Taxability of interest on land acquisition compensation turns on the acquisition regime and binding CBDT instructions.

Interest paid up to the date of award on compensation for land acquired otherwise than under the Land Acquisition Act, 1894 may form part of the compensation and be treated as a capital receipt, while interest in acquisition cases under the Land Acquisition Act is taxable as income. The Tribunal noted that CBDT instructions on the subject are binding on income-tax authorities. On the facts stated, the ex parte assessments and appellate orders were set aside and the matters were restored to the Assessing Officer for fresh consideration in accordance with law.

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Issues: Whether the ex parte assessments and the appellate orders assessing interest on compensation for acquired agricultural land were liable to be set aside and restored for fresh consideration in light of the applicable CBDT instruction and the nature of the receipt.

Analysis: The receipt in question arose from delayed payment of compensation for land acquired otherwise than under the Land Acquisition Act, 1894. The ruling distinguished the line of authority where possession is taken under the Land Acquisition Act, in which case interest is taxable as income, from cases where possession is taken under a different legal regime or by agreement, where interest up to the date of award forms part of the compensation and is treated as capital receipt. The Tribunal also noted that CBDT instructions issued on the subject are binding on the income-tax authorities. In the facts before it, both sides sought restoration to the Assessing Officer, and the record showed that in a similar case fresh assessment had already treated the amount up to the date of award as capital receipt.

Conclusion: The ex parte assessments and the appellate orders were set aside and the matters were restored to the Assessing Officer for fresh decision in accordance with law.

Final Conclusion: The appeals succeeded only to the extent of remand, leaving the taxability issue to be reconsidered afresh by the Assessing Officer.

Ratio Decidendi: Where land is acquired otherwise than under the Land Acquisition Act, 1894, interest paid up to the date of award may partake of the character of compensation and be treated as capital receipt, and binding CBDT instructions must be given effect by the income-tax authorities.

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