Section 28 land acquisition interest treated as part of compensation and exempt from income tax on agricultural land

Interest received under section 28 of the Land Acquisition Act, 1894 on enhanced compensation for compulsorily acquired agricultural land was treated as an accretion to compensation, not ordinary interest for delay. Because the land was agricultural land and the statutory conditions for exemption under section 10(37) were satisfied, the amount fell outside the expression "interest" for sections 56(2)(viii) and 145A(b). The receipt was therefore exempt under section 10(37) and not taxable as income from other sources.

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Issues: Whether interest received under section 28 of the Land Acquisition Act, 1894 on enhanced compensation for compulsorily acquired agricultural land is exempt under section 10(37) of the Income-tax Act, 1961, or taxable as income from other sources under sections 56(2)(viii), 57(iv) and 145A(b) of the Income-tax Act, 1961.

Analysis: The acquired land was agricultural land and the statutory conditions for exemption under section 10(37) were satisfied. The amount in question was not ordinary interest for delay in payment, but interest awarded under section 28 of the Land Acquisition Act, 1894. Relying on the principle that section 28 interest partakes the character of compensation and is an accretion to the enhanced compensation, the Tribunal applied the ratio of the Supreme Court and the Gujarat High Court to hold that such amount does not fall within the expression "interest" for the purpose of section 145A(b) or section 56(2)(viii).

Conclusion: The receipt was exempt under section 10(37) of the Income-tax Act, 1961 and was not taxable as income from other sources.

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