Interest on enhanced compensation was held taxable as income, not a capital receipt, where compensation was delayed.

Interest received on enhanced compensation for compulsory acquisition of requisitioned land was held to be taxable as income rather than a capital receipt. The compensation framework, read with the principles incorporated from the Land Acquisition Act, supported a substantive right to interest even though the enactments did not expressly provide for it. The Court distinguished cases where an amount described as interest was only a measure of damages, and held that those authorities did not apply where the claimant had been kept out of compensation that ought to have been paid. The exclusionary clause in the arbitration provision did not prevent application of the law relating to interest, so the award was treated as true interest and not part of capital compensation.

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Issues: Whether interest received on enhanced compensation for compulsory acquisition of requisitioned land was taxable as income or constituted a capital receipt.

Analysis: The compensation scheme under the relevant requisition and defence enactments did not expressly provide for interest, but the right to interest arose in substance from the applicable compensation framework and the incorporated principles governing compensation under the Land Acquisition Act, 1894. The Court distinguished cases where sums described as interest were merely a mode of estimating damages or compensation, and held that those authorities did not apply where interest was payable because the claimant was kept out of money that ought to have been paid as compensation. The Court further held that the exclusionary clause in the arbitration provision did not bar the substantive application of the law relating to interest. The interest awarded by the High Court was therefore interest in the true legal sense and not part of capital compensation.

Conclusion: The receipt was taxable as income and the contention that it was a capital receipt was rejected.

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