Interest on enhanced land acquisition compensation is not taxable as other sources when paid under section 28 and supported by records.

Interest received under section 28 of the Land Acquisition Act, 1894 is treated as part of enhanced compensation, not as interest assessable under section 56(2)(viii) of the Income-tax Act, 1961, because section 28 operates as an accretion to compensation rather than compensation for delay. On the facts, the land acquisition authority's certificate supported that characterisation, so the revenue's treatment under section 56(2)(viii) and section 145A(b) was not justified. The alleged unexplained capital mismatch was also explained by the corrected balance sheet and ledger reconciliation, as the capital balance stood supported by the record. Both additions were therefore deleted.

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Issues: (i) Whether interest received on compensation for compulsory acquisition of agricultural land was assessable as income from other sources under section 56(2)(viii) of the Income-tax Act, 1961, or was part of compensation under section 28 of the Land Acquisition Act, 1894; and (ii) whether the addition made on account of alleged unexplained capital mismatch was sustainable.

Issue (i): Whether interest received on compensation for compulsory acquisition of agricultural land was assessable as income from other sources under section 56(2)(viii) of the Income-tax Act, 1961, or was part of compensation under section 28 of the Land Acquisition Act, 1894.

Analysis: The receipt was examined in the light of the distinction between interest under section 28 and interest under section 34 of the Land Acquisition Act, 1894. Interest under section 28 is an accretion to the compensation amount and forms part of the enhanced compensation, whereas interest under section 34 is compensation for delay in payment. The certificate from the land acquisition authority supported the assessee's stand that the amount was paid under section 28. The treatment adopted by the revenue authorities by applying section 56(2)(viii) and section 145A(b) was therefore not justified on the facts found.

Conclusion: The issue was decided in favour of the assessee and the addition on this count was deleted.

Issue (ii): Whether the addition made on account of alleged unexplained capital mismatch was sustainable.

Analysis: The capital account and reconciliation statement showed that the apparent mismatch stood explained by the corrected balance sheet and ledger figures. On reconciliation, the capital balance was supported by the record and the alleged unexplained difference did not survive.

Conclusion: The issue was decided in favour of the assessee and the addition was deleted.

Final Conclusion: The assessment additions were held unsustainable on both counts, resulting in full relief to the assessee.

Ratio Decidendi: Amount received under section 28 of the Land Acquisition Act, 1894 forms part of enhanced compensation and cannot be taxed as income from other sources merely because it is described as interest.

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