Taxability of enhanced compensation interest affirmed as income from other sources, with limited statutory deduction and valid reassessment.

Interest received on enhanced compensation under section 28 of the Land Acquisition Act is taxable as income from other sources under the amended Income-tax Act, with only the statutory deduction under section 57(iv) available; the Tribunal rejected the claim that it was exempt as part of compensation under section 10(37). The reassessment challenge also failed because the assessee participated in the proceedings, showed no prejudice, and established no incurable jurisdictional defect from the alleged non-compliance with section 144B(1)(iii) or non-supply of recorded reasons. The assessment and first appellate order were therefore upheld and the appeal was dismissed.

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Issues: (i) Whether interest received on enhanced compensation under section 28 of the Land Acquisition Act is taxable as income from other sources with only the statutory deduction under section 57(iv) of the Income-tax Act, 1961, or is exempt as part of compensation under section 10(37); (ii) Whether the reassessment proceedings were vitiated for alleged non-compliance with section 144B(1)(iii) and non-supply of recorded reasons.

Issue (i): Whether interest received on enhanced compensation under section 28 of the Land Acquisition Act is taxable as income from other sources with only the statutory deduction under section 57(iv) of the Income-tax Act, 1961, or is exempt as part of compensation under section 10(37).

Analysis: The Tribunal followed its coordinate Bench decision which had examined sections 56(2)(viii), 57(iv) and 145B(1) of the Income-tax Act, 1961, as amended by the Finance Act, 2009. It held that interest received on compensation or enhanced compensation is taxable in the year of receipt under the head "Income from other sources", and that the only deduction admissible is the statutory deduction of 50% under section 57(iv). The earlier Supreme Court decisions relied upon by the assessee were distinguished in light of the later statutory scheme.

Conclusion: The addition was rightly sustained and the issue was decided against the assessee.

Issue (ii): Whether the reassessment proceedings were vitiated for alleged non-compliance with section 144B(1)(iii) and non-supply of recorded reasons.

Analysis: The Tribunal found that the assessee participated in the reassessment proceedings and failed to demonstrate any prejudice. It also found no material showing an incurable jurisdictional defect in the reassessment process warranting annulment of the assessment.

Conclusion: The challenge to the reassessment proceedings failed and the issue was decided against the assessee.

Final Conclusion: The assessment and the first appellate order were upheld, and the appeal was dismissed in its entirety.

Ratio Decidendi: After the statutory amendments governing compensation-related receipts, interest on enhanced compensation is taxable as income from other sources with the limited deduction prescribed by statute, and a reassessment will not be annulled absent demonstrated prejudice or a jurisdictional defect.

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