Taxability of interest on enhanced compensation for agricultural land was rejected as the receipt was treated as capital in nature.

Interest received on enhanced compensation for acquisition of agricultural land was treated as a capital receipt linked to the compensation itself, and on the facts presented it was not brought to tax. The addition could not be sustained because the first appellate authority did not provide a separate, reasoned basis for upholding it, and the receipt arose from the acquisition of agricultural land, which supported exemption in the present facts. The issue was therefore decided in favour of the assessee.

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Issues: Whether interest received on enhanced compensation arising from acquisition of agricultural land is taxable, and whether the addition made on that account could be sustained.

Analysis: The assessee received compensation, including interest on enhanced compensation, for acquisition of agricultural land and claimed exemption. The addition was made by treating part of the interest as taxable income. The material showed no separate and reasoned justification by the first appellate authority for sustaining the addition. The receipt was treated as a capital receipt linked to the compensation for agricultural land, and the binding principle applied was that such compensation or accretion arising from acquisition of agricultural land does not attract tax in the present facts.

Conclusion: The addition on account of interest received on enhanced compensation was not sustainable and the issue was decided in favour of the assessee.

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