Taxability of enhanced compensation interest turns on accrual, with section 28 interest taxed in the years it relates to.

Interest awarded on enhanced compensation under section 28 of the Land Acquisition Act, 1894 was treated as compensation for delayed payment, analogous to interest under section 34, and not as income taxable only on receipt. Because the right to receive such interest accrued over the period for which possession was with the acquiring authority, the amount had to be attributed to the relevant years of accrual and taxed accordingly. Where two reasonable views were possible, the construction favourable to the assessee was preferred. The interest was therefore taxable on accrual basis in the years to which it related, not wholly in the year of receipt.

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Issues: Whether interest received on enhanced compensation under section 28 of the Land Acquisition Act, 1894 was taxable in the year of receipt or had to be spread over the period to which it related and taxed on accrual basis.

Analysis: The interest awarded under section 28 was treated as analogous to interest under section 34, both being compensation for withholding the amount payable to the landowner after possession was taken. The Court relied on the nature of such interest as compensation for delayed payment and on the view that, where the right to receive the interest accrued over time, its attribution could not be confined to the year of actual receipt. The Court also preferred the construction favourable to the assessee where two reasonable views were possible.

Conclusion: The interest was liable to tax on accrual basis in the relevant years to which it related and not wholly in the year of receipt, in favour of the assessee.

Ratio Decidendi: Interest awarded on enhanced compensation under section 28 of the Land Acquisition Act, 1894 is taxable as income in the year or years of accrual, since it represents compensation for delayed payment rather than a sum taxable only on receipt.

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