Taxability of land acquisition interest under amended section 56(2)(viii): interest on enhanced compensation is taxable as income from other sources.

Interest received on compensation or enhanced compensation for compulsory acquisition of land is chargeable to tax as income from other sources after the statutory insertion of section 56(2)(viii) of the Income-tax Act, 1961. Although interest on enhanced compensation had earlier been treated as part of compensation in the context of section 45(5), the amended provision specifically brings such interest within the taxable head. Interest paid under sections 28 or 34 of the Land Acquisition Act, 1894 is therefore taxable, and the claim of exemption fails.

---

---

Issues: Whether interest received on compensation or enhanced compensation for compulsory acquisition of land under the Land Acquisition Act, 1894 is taxable as income from other sources under section 56(2)(viii) of the Income-tax Act, 1961 or is exempt as part of compensation.

Analysis: The amended scheme of section 56(2) of the Income-tax Act, 1961 brings within the head "Income from Other Sources" interest received on compensation or enhanced compensation. Prior to the amendment, interest on enhanced compensation had been treated as part of compensation in the context of section 45(5), but the later statutory insertion under clause (viii) altered the tax treatment. The binding view of the jurisdictional High Court, following the amended provision, is that such interest received under sections 28 or 34 of the Land Acquisition Act, 1894 is chargeable to tax as income from other sources.

Conclusion: The addition was rightly sustained and the claim of exemption failed.

Ratio Decidendi: Interest received on compensation or enhanced compensation for land acquisition is taxable as income from other sources under section 56(2)(viii) of the Income-tax Act, 1961 after the statutory amendment.

---