Tax treatment of enhanced compensation interest, belated return claims, and capital gains indexation on inherited property clarified.

Interest awarded as part of enhanced compensation under section 28 of the Land Acquisition Act was treated as part of the compensation and not as taxable income from other sources; the tax addition was deleted. A fresh claim to reduce assessed income was not entertained where the return had been filed belatedly under section 139(4) and no revised return was available, so the assessed income remained unchanged on that point. For long-term capital gains on inherited property, indexation was allowed from the year in which the previous owner acquired the asset, not from the year of devolution on the assessee.

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Issues: (i) whether interest received on enhanced compensation under the Land Acquisition Act was taxable as income from other sources or exempt as interest under section 28; (ii) whether a claim for reduction of income could be allowed in appeal when the original return was a belated return and no revised return had been filed; and (iii) whether indexation for long-term capital gains had to be allowed from the year of acquisition by the previous owner.

Issue (i): whether interest received on enhanced compensation under the Land Acquisition Act was taxable as income from other sources or exempt as interest under section 28.

Analysis: The addition was made on the premise that the amount represented interest under section 34 of the Land Acquisition Act, 1894. The appellate record and the clarification from the Land Acquisition Officer showed that the amount was paid as interest on enhanced compensation under section 28. The binding distinction between section 28 and section 34 was applied: interest under section 28 forms part of enhanced compensation, while interest under section 34 is for delayed payment after compensation is determined. The tribunal followed the Supreme Court precedent treating section 28 interest as exempt from tax.

Conclusion: The amount was held to be interest under section 28 and not taxable as income from other sources. The deletion of the addition was upheld in favour of the assessee.

Issue (ii): whether a claim for reduction of income could be allowed in appeal when the original return was a belated return and no revised return had been filed.

Analysis: The return had been filed under section 139(4) of the Income-tax Act, 1961, and no revised return could be filed under section 139(5) in respect of such a return. The claim for exclusion of the amount was raised only at the appellate stage. The tribunal held that assessment proceedings under section 143(2) are meant to verify understatement of income or excessive loss, not to confer an additional benefit on the assessee. It relied on the rule that a fresh beneficial claim not made within the statutory return framework cannot be entertained in these facts.

Conclusion: The direction to reduce the assessed income was reversed, and the amount continued to remain taxable in accordance with the return filed by the assessee. This issue was decided in favour of the Revenue.

Issue (iii): whether indexation for long-term capital gains had to be allowed from the year of acquisition by the previous owner.

Analysis: The property had devolved upon the assessee by inheritance, and the dispute was whether indexation should run from the year in which the previous owner acquired the property or from the year in which it devolved on the assessee. The tribunal accepted the reasoning of the appellate authority and applied the Delhi High Court precedent supporting indexation from the earlier acquisition year in such circumstances.

Conclusion: The assessee was entitled to the benefit of indexation from the earlier year of acquisition. The Revenue's objection on this ground was rejected.

Final Conclusion: The appeal was disposed of with relief on the taxability of enhanced-compensation interest and indexation, but with reversal of the appellate relief permitting reduction of the returned income through a fresh appellate claim.

Ratio Decidendi: Interest awarded as part of enhanced compensation under section 28 of the Land Acquisition Act is to be treated differently from interest under section 34, and a beneficial claim not made within the statutory return framework cannot be introduced to reduce assessed income where the return was filed belatedly under section 139(4).

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