Land acquisition compensation under section 28 is capital receipt, and agricultural land compensation may qualify for exemption.

Amounts awarded under section 28 of the Land Acquisition Act were treated as part of enhanced compensation, not as interest under section 34, so they were taxable, if at all, as capital gains under section 45(5) of the Income-tax Act, 1961. Where the land was agricultural land and the record showed cultivation, compensation received on compulsory acquisition satisfied the conditions for exemption under section 10(37). On that basis, the impugned additions were deleted and the assessee obtained full relief.

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Issues: (i) Whether the amount received under section 28 of the Land Acquisition Act was to be treated as part of enhanced compensation chargeable under the head capital gains, and not as interest under section 34 of that Act. (ii) Whether the assessee was entitled to exemption under section 10(37) of the Income-tax Act, 1961 in respect of compensation arising from compulsory acquisition of agricultural land.

Issue (i): Whether the amount received under section 28 of the Land Acquisition Act was to be treated as part of enhanced compensation chargeable under the head capital gains, and not as interest under section 34 of that Act.

Analysis: The amount was found to have been awarded under section 28 of the Land Acquisition Act. Amounts awarded under that provision form part of the enhanced value of land and constitute compensation, not interest in the ordinary sense. The finding of the lower appellate authority that the receipt was under section 34 was held to be unsupported by evidence.

Conclusion: The receipt was to be treated as part of land compensation and taxed, if at all, as capital gain in accordance with section 45(5) of the Income-tax Act, 1961, and not as interest income.

Issue (ii): Whether the assessee was entitled to exemption under section 10(37) of the Income-tax Act, 1961 in respect of compensation arising from compulsory acquisition of agricultural land.

Analysis: The land was accepted to be agricultural land, and the record showed cultivation on the land. Since the compensation related to compulsory acquisition of agricultural land, the statutory conditions for exemption were satisfied.

Conclusion: The assessee was entitled to exemption under section 10(37) of the Income-tax Act, 1961.

Final Conclusion: The additions made on account of the impugned receipts were deleted and the assessee succeeded in full.

Ratio Decidendi: Amounts awarded under section 28 of the Land Acquisition Act are part of compensation for acquisition and, where the land is agricultural land acquired compulsorily, such compensation qualifies for exemption under section 10(37) of the Income-tax Act, 1961 if the statutory conditions are met.

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