Interest on enhanced land acquisition compensation is taxable as income from other sources, not exempt under the agricultural land exemption.

Interest received under section 28 of the Land Acquisition Act, 1894 on enhanced compensation for acquisition of agricultural land is taxable as income from other sources after the amendment effective from 01.04.2010. The statutory scheme under sections 56(2)(viii) and 145B(1) brings such interest to tax in the year of receipt, and the exemption under section 10(37) applies only to capital gains from transfer of agricultural land, not to interest on compensation or enhanced compensation. Only the statutory deduction under section 57(iv) is available.

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Issues: Whether interest received under section 28 of the Land Acquisition Act, 1894 on enhanced compensation for acquisition of agricultural land is exempt under section 10(37) of the Income-tax Act, 1961 or is taxable as income from other sources under sections 56(2)(viii) and 145B(1) of the Income-tax Act, 1961, with deduction under section 57(iv).

Analysis: The statutory scheme after the amendment with effect from 01.04.2010 specifically brings interest received on compensation or enhanced compensation within the head "income from other sources" and deems it taxable in the year of receipt. The earlier decision treating interest under section 28 of the Land Acquisition Act as part of enhanced compensation was held to operate in the pre-amendment context. Section 10(37) grants exemption to capital gains arising from transfer of agricultural land and does not extend to interest on compensation or enhanced compensation. The authorities were therefore justified in taxing the receipt under the amended provisions and allowing only the statutory deduction under section 57(iv).

Conclusion: The interest received on enhanced compensation under section 28 is taxable as income from other sources and is not exempt under section 10(37); the assessee's challenge fails.

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