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Issues: (i) whether interest received under section 28 of the Land Acquisition Act, 1894 on enhanced compensation was taxable as income from other sources under section 56(2)(viii) read with section 57(iv) and section 145A(b) of the Income-tax Act, 1961, or formed part of enhanced compensation eligible for exemption under section 10(37); (ii) whether deduction under section 54F of the Income-tax Act, 1961 could be denied in respect of long-term capital gain arising from transfer of agricultural land.
Issue (i): whether interest received under section 28 of the Land Acquisition Act, 1894 on enhanced compensation was taxable as income from other sources under section 56(2)(viii) read with section 57(iv) and section 145A(b) of the Income-tax Act, 1961, or formed part of enhanced compensation eligible for exemption under section 10(37).
Analysis: The interest received under section 28 was treated as part of enhanced compensation, not as a separate revenue receipt. The decision relied on the distinction between interest under section 28 and interest under section 34 of the Land Acquisition Act, 1894, and on the principle that the amended provisions concerning interest on compensation were meant to address the timing of taxation of interest income and did not alter the character of interest under section 28 where it forms part of compensation. The assessment order was also found to be based on proper enquiry, and the revisionary order under section 263 was found unsustainable.
Conclusion: The issue was decided in favour of the assessee; the interest under section 28 was held not taxable as income from other sources in the manner proposed by the Revenue.
Issue (ii): whether deduction under section 54F of the Income-tax Act, 1961 could be denied in respect of long-term capital gain arising from transfer of agricultural land.
Analysis: The record showed credits received from the purchaser and supporting conveyance material establishing reinvestment in a residential house. The condition of section 54F was held to be satisfied on the facts, and the earlier factual rejection by the lower authorities was found unsustainable.
Conclusion: The issue was decided in favour of the assessee; deduction under section 54F was allowed.
Final Conclusion: The appeal succeeded on the substantive tax issues and the impugned additions did not survive to the extent challenged and allowed by the Tribunal.
Ratio Decidendi: Interest under section 28 of the Land Acquisition Act, 1894, when part of enhanced compensation, retains the character of compensation, and deduction under section 54F cannot be denied where reinvestment in a residential house is substantiated on the record.
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