Interest on enhanced land compensation is part of compensation itself and not separately taxable as income from other sources.

Interest awarded under section 28 of the Land Acquisition Act, 1894 on enhanced compensation is treated as an accretion to the compensation itself, not as separate interest income. On that basis, it is not taxable under the head income from other sources under section 56 of the Income-tax Act, 1961. The Tribunal also applied the settled position that such receipt is to be considered on receipt basis. The addition treating the amount as taxable interest was deleted.

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Issues: Whether interest received under section 28 of the Land Acquisition Act, 1894 on enhanced compensation is to be treated as part of compensation and therefore not taxable separately as interest income.

Analysis: The Tribunal followed the binding line of authority that distinguishes interest under section 28 of the Land Acquisition Act, 1894 from interest under section 34 of that Act. Interest under section 28 is an accretion to the value of the acquired land and forms part of the enhanced compensation. Such receipt is not taxable as independent interest income under section 56 of the Income-tax Act, 1961. The Tribunal also relied on the settled position that the receipt is to be considered on receipt basis and not as a separate item of income from other sources.

Conclusion: The addition made by treating the amount received under section 28 as taxable interest was deleted, and the issue was decided in favour of the assessee.

Final Conclusion: The appeal succeeded and the disputed addition relating to interest on enhanced compensation did not survive.

Ratio Decidendi: Interest awarded under section 28 of the Land Acquisition Act, 1894 on enhanced compensation is an accretion to compensation itself and is not separately taxable as interest income under the head income from other sources.

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