Enhanced compensation interest treated as exempt compensation where agricultural land was acquired, defeating taxability.

Interest received under section 28 of the Land Acquisition Act, 1894 on enhanced compensation was treated as part of the compensation itself, not as a separate taxable receipt. On that basis, where the acquired asset was agricultural land, the exemption under section 10(37) of the Income-tax Act, 1961 applied and the amount could not be brought to tax in the assessee's hands. Following earlier Tribunal decisions on identical facts, the addition was held unsustainable and the assessee's claim for exemption succeeded.

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Issues: Whether the amount received under section 28 of the Land Acquisition Act, 1894 as interest on enhanced compensation was taxable in the hands of the assessee or was to be treated as part of compensation and exempt.

Analysis: The amount received under section 28 of the Land Acquisition Act, 1894 was held to be in the nature of enhanced compensation and not a separate receipt liable to tax as interest. Reliance was placed on the settled position that such receipt forms part of compensation, and where the acquired land is agricultural land, the exemption under section 10(37) of the Income-tax Act, 1961 applies. Following the earlier Tribunal decisions on identical facts, the receipt could not be brought to tax in the assessee's hands.

Conclusion: The issue is decided in favour of the assessee and against the Revenue.

Final Conclusion: The addition was not sustainable, and the assessee's claim for exemption of the receipt as enhanced compensation succeeded.

Ratio Decidendi: Interest received under section 28 of the Land Acquisition Act, 1894 on enhanced compensation is to be treated as part of the compensation itself, and where the acquisition relates to agricultural land, such receipt is not taxable in the hands of the assessee.

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