Enhanced compensation taxability on receipt under land acquisition law, with later adjustment if reduced.

Enhanced compensation and interest received under interim orders in pending land acquisition appeals are taxable on receipt under Section 45(5) of the Income-tax Act, 1961, even where the amount is withdrawn during appeal on security or similar terms. The statutory scheme, read with Section 155(16), treats the year of receipt as the year of taxability and permits later adjustment if the compensation is reduced. The article notes that this principle applies to enhanced compensation and related interest received during the relevant year, making the recipient liable to tax at that stage.

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Issues: Whether enhanced compensation and interest received under an interim order in pending land acquisition appeals are taxable in the year of receipt.

Analysis: The Court followed its earlier ruling interpreting Section 45(5) of the Income-tax Act, 1961. It noted that enhanced compensation, including interest thereon, becomes taxable on receipt basis, even where the amount is withdrawn during the pendency of appeal against security or otherwise. The scheme of Section 45(5), read with Section 155(16), makes the year of receipt the year of taxability, with later adjustment if the compensation is reduced.

Conclusion: The enhanced compensation and interest received during the relevant year were taxable, and the assessees were liable to pay tax on that amount.

Final Conclusion: The appeals were allowed and the contrary decisions of the High Court and the Tribunal were set aside, affirming taxability of enhanced compensation and related interest in the year of receipt.

Ratio Decidendi: Enhanced compensation and interest received under the Land Acquisition Act are chargeable to tax in the year of receipt under Section 45(5) of the Income-tax Act, 1961, even if received during the pendency of appeal, subject to later adjustment under Section 155(16).

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