Section 28 interest on enhanced land compensation forms part of compensation and cannot be separately taxed under revision.

Interest awarded under section 28 of the Land Acquisition Act, 1894 on enhanced compensation for compulsory acquisition of agricultural land was treated as part of the compensation, not as a separate taxable receipt. Because the Assessing Officer had applied his mind to the nature of the receipt and accepted that it was not taxable separately, the assessment could not be branded erroneous or prejudicial merely because the Commissioner took a different view. On that basis, invocation of revisionary jurisdiction under section 263 of the Income-tax Act, 1961 was held to be unjustified and the revision was unsustainable.

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Issues: Whether the Commissioner was justified in invoking revisional jurisdiction under section 263 of the Income-tax Act, 1961 to tax interest received under section 28 of the Land Acquisition Act, 1894 on enhanced compensation.

Analysis: The enhanced compensation related to compulsory acquisition of agricultural land, and the original compensation had already been treated as exempt under section 10(37) of the Income-tax Act, 1961. The interest received was specifically awarded under section 28 of the Land Acquisition Act, 1894. Interest under section 28 is not a separate item of income distinct from compensation, but forms part of the enhanced value of the acquired land. The Assessing Officer had considered the nature of the receipt and, in the light of the binding principle governing section 28 interest, consciously accepted that it was not taxable as a separate receipt. In these circumstances, the assessment order could not be treated as erroneous or prejudicial to the interests of the Revenue merely because the Commissioner held a different view on taxability.

Conclusion: The invocation of section 263 was not justified, and the revisionary order was unsustainable.

Final Conclusion: The assessment was restored by rejecting the revision, and the assessee succeeded on the sole issue.

Ratio Decidendi: Interest awarded under section 28 of the Land Acquisition Act, 1894 is part of the compensation for acquisition and cannot be separately brought to tax as interest income when the Assessing Officer has applied his mind and the revisionary conditions under section 263 of the Income-tax Act, 1961 are not satisfied.

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