Section 28 land acquisition interest treated as compensation, not taxable interest income under the Income-tax Act.
Interest under section 28 of the Land Acquisition Act, 1894 on enhanced compensation is treated as an accretion to the compensation itself, not as independent interest income taxable under the head 'income from other sources' under section 56 of the Income-tax Act, 1961. The governing distinction is between section 28 interest, which follows the character of the enhanced compensation, and section 34 interest, which compensates for delay and is different in nature. Where the underlying compensation is exempt, the section 28 accretion also takes the same exempt character.
Issues: Whether interest received on enhanced compensation under section 28 of the Land Acquisition Act, 1894 is to be treated as part of compensation and therefore not taxable as interest income under section 56 of the Income-tax Act, 1961.
Analysis: The controversy turned on the character of the amount received on compulsory acquisition. The governing distinction is between interest under section 28 of the Land Acquisition Act, 1894, which is an accretion to the enhanced value and forms part of compensation, and interest under section 34 of that Act, which is compensatory for delay and stands on a different footing. The settled law applied was that section 28 interest is not separate interest income chargeable under the head 'income from other sources', and where the underlying compensation is exempt, the accretion attached to it partakes the same character.
Conclusion: The amount received under section 28 was held to be part of compensation and not taxable as interest under section 56. The addition was deleted and the appeal was allowed in favour of the assessee.
Ratio Decidendi: Interest awarded under section 28 of the Land Acquisition Act, 1894 on enhanced compensation is an accretion to the compensation itself and is to be assessed with the compensation, not as independent interest income under the head 'income from other sources'.
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