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Issues: (i) Whether interest on enhanced compensation received on acquisition of land is taxable as income from other sources under section 56(2)(viii) of the Income-tax Act, 1961, and not exempt under section 10(37); (ii) Whether the Principal Commissioner was justified in invoking section 263 of the Income-tax Act, 1961 to revise the assessment order and direct fresh assessment.
Issue (i): Whether interest on enhanced compensation received on acquisition of land is taxable as income from other sources under section 56(2)(viii) of the Income-tax Act, 1961, and not exempt under section 10(37).
Analysis: The assessment had treated the receipt as exempt on the basis of earlier authorities, but the binding jurisdictional precedent, read with the statutory amendments introduced by the Finance (No. 2) Act, 2009, clarified that interest on compensation or enhanced compensation is chargeable under the head income from other sources. The distinction drawn in earlier cases could not override the later statutory regime. The view that such receipt retained the character of compensation was therefore inconsistent with the governing law.
Conclusion: The interest on enhanced compensation is taxable as income from other sources and is not exempt under section 10(37); this issue is decided against the assessee.
Issue (ii): Whether the Principal Commissioner was justified in invoking section 263 of the Income-tax Act, 1961 to revise the assessment order and direct fresh assessment.
Analysis: Since the assessment order proceeded on a view that was contrary to the binding legal position on taxability, the order was treated as erroneous and prejudicial to the interests of the Revenue. In those circumstances, the preconditions for revision under section 263 stood satisfied, and the direction to pass a fresh assessment order was within jurisdiction.
Conclusion: Invocation of section 263 was valid and the revision order was upheld; this issue is decided in favour of the Revenue.
Final Conclusion: The assessee's challenge failed, the revisionary order was sustained, and the assessment was left to be redone in accordance with the governing tax law.
Ratio Decidendi: After the 2010 amendment, interest on compensation or enhanced compensation is statutorily taxable as income from other sources, and an assessment order taking a contrary view can be revised under section 263 if it is erroneous and prejudicial to the Revenue.
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