Taxability of enhanced compensation interest under income-tax law sustained despite earlier compensation characterisation

Interest received on enhanced compensation under section 28 of the Land Acquisition Act, 1894 was treated as taxable income from other sources under section 56(2)(viii) of the Income-tax Act, 1961, with the corresponding deduction mechanism under section 57(iv). The later statutory provision was applied despite earlier authority treating section 28 interest as part of compensation, because a receipt may remain capital in character yet still be taxed by legislative fiction. On that basis, the assessment could not be said to contain a mistake apparent from the record, so rectification under section 154 was not justified and the assessee's claim for exemption failed.

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Issues: Whether interest received on enhanced compensation under section 28 of the Land Acquisition Act, 1894 was taxable as income from other sources under section 56(2)(viii) of the Income-tax Act, 1961 and, consequently, whether the assessment could be treated as suffering from a mistake warranting rectification under section 154 of the Income-tax Act, 1961.

Analysis: The interest was received on enhanced compensation and the statutory scheme inserted by Finance (No. 2) Act, 2009 specifically brought such interest within section 56(2)(viii), with a corresponding deduction under section 57(iv). The earlier ruling treating interest under section 28 of the Land Acquisition Act, 1894 as part of compensation did not displace the later taxing provision, since a receipt may retain its capital character and yet be taxable by fiction of law. The decision distinguishing section 28 interest from section 34 interest did not assist the assessee in the face of the later provisions and the assessing authority's view could not be termed a mistake apparent from the record.

Conclusion: The interest on enhanced compensation was rightly taxed under section 56(2)(viii), and no rectifiable mistake was shown in the assessment order; the challenge failed.

Final Conclusion: The assessee's claim for exemption was rejected, and the addition of interest income was sustained.

Ratio Decidendi: Interest on enhanced compensation brought within section 56(2)(viii) of the Income-tax Act, 1961 is taxable notwithstanding its linkage to compensation under the Land Acquisition Act, 1894, and such taxation cannot be reopened as a rectifiable mistake merely because an earlier decision treated the receipt as part of compensation.

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