Interest on compensation bonds taxed as separate income, not part of compensation under the statutory scheme.

Amounts paid as interest on compensation bonds issued under the Uttar Pradesh Zamindari Abolition and Land Reforms Act were held to be separate from the principal compensation. The statutory scheme created a distinct right to compensation from the date of vesting and a separate right to interest on deferred payment at a fixed rate. That interest represented return for delayed payment, not additional compensation or damages, and the statutory nomenclature was not decisive. The sums also fit the description of Government securities, and in any event were taxable as income from other sources if not interest on securities. They were therefore taxable and not exempt as compensation.

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Issues: Whether the amount described as interest on compensation bonds issued under the Uttar Pradesh Zamindari Abolition and Land Reforms Act was really additional compensation or was taxable as interest on securities or income from other sources under the Income-tax Act.

Analysis: Under the Act, compensation accrued from the date of vesting, but the amount ultimately declared under the compensation roll was only the principal compensation. The subsequent amounts payable on the bonds were separately provided for at a fixed rate and represented the return for the State's use of money that had become payable to the intermediary but was paid over time. The scheme of the Act kept compensation distinct from the interest payable on deferred payment, and the nomenclature used in the statute was not decisive. The amounts could not be treated as additional compensation or damages. They also answered the description of Government security under the Public Debt Act, and in any event were income from another source if not interest on securities.

Conclusion: The amounts paid as interest on the compensation bonds were taxable and not exempt as compensation.

Final Conclusion: The petition failed because the sums received on the compensation bonds were held to be liable to income tax.

Ratio Decidendi: Where a statute separately creates a right to compensation and a separate right to interest on deferred payment, the interest is taxable income and not part of the compensation unless the statutory scheme merges the two into one compensation award.

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