Section 28 acquisition interest forms part of enhanced compensation, not separate income from other sources, for tax purposes.

Interest awarded under section 28 of the Land Acquisition Act, 1894 on enhanced compensation for compulsory acquisition of agricultural land is treated as an accretion to the value of the land and therefore forms part of enhanced compensation. The legal distinction between section 28 interest and section 34 interest is maintained: section 34 interest is delay-related, while section 28 interest is compensation-linked. On that basis, the receipt is not taxable as separate income from other sources under section 56(2)(viii), but is regarded as part of compensation and taxed, if at all, on receipt basis. The addition treating it as taxable interest income was not sustainable.

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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 taxable separately as interest income under section 56(2)(viii) of the Income-tax Act, 1961 or forms part of enhanced compensation eligible for exemption under section 10(37) of the Income-tax Act, 1961.

Analysis: Interest awarded under section 28 was treated as an accretion to the value of the acquired land and therefore part of the enhanced compensation. The distinction drawn in the law between section 28 interest and section 34 interest was applied, with section 34 interest being delay-related interest, while section 28 interest was considered compensation-linked. The binding position in the later Supreme Court rulings reaffirmed that section 28 interest on enhanced compensation is taxed, if at all, as part of compensation and on receipt basis, not as separate income from other sources under section 56(2)(viii).

Conclusion: The addition treating the amount as taxable interest income was not sustainable and the issue was decided in favour of the assessee.

Final Conclusion: The receipt in question retained the character of enhanced compensation for compulsory acquisition of agricultural land and was not liable to separate taxation as interest from other sources.

Ratio Decidendi: Interest awarded under section 28 of the Land Acquisition Act, 1894 on excess compensation is an accretion to the value of the acquired land and forms part of enhanced compensation, which is taxable, if at all, on receipt basis as compensation rather than as separate interest income.

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