Taxability of interest on delayed land compensation: revenue receipt remains taxable and subject to deduction at source.

Interest on delayed payment of enhanced compensation for compulsory acquisition of agricultural land was treated as a revenue receipt, separate from the exempt character of the land itself, and therefore remained taxable. The exemption applicable to compensation for agricultural land did not extend to the interest component. The source-deduction provision governing interest income accordingly applied, so tax was deductible at source on the delayed compensation interest. The plea that the interest shared the character of agricultural income was rejected.

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Issues: Whether interest on delayed payment of enhanced compensation for compulsory acquisition of agricultural land is taxable and subject to deduction at source under the Income-tax Act, notwithstanding the exemption available to agricultural land under the provision governing compensation on acquisition of certain immovable property.

Analysis: Agricultural land was found to be excluded from the scope of the provision dealing with deduction at source on compensation for acquisition of immovable property. However, the dispute concerned only the interest paid on delayed compensation. The governing principle applied was that interest on delayed payment of compensation is a revenue receipt and not compensation for the land itself. The Court relied on the settled position that such interest is exigible to income-tax under the charging provision, and that the source-deduction provision applicable to interest income governs the payment. The character of the principal compensation as arising from agricultural land did not extend to the interest component.

Conclusion: The interest received on delayed enhanced compensation was held taxable and liable to deduction at source. The plea that it partook of the character of agricultural income was rejected.

Final Conclusion: The petition was dismissed, and the demand of tax deducted at source on the interest component was sustained.

Ratio Decidendi: Interest paid for delayed compensation on acquisition of land is a revenue receipt exigible to tax, and its taxability is independent of the exemption applicable to the underlying agricultural land.

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