Taxability of land acquisition interest clarified: enhanced compensation interest is income from other sources after the statutory amendment.

Interest received on compensation or enhanced compensation for compulsory acquisition of land is taxable as income from other sources under section 56(2)(viii) of the Income-tax Act, 1961 after the statutory amendment. The earlier view treating such interest as part of compensation under section 45(5) was distinguished, and interest awarded under sections 28 or 34 of the Land Acquisition Act, 1894 was held assessable in the assessee's hands as income from other sources. The addition was therefore sustained and the assessment was upheld.

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

Analysis: The amended provision in section 56(2)(viii) specifically brings to tax interest received on compensation or enhanced compensation referred to in section 145A(b). The earlier view treating such interest as part of compensation under section 45(5) was distinguished in light of the statutory amendment. The cited High Court authorities were applied to hold that interest awarded under sections 28 or 34 of the Land Acquisition Act, 1894 is taxable in the hands of the assessee as income from other sources.

Conclusion: The interest on enhanced compensation was correctly assessed as income from other sources and the addition was rightly sustained, against the assessee.

Final Conclusion: The appeal failed on the sole issue and the assessment order was upheld.

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.

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