Interest on enhanced land acquisition compensation treated as part of exempt compensation, not income from other sources

Interest awarded under section 28 of the Land Acquisition Act on enhanced compensation for compulsory acquisition of agricultural land was treated as an integral part of the compensation itself. Following coordinate bench reasoning, it was characterised as a capital receipt and not independent income from other sources; accordingly, it fell within the exemption under section 10(37) of the Income-tax Act, 1961. The addition was deleted and the assessee's claim succeeded on this issue.

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Issues: Whether interest received under section 28 of the Land Acquisition Act on enhanced compensation for compulsory acquisition of agricultural land is taxable as income from other sources or forms part of compensation exempt under section 10(37) of the Income-tax Act, 1961.

Analysis: The only substantive controversy concerned the taxability of interest awarded under section 28 on enhanced compensation. The order followed the reasoning in the cited coordinate bench decision, which held that such interest is integral to the enhanced compensation itself. In the setting of compulsory acquisition of agricultural land, the receipt was treated as a capital receipt and not as independent income from other sources. The order also relied on the view that the statutory amendments dealing with receipt-based taxation did not alter the character of interest under section 28 where it forms part of compensation in such cases.

Conclusion: The interest received under section 28 of the Land Acquisition Act was held to be part of the compensation and exempt under section 10(37) of the Income-tax Act, 1961, so the addition was deleted and the assessee succeeded on this issue.

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