Taxability of enhanced compensation interest and valid section 263 revision upheld under the post-amendment income-tax regime.

Interest received on compensation or enhanced compensation under section 28 of the Land Acquisition Act is taxable, after the post-amendment scheme of the Income-tax Act, as income from other sources in the year of receipt; the earlier Ghanshyam HUF view does not apply to that regime. An assessment that ignores this binding legal position is erroneous and prejudicial to the interests of revenue, so revision under section 263 is valid where the statutory conditions, including the deeming provision in Explanation 2, are met. The assessee therefore obtained no relief.

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Issues: (i) Whether interest received on compensation or enhanced compensation under section 28 of the Land Acquisition Act, 1894, after the insertion of section 56(2)(viii), section 57(iv), section 145A(b) and section 145B of the Income-tax Act, 1961, is taxable as income from other sources. (ii) Whether the Principal Commissioner was justified in invoking section 263 of the Income-tax Act, 1961, and setting aside the assessment as erroneous and prejudicial to the interests of revenue.

Issue (i): Whether interest received on compensation or enhanced compensation under section 28 of the Land Acquisition Act, 1894, after the insertion of section 56(2)(viii), section 57(iv), section 145A(b) and section 145B of the Income-tax Act, 1961, is taxable as income from other sources.

Analysis: The amended scheme of the Income-tax Act treats interest on compensation or enhanced compensation as income of the year of receipt and brings it under the head income from other sources. The earlier view in Ghanshyam HUF was held not to govern the post-amendment position. Binding decisions of the jurisdictional High Court were taken to establish that such interest is taxable notwithstanding the assessee's reliance on the compensatory character of the receipt.

Conclusion: The interest on enhanced compensation is taxable as income from other sources.

Issue (ii): Whether the Principal Commissioner was justified in invoking section 263 of the Income-tax Act, 1961, and setting aside the assessment as erroneous and prejudicial to the interests of revenue.

Analysis: Once the assessment order failed to follow the binding legal position applicable to the post-2010 regime, it was exposed as an erroneous order causing prejudice to revenue. The conditions for revision under section 263, including the deeming rule in Explanation 2, were satisfied because the assessment was made on an incorrect appreciation of law and contrary to binding precedent.

Conclusion: The revision under section 263 was validly invoked and the assessment order was rightly set aside.

Final Conclusion: The appeal failed, and the revisional order was sustained with the consequence that the assessee obtained no relief.

Ratio Decidendi: For assessment years governed by the post-amendment provisions, interest on compensation or enhanced compensation is taxable as income from other sources, and an assessment ignoring the binding legal position is erroneous and prejudicial to the interests of revenue for the purposes of section 263.

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