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AI Drafter - (New and Powerful) ✕ Generate professional replies, appeals, opinions to Show Cause Notices, assessment orders, audit objections, and other legal communications using TaxTMI's AI Drafter.
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Issues: Whether interest received on enhanced compensation under section 28 of the Land Acquisition Act, 1894, in respect of acquisition of agricultural land, is exempt under section 10(37) of the Income-tax Act, 1961, or is taxable as income from other sources under section 56(2)(viii) of the Income-tax Act, 1961.
Analysis: The amount in question arose from enhanced compensation awarded for acquired agricultural land. The dispute turned on the character of interest under section 28 of the Land Acquisition Act, 1894. The settled position applied was that interest under section 28 is not a separate item of delayed-payment interest like section 34, but is an accretion to the compensation itself and partakes of the same character as enhanced compensation. For agricultural land, enhanced compensation is exempt under section 10(37) of the Income-tax Act, 1961. The contrary treatment adopted by the lower authorities by invoking section 56(2)(viii) and granting only partial relief under section 57(iv) was held to be inconsistent with the statutory scheme and the binding judicial position.
Conclusion: Interest received under section 28 of the Land Acquisition Act, 1894, on enhanced compensation for agricultural land is exempt under section 10(37) of the Income-tax Act, 1961, and is not taxable as income from other sources.
Ratio Decidendi: Interest under section 28 of the Land Acquisition Act, 1894, being an accretion to enhanced compensation, assumes the character of compensation and, where the underlying transfer is of agricultural land, follows the exemption available to such compensation under section 10(37) of the Income-tax Act, 1961.
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