Taxability of interest on enhanced compensation: amended income-tax provisions bring such receipts to tax on receipt, despite land-acquisition source.

Interest received on compensation or enhanced compensation arising from compulsory acquisition is chargeable to tax as income from other sources in the year of receipt under the amended scheme of Sections 56(2)(viii), 57(iv) and 145B of the Income-tax Act, 1961, with only the limited deduction permitted by law. The distinction between interest under Section 28 and Section 34 of the Land Acquisition Act, 1894 does not prevent taxation under the amended provisions. The article also notes that exemption under Section 10(37) is not available merely because the underlying land was agricultural, where the interest component is specifically brought to tax.

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Issues: Whether interest received on enhanced compensation under Section 28 of the Land Acquisition Act, 1894 was taxable as income from other sources under Section 56(2)(viii) of the Income-tax Act, 1961, and whether exemption under Section 10(37) of the Income-tax Act, 1961 was available.

Analysis: The interest in question arose from enhanced compensation received on compulsory acquisition of land. The Tribunal noted the post-amendment scheme of Sections 56(2)(viii), 57(iv) and 145B of the Income-tax Act, 1961, under which interest received on compensation or enhanced compensation is specifically brought to tax under the head income from other sources in the year of receipt, with a limited deduction of fifty per cent. It further relied on the jurisdictional High Court decision holding that, after the 2010 amendment, interest on compensation or enhanced compensation is exigible to tax and is not to be treated as exempt merely because the underlying land was agricultural. The distinction between interest under Section 28 and Section 34 of the Land Acquisition Act, 1894 did not alter the taxability in view of the amended provisions.

Conclusion: The interest on enhanced compensation was held taxable under Section 56(2)(viii) of the Income-tax Act, 1961 and the claimed exemption was rejected.

Ratio Decidendi: After the insertion of Section 56(2)(viii) read with Section 145B and Section 57(iv) of the Income-tax Act, 1961, interest received on compensation or enhanced compensation is chargeable to tax as income from other sources in the year of receipt, notwithstanding its source in Section 28 of the Land Acquisition Act, 1894.

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