis: The settled rule applied was that, for section 28 interest treated as part of compensation, taxability is determined on receipt basis. The spread-over or apportionment method on accrual basis was rejected because the controlling law treats the amount as compensation received when paid, not as annual interest accruing year by year.

Conclusion: The amount, if taxable at all, would be assessable only on receipt basis and not by apportionment over earlier years.

Final Conclusion: The additions made on account of interest on enhanced compensation were unsustainable, the rectification order and related adverse findings did not survive, and the assessees succeeded on the core tax issue.

Ratio Decidendi: Interest awarded under section 28 of the Land Acquisition Act, 1894 on enhanced compensation is an accretion to the value of the acquired land and is assessable, if at all, on receipt basis as part of compensation rather than as separate income from other sources.

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