Interest on enhanced compensation under Section 28 Land Acquisition Act is taxable as income from other sources

The ITAT Delhi held that interest on enhanced compensation awarded under section 28 of the Land Acquisition Act is taxable as income from other sources, following the 2010 amendment by the Finance (No.2) Act, 2009. The court affirmed the validity of this legislative change, rejecting reliance on pre-amendment Supreme Court precedent. The substantial question of law was answered in favor of the Revenue, confirming that such interest income is exigible to tax. The assessee's appeal was dismissed.

---

---

ISSUES:

Whether interest received on enhanced compensation under Section 28 of the Land Acquisition Act, 1894 is taxable as income from other sources under the Income Tax Act, 1961.Whether the interest on delayed payment of compensation/enhanced compensation is exempt under Section 10(37) of the Income Tax Act.Impact of the Finance (No.2) Act, 2009 amendments (Sections 56(2)(viii), 57(iv), and 145A(b)) on the taxability of interest received on compensation/enhanced compensation.Whether the decisions of the Hon'ble Supreme Court in CIT vs. Ghanshyam (HUF) and related cases continue to apply post the 2010 amendments.Whether the interest income should be assessed on receipt basis or on accrual basis.Whether penalty proceedings under Section 271(1)(c) are justified for concealment of income relating to interest on enhanced compensation.

RULINGS / HOLDINGS:

The interest received on enhanced compensation under Section 28 of the Land Acquisition Act is taxable as "income from other sources" under the Income Tax Act, 1961, effective from 01.04.2010, following the introduction of Sections 56(2)(viii), 57(iv), and 145A(b) by the Finance (No.2) Act, 2009.The interest on delayed payment of compensation/enhanced compensation is not exempt under Section 10(37) of the Income Tax Act, as it does not form part of the compensation for acquisition of agricultural land but is a separate revenue receipt.The amendments brought by the Finance (No.2) Act, 2009 represent a "conscious departure by the Legislature" and hold good law, rendering prior Supreme Court decisions like CIT vs. Ghanshyam (HUF) inapplicable to the post-amendment period.The interest income is taxable in the year of receipt as per Section 145A(b) of the Income Tax Act.The Assessing Officer's addition of undisclosed interest income on enhanced compensation is upheld, with allowance of 50% deduction under Section 57(iv).Penalty proceedings under Section 271(1)(c) are justified due to concealment of particulars of income relating to interest on enhanced compensation.

RATIONALE:

The Court applied the statutory framework of the Income Tax Act, 1961, particularly Sections 56(2)(viii), 57(iv), and 145A(b), introduced by the Finance (No.2) Act, 2009 effective from 01.04.2010, which explicitly tax interest received on compensation or enhanced compensation as income from other sources.Pre-amendment judicial precedents, including the Supreme Court's decision in CIT vs. Ghanshyam (HUF), were considered superseded by the legislative amendments, which clarified the tax treatment of such interest income.The Court relied on binding precedents from the Hon'ble Punjab & Haryana High Court and recent decisions of the Hon'ble Delhi High Court and ITAT benches, which uniformly held that interest on enhanced compensation is taxable under income from other sources.The Court emphasized the plain, simple, and unambiguous language of the amended provisions, rejecting any need for external aids in interpretation and confirming the taxability of interest income in the year of receipt.The Court recognized the legislative intent to treat interest on delayed or enhanced compensation distinctly from capital gains or exempt compensation, thereby affirming the revenue's position and the Assessing Officer's additions.No dissent or doctrinal shift was noted; the ruling affirmed the prevailing legal position post the 2009 amendment.

---