Interest on land acquisition compensation treated as part of compensation, not taxable as separate income.

Interest received on delayed compensation for compulsory acquisition of agricultural land was treated as part of the compensation itself, because the amount arose under sections 28 and 34 of the Land Acquisition Act and retained the character of the principal award. On that basis, it was held not to be independent interest income taxable under section 56(2)(viii) of the Income-tax Act, 1961. The receipt was regarded as an accretion to compensation, and the assessee was entitled to exemption under section 10(37) in relation to the agricultural land acquisition.

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Issues: Whether interest received on compensation for compulsory acquisition of agricultural land is taxable as interest income under section 56(2)(viii) of the Income-tax Act, 1961, or forms part of the compensation eligible for exemption under section 10(37) of the Income-tax Act, 1961.

Analysis: The compensation arose from compulsory acquisition of agricultural land used for agricultural purposes. The interest component on delayed payment of compensation under sections 28 and 34 of the Land Acquisition Act was held to partake the character of the principal compensation itself. Such receipt was treated as an accretion to compensation and not as independent interest income within the meaning of section 56 of the Income-tax Act, 1961. In the absence of any contrary jurisdictional authority, the addition could not be sustained.

Conclusion: The interest received on compensation was not taxable under section 56(2)(viii) of the Income-tax Act, 1961 and the assessee was entitled to the benefit of section 10(37) of the Income-tax Act, 1961.

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