Interest on enhanced compensation taxable differently depending on whether it arises under section 28 or section 34 of the Land Acquisition Act.

Interest on enhanced compensation under section 28 of the Land Acquisition Act forms part of compensation and is taxable under section 45(5) of the Income-tax Act, while interest under section 34 is taxable as income from other sources. Because the record did not conclusively show under which provision the interest was received, the factual position required verification. The matter was therefore remitted to the Assessing Officer to determine the nature of the interest and apply the correct tax treatment after giving the assessee a reasonable opportunity of hearing.

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Issues: Whether interest received on enhanced compensation under the Land Acquisition Act was taxable in the hands of the assessee and, if so, whether the receipt fell under section 28 or section 34 of that Act.

Analysis: The Tribunal noted the settled position that interest under section 28 of the Land Acquisition Act forms part of enhanced compensation and is taxable under section 45(5) of the Income-tax Act, 1961, whereas interest under section 34 is taxable as income from other sources. As the assessee did not appear and the record did not conclusively establish under which provision the interest had been received, the factual verification was left to the Assessing Officer.

Outcome: The matter was remitted to the Assessing Officer to verify the nature of interest and determine taxability accordingly, after giving the assessee a reasonable opportunity of hearing.

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