Enhanced compensation for agricultural land: section 28 interest treated as exempt compensation, not taxable interest income.

Interest received under section 28 of the Land Acquisition Act on enhanced compensation for acquired agricultural land was treated as part of the compensation itself, not as separate taxable interest income. Applying the settled position that additional amount, solatium and section 28 interest form part of enhanced compensation, the receipt was brought within the exemption for capital gains arising from transfer of agricultural land under section 10(37) of the Income-tax Act, 1961. The Revenue's attempt to tax it under sections 56(2)(viii), 57(iv) and 145A was rejected, and the addition was deleted.

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Issues: Whether interest received under section 28 of the Land Acquisition Act on enhanced compensation for agricultural land is to be treated as part of the compensation and exempt under section 10(37) of the Income-tax Act, 1961.

Analysis: The receipt was in respect of agricultural land acquired by the Government. The Court relied on the settled position that additional amount under section 23(1A), solatium under section 23(2), and interest under section 28 of the Land Acquisition Act form part of enhanced compensation and are chargeable, if at all, under section 45(5) of the Income-tax Act, 1961. It further noted that section 10(37) specifically exempts capital gains arising from transfer of agricultural land, and that the nature of the receipt does not cease to attract that exemption merely because the amount is described as interest under section 28. The Court therefore rejected the Revenue's treatment of the amount as taxable interest income under sections 56(2)(viii), 57(iv), and 145A.

Conclusion: The receipt under section 28 of the Land Acquisition Act was held to be part of enhanced compensation and exempt under section 10(37) of the Income-tax Act, 1961, and the addition was deleted.

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