Section 28 land acquisition interest treated as compensation, not taxable as interest income, enabling exemption.

Interest awarded under section 28 of the Land Acquisition Act, 1894 on enhanced compensation for compulsory acquisition of agricultural land partakes the character of compensation where the land otherwise satisfies the conditions for exemption. On that basis, the receipt is not taxed as interest income from other sources under section 56(2)(viii) read with section 145A(b), and exemption under section 10(37) applies. The Tribunal treated the section 28 amount as an accretion to compensation rather than ordinary interest, with the result that the assessment addition on this component was deleted in favour of the assessee.

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Issues: Whether interest received under section 28 of the Land Acquisition Act, 1894 on enhanced compensation for compulsory acquisition of agricultural land is exempt under section 10(37) of the Income-tax Act, 1961 or taxable as interest income under section 56(2)(viii) read with section 145A(b).

Analysis: The acquired land was agricultural land and the conditions for section 10(37) were otherwise satisfied. The dispute was confined to the character of the amount awarded under section 28 of the Land Acquisition Act, 1894. Relying on the binding principle that interest under section 28 is an accretion to compensation and not ordinary interest, the Tribunal followed the view that such receipt forms part of the compensation itself. On that basis, the statutory scheme taxing interest on compensation as income from other sources did not govern the amount in question.

Conclusion: The receipt under section 28 was held to be part of compensation and not taxable as interest income under section 56(2)(viii) read with section 145A(b); exemption under section 10(37) was allowed in favour of the assessee.

Final Conclusion: The assessment addition on the interest component of enhanced compensation was deleted and the assessee's exemption claim succeeded.

Ratio Decidendi: Interest awarded under section 28 of the Land Acquisition Act, 1894 on enhanced compensation partakes the character of compensation and is not chargeable as interest income from other sources for purposes of taxation.

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