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Issues: Whether enhanced compensation and interest on enhanced compensation received on compulsory acquisition of land are taxable in the year of receipt under section 45(5) of the Income-tax Act, 1961.
Analysis: The assessment turned on the statutory scheme introduced by section 45(5), which provides for taxation of enhanced compensation on receipt basis, subject to later adjustment under section 155(16) if the amount is subsequently reduced. The decision in Ghanshyam (HUF) was applied to hold that enhanced compensation becomes taxable in the year of receipt even where appeals are pending. The same ruling was extended to interest under section 28 of the Land Acquisition Act, 1894, because that interest forms part of the enhanced compensation or accretion to value and is covered by section 45(5). The earlier view in Rama Bai was held inapplicable because it did not consider the amended provisions of section 45(5) and section 155(16).
Conclusion: Enhanced compensation and interest under section 28 of the Land Acquisition Act, 1894 were held taxable in the year of receipt under section 45(5) of the Income-tax Act, 1961, and the Revenue's appeal was allowed.
Ratio Decidendi: In cases of compulsory acquisition, enhanced compensation and interest under section 28 of the Land Acquisition Act, 1894 are taxable as deemed income in the year of receipt under section 45(5) of the Income-tax Act, 1961, subject to subsequent adjustment under section 155(16).
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