Section 28 land acquisition interest treated as part of compensation, not separate income, so no TDS required.

Interest under section 28 of the Land Acquisition Act, 1894 on enhanced compensation was treated as an accretion to the compensation itself, not a separate income stream. On that basis, it was held not taxable as income from other sources under section 56 of the Income-tax Act, 1961, and no tax deduction at source was required under section 194A. The Tribunal also accepted that compensation and enhanced compensation arising from compulsory acquisition of agricultural land fall within the capital gains exemption framework under section 10(37), and the assessee's additional grounds were allowed.

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Issues: Whether interest paid under section 28 of the Land Acquisition Act, 1894 on enhanced compensation is taxable as income from other sources under section 56 of the Income-tax Act, 1961 and thereby attracts tax deduction at source under section 194A of the Income-tax Act, 1961; and whether such receipt forms part of compensation eligible for the capital gains exemption relating to compulsory acquisition of agricultural land.

Analysis: The receipt in question arose from enhancement of compensation awarded on compulsory acquisition of land. The distinction between interest under section 28 and interest under section 34 of the Land Acquisition Act, 1894 was applied: interest under section 28 is treated as an accretion to the value of the land and as part of the compensation itself, whereas section 34 interest is for delay in payment. Relying on the settled position that section 28 interest is not a separate income stream, the receipt was held not to fall within the head income from other sources. Since it was part of the compensation package, the obligation to deduct tax under section 194A did not arise. The Tribunal also accepted that compensation and enhanced compensation arising from compulsory acquisition of agricultural land fall within the capital gains exemption framework under section 10(37) of the Income-tax Act, 1961.

Conclusion: The receipt under section 28 of the Land Acquisition Act, 1894 was held not taxable as income from other sources and no tax deduction at source under section 194A of the Income-tax Act, 1961 was required. The assessee's additional grounds were allowed and the appeals succeeded.

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