Section 28 land acquisition interest treated as part of enhanced compensation, not taxable as separate interest income.

Interest awarded under section 28 of the Land Acquisition Act on enhanced compensation was treated as an accretion to the value of the acquired land and, therefore, part of the compensation itself. The distinction drawn from section 34 interest remained material: section 34 interest compensates for delay in payment, while section 28 interest follows the enhanced value awarded for the land. The deeming provisions in section 145A(b) and section 56(2)(viii) of the Income-tax Act did not change the inherent character of section 28 interest, so it was not taxable as separate interest income.

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Issues: Whether interest awarded under section 28 of the Land Acquisition Act on enhanced compensation forms part of the compensation and is therefore not taxable, notwithstanding the amendments introducing section 145A(b) and section 56(2)(viii) of the Income-tax Act, 1961.

Analysis: The dispute concerned the character of interest awarded under section 28 of the Land Acquisition Act, as distinct from interest under section 34. Section 28 interest was held to be an accretion to the value of the acquired land and part of enhanced compensation, whereas section 34 interest was treated as compensation for delay in payment. The decision followed the principle that the nature of the receipt depends on the purpose for which it is awarded, and that the amendments deeming interest on compensation to be taxable do not alter the character of section 28 interest when it forms part of the compensation itself.

Conclusion: Interest awarded under section 28 of the Land Acquisition Act on enhanced compensation was held to be part of compensation and not taxable under the amended provisions of the Income-tax Act, 1961.

Ratio Decidendi: Interest awarded under section 28 of the Land Acquisition Act, being an accretion to the value of the acquired land and part of enhanced compensation, does not assume the character of taxable interest merely because of the deeming provisions governing interest on compensation.

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