Land acquisition interest under section 28 treated as enhanced compensation, not separate taxable income from other sources.

Interest awarded under section 28 of the Land Acquisition Act, 1894 on enhanced compensation for compulsory acquisition of agricultural land was treated as part of the compensation itself, not as a separate interest receipt. Applying the distinction between section 28 and section 34 interest, the analysis noted that section 34 compensates delay in payment, while section 28 attaches to the excess amount awarded on reference and partakes of the character of enhanced compensation. On that basis, such receipt was held not to be separately taxable as income from other sources under section 56(2)(viii), and the exemption framework for compulsory acquisition of agricultural land remained applicable.

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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 under section 56(2)(viii) of the Income-tax Act, 1961, with deduction under section 57(iv), or is part of the enhanced compensation and therefore not separately taxable.

Analysis: The exemption under section 10(37) of the Income-tax Act, 1961 applies to capital gains arising from compulsory acquisition of agricultural land. The distinction between interest under section 34 and interest under section 28 of the Land Acquisition Act, 1894 was applied: interest under section 34 compensates delay in payment, whereas interest under section 28 is linked to the excess amount awarded by the court on reference and forms part of the enhanced compensation. The binding Supreme Court rulings relied upon were applied to hold that section 28 interest partakes of the character of compensation and not separate interest income for taxation as proposed by the Revenue.

Conclusion: Interest received under section 28 of the Land Acquisition Act, 1894 is not separately taxable as interest income under section 56(2)(viii) of the Income-tax Act, 1961 in the present factual setting and the deletion of the addition was .

Ratio Decidendi: Interest awarded under section 28 of the Land Acquisition Act, 1894 on excess compensation is part of the enhanced compensation and not a distinct interest receipt taxable as income from other sources.

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