Interest on enhanced land acquisition compensation treated as part of compensation and held not taxable as income from other sources.

Interest received on enhanced compensation for compulsory acquisition of agricultural land was held to form part of compensation, because the land acquisition statute includes enhanced compensation and interest payable thereon within compensation and grants exemption accordingly. On that basis, the receipt was not taxable as income from other sources under section 56(2)(viii) of the Income-tax Act, 1961, and the addition was unsustainable.

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Issues: Whether interest received on enhanced compensation for compulsory acquisition of agricultural land is taxable as income from other sources under the Income-tax Act, 1961.

Analysis: The interest received on enhanced compensation was treated by the assessing authority as taxable under section 56(2)(viii) of the Income-tax Act, 1961, but the governing land acquisition law expressly defines compensation to include enhanced compensation and interest payable thereon. The statutory exemption under section 96 of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013, along with the inclusive definition in section 3(i) of that Act, supports the view that such interest is part of compensation. The decision also follows the principle that interest awarded on enhanced compensation is an accretion to compensation and not a separate revenue receipt.

Conclusion: The interest on enhanced compensation was not taxable under section 56(2)(viii) of the Income-tax Act, 1961, and the addition was unsustainable; the issue is decided in favour of the assessee.

Ratio Decidendi: Interest awarded on enhanced compensation for compulsory acquisition of land forms part of compensation and, where the governing land acquisition statute grants exemption and treats interest as part of compensation, it is not taxable as income from other sources.

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