Tax treatment of land acquisition interest: section 28 interest on enhanced compensation remains part of compensation, not other sources income.

Interest received under section 28 of the Land Acquisition Act, 1894 on enhanced compensation is treated as an accretion to the value of the acquired land and forms part of compensation, not as separate interest income. Section 28 is distinct from section 34, which covers delay in payment after compensation is determined. Relying on Ghanshyam (HUF) and Rupesh Rashmikant Shah, the text states that the amendments introducing section 56(2)(viii) and section 145A(b) did not change this character. Accordingly, such interest is not taxable as income from other sources and the addition was unsustainable.

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Issues: Whether interest received under section 28 of the Land Acquisition Act, 1894 on enhanced compensation is taxable as income from other sources under section 56(2)(viii) of the Income-tax Act, 1961 read with section 145A(b) of that Act.

Analysis: The interest in question arose from compulsory acquisition of agricultural land and had to be examined with reference to the statutory scheme of the Land Acquisition Act, 1894. Interest under section 28 is distinct from interest under section 34. The former is an accretion to the value of the land and forms part of enhanced compensation, whereas section 34 concerns interest for delay in payment after compensation is determined. The ratio of the Supreme Court in Ghanshyam (HUF), together with the jurisdictional High Court decision in Rupesh Rashmikant Shah, supported the view that compensatory interest of this nature retains the character of compensation. The amendments introducing section 56(2)(viii) and section 145A(b) did not alter that character for interest under section 28.

Conclusion: Interest received under section 28 of the Land Acquisition Act, 1894 is not taxable as income from other sources and the addition made by the Assessing Officer and sustained by the appellate authority was unsustainable.

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