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Issues: (i) Whether interest received under section 28 of the Land Acquisition Act, 1894 on enhanced compensation for compulsory acquisition of agricultural land was exempt under section 10(37) of the Income-tax Act, 1961 or taxable under section 56(2)(viii) read with section 145B(1) of the Income-tax Act, 1961. (ii) Whether the Principal Commissioner of Income-tax validly invoked section 263 of the Income-tax Act, 1961 on the ground that the assessment order was erroneous and prejudicial to the interests of the revenue.
Issue (i): Whether interest received under section 28 of the Land Acquisition Act, 1894 on enhanced compensation for compulsory acquisition of agricultural land was exempt under section 10(37) of the Income-tax Act, 1961 or taxable under section 56(2)(viii) read with section 145B(1) of the Income-tax Act, 1961.
Analysis: The post-2010 statutory scheme specifically brings interest on compensation or enhanced compensation within the head "Income from other sources" through section 56(2)(viii) and deems such interest to be income of the year of receipt under section 145B(1). Section 10(37) applies to capital gains arising from transfer of agricultural land and does not extend to interest on compensation. Earlier authority treating interest under section 28 as part of enhanced compensation was held inapplicable to the amended regime. Binding High Court decisions were relied upon to hold that the amendment effected a conscious legislative departure and that the interest is taxable on receipt basis.
Conclusion: The receipt was taxable under section 56(2)(viii) read with section 145B(1) and was not exempt under section 10(37); the finding is against the assessee.
Issue (ii): Whether the Principal Commissioner of Income-tax validly invoked section 263 of the Income-tax Act, 1961 on the ground that the assessment order was erroneous and prejudicial to the interests of the revenue.
Analysis: Since the Assessing Officer accepted exemption on an incorrect understanding of the law and without proper inquiry into the amended statutory position and binding jurisdictional precedent, the assessment order was treated as both erroneous and prejudicial to the revenue. The absence of lawful inquiry and disregard of binding decisions justified revision under section 263, including the application of the Explanation concerning erroneous orders.
Conclusion: The revisionary jurisdiction under section 263 was validly assumed; the finding is in favour of the Revenue.
Final Conclusion: The assessment could not be sustained, and the revisionary order was upheld, leaving the assessee without relief.
Ratio Decidendi: After the 2010 amendment, interest on compensation or enhanced compensation is taxable as income from other sources on receipt basis, and an assessment accepting exemption contrary to the amended law and binding precedent is erroneous and prejudicial to the revenue, warranting revision under section 263.
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