Interest on enhanced compensation under the Land Acquisition Act is taxable as income from other sources, not exempt under compensation provision.

Issue concerns whether interest under section 28 of the Land Acquisition Act on enhanced compensation is exempt under section 10(37) or taxable as income from other sources under section 56(2)(viii) read with section 145B(1), and whether revisional jurisdiction was rightly exercised. The analysis applies plain statutory language to conclude interest on enhanced compensation is exigible to tax under section 56(2)(viii) read with section 145B(1); the exemption under section 10(37) covers only compensation and not interest, and the revisional authority legitimately revised the assessment as prejudicial to revenue.

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Issues: (i) Whether interest received under Section 28 of the Land Acquisition Act on enhanced compensation is taxable as "income from other sources" under Section 56(2)(viii) read with Section 145B(1) of the Income-tax Act, 1961 or exempt under Section 10(37); (ii) Whether the Principal Commissioner of Income-tax rightly invoked revisional jurisdiction under Explanation 2 to Section 263(1) to set aside the assessing officer's order.

Issue (i): Taxability of interest on enhanced compensation under Section 28 of the Land Acquisition Act.

Analysis: The statutory amendments introduced by Finance (No.2) Act, 2009 (effective 01.04.2010) inserted Clause (viii) in Section 56(2) and Section 145B(1), expressly making interest on compensation or enhanced compensation chargeable under the head "Income from other sources" and deeming such interest to be income of the year of receipt; Section 57(iv) allows a 50% deduction for income of the nature referred to in Section 56(2)(viii). Prior Supreme Court decisions treating interest under Section 28 as not part of compensation were considered in light of the 2010 legislative change; subsequent High Court and Tribunal decisions have held that the 2010 amendment altered the tax treatment so that interest on compensation/enhanced compensation is taxable as income from other sources on receipt.

Conclusion: The interest of Rs. 82,88,672 received under Section 28 on enhanced compensation is taxable as income from other sources under Section 56(2)(viii) read with Section 145B(1) and not exempt under Section 10(37); deduction under Section 57(iv) is available as applicable.

Issue (ii): Validity of exercise of revisional powers under Explanation 2 to Section 263(1).

Analysis: The assessing officer accepted the exemption claim without addressing the implications of the post-2010 amendments and without making requisite inquiries under the applicable authorities and jurisdictional High Court rulings; such lack of proper enquiry rendered the assessment order erroneous and prejudicial to revenue within the meaning of Explanation 2 to Section 263(1).

Conclusion: The revisional order under Explanation 2 to Section 263(1) setting aside the assessment for recomputation in accordance with Section 56(2)(viii) read with Section 145B(1) and Section 57(iv) is justified.

Final Conclusion: The appeal is dismissed and the revisional direction to recompute taxability of the interest on enhanced compensation in accordance with Sections 56(2)(viii), 145B(1) and 57(iv) of the Income-tax Act, 1961 is upheld.

Ratio Decidendi: Post-2010 amendments to Section 56(2)(viii) and Section 145B(1) of the Income-tax Act, 1961 make interest on compensation or enhanced compensation taxable as "income from other sources" in the year of receipt, permitting recomputation under revisional powers where the assessing officer failed to apply these provisions.

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