Taxability of interest on enhanced compensation: interest is taxable on receipt, with 50% deduction permitted under the Income-tax Act.

Interest received on compensation or enhanced compensation under the Land Acquisition Act, 1894 is treated as a revenue receipt, not as part of the compensation itself, and is taxable in the year of receipt as income from other sources. The Finance (No. 2) Act, 2009 introduced Section 145A(b) and Section 56(2)(viii) of the Income-tax Act, 1961 to make such interest chargeable to tax on receipt, while Section 57(iv) allows deduction of 50% of that income. The authorities applied these provisions to the interest amount received by the assessee and treated it as taxable accordingly.

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Issues: Whether interest received on compensation or enhanced compensation under the Land Acquisition Act, 1894 is taxable in the year of receipt as income from other sources, with the deduction allowed under the Income-tax Act, 1961.

Analysis: The interest awarded under Section 28 of the Land Acquisition Act, 1894 was treated as a revenue receipt and taxable, following the settled position that such interest does not form part of compensation. The amendments introduced by the Finance (No. 2) Act, 2009, namely Section 145A(b) and Section 56(2)(viii) of the Income-tax Act, 1961, made interest received on compensation or enhanced compensation chargeable to tax in the year of receipt. Section 57(iv) further permitted deduction of 50% of such income. The authorities below had applied these provisions to the interest amount received by the assessee and found it taxable accordingly.

Conclusion: The interest on enhanced compensation was held taxable in the year of receipt under Section 56(2)(viii) read with Section 145A(b) of the Income-tax Act, 1961, subject to the deduction under Section 57(iv), and the assessee's challenge failed.

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