Interest on enhanced compensation accrues only when awarded by court and is taxable in the year of accrual.

Interest on enhanced compensation in land acquisition proceedings was held to accrue only when the court actually awards it, because the claimant has no enforceable right to such interest until the decree is made. On that basis, the amount became taxable as income in the year of accrual, and the contention that it was a capital receipt was rejected. The Tribunal's view that the interest was assessable in the relevant assessment year was upheld, and the questions referred were answered in favour of the department.

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Issues: (i) Whether interest awarded on enhanced compensation in land acquisition proceedings accrued to the assessee on the date of dispossession or only on the date of the court decree awarding such interest. (ii) Whether the interest amount received on enhanced compensation was taxable as income of the relevant assessment year.

Issue (i): Whether interest awarded on enhanced compensation in land acquisition proceedings accrued to the assessee on the date of dispossession or only on the date of the court decree awarding such interest.

Analysis: The right to interest on enhanced compensation did not arise merely on dispossession, because the claimant first had to seek enhancement and the court then had to exercise its discretion to award interest on the excess compensation. Until the court actually decreed such interest, it could not be said that income by way of interest had accrued or been deemed to accrue to the assessee.

Conclusion: The interest accrued only on the date of the decree awarding it, not on the date of dispossession.

Issue (ii): Whether the interest amount received on enhanced compensation was taxable as income of the relevant assessment year.

Analysis: Since the interest on enhanced compensation became income only when the court granted it, the amount was taxable in the year in which it accrued on that basis. The assessee's contention that it was capital receipt was rejected, and the Tribunal's view that the amount was assessable as income for the relevant year was upheld.

Conclusion: The interest amount was taxable as income of the relevant assessment year.

Final Conclusion: The questions referred were answered in favour of the department, and the interest on enhanced compensation was held to be taxable income when the court awarded it.

Ratio Decidendi: Interest on enhanced compensation under land acquisition law accrues only when the court, in its discretion, actually awards it, and not on the earlier date of dispossession or acquisition.

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