Section 28 land acquisition interest treated as enhanced compensation, supporting exemption for compulsory acquisition of agricultural land.

Interest awarded under section 28 of the Land Acquisition Act, 1894, is treated as an accretion to enhanced compensation and not as ordinary interest income. On that characterisation, it falls outside section 56(2)(viii) of the Income-tax Act, 1961, and section 145A(b) does not alter its treatment as compensation. For compulsory acquisition of agricultural land, the receipt is therefore eligible for exemption under section 10(37) of the Income-tax Act, 1961, because the section 28 amount partakes of the nature of enhanced compensation rather than income from other sources.

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Issues: Whether interest awarded under section 28 of the Land Acquisition Act, 1894, forming part of enhanced compensation for acquisition of agricultural land, was taxable under section 56(2)(viii) of the Income-tax Act, 1961, or eligible for exemption under section 10(37) of the Income-tax Act, 1961.

Analysis: The dispute turned on the character of the amount received under section 28 of the Land Acquisition Act, 1894. The Tribunal followed the settled position that interest under section 28 is not ordinary interest but an accretion to the compensation itself and partakes the character of enhanced compensation. On that basis, the receipt does not fall within the ambit of interest contemplated by section 56(2)(viii) and section 145A(b) of the Income-tax Act, 1961. The Tribunal relied on the governing judicial view that section 28 interest is to be treated as compensation, not as income from other sources, and therefore the exemption claimed in relation to compulsory acquisition of agricultural land could not be denied on this footing.

Conclusion: The interest under section 28 of the Land Acquisition Act, 1894, was held to be part of compensation and not taxable as income from other sources; the assessee was entitled to exemption under section 10(37) of the Income-tax Act, 1961.

Ratio Decidendi: Interest awarded under section 28 of the Land Acquisition Act, 1894, is an accretion to the compensation amount and not income by way of interest taxable under section 56(2)(viii) of the Income-tax Act, 1961.

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