Accrual of interest on land acquisition compensation is taxable year by year when the right to receive it becomes enforceable.

Interest on compensation for acquired land accrues when the right to receive it becomes legally enforceable, not merely when it is paid. Under section 34 of the Land Acquisition Act, the taxable event is the yearly accrual of interest after deprivation of possession and non-payment of compensation, so the amount is assessable year by year as it becomes due and recoverable. Where entitlement to compensation and consequential interest has been finally settled, later interest represents separate yearly accretions rather than a single receipt in the year of payment. The method of accounting does not change this position because tax follows legal accrual, not physical receipt.

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Issues: Whether interest payable on compensation for acquired land accrued wholly in the year of receipt or accrued year by year from the date the assessee's right to receive it became legally enforceable, so as to be assessable only to the extent attributable to the relevant previous year.

Analysis: Interest under section 34 of the Land Acquisition Act becomes payable when the owner is deprived of possession and the compensation remains unpaid. The right to receive such interest is not inchoate; it accrues when the liability becomes legally enforceable. On the facts, the assessee's entitlement to compensation and consequential interest was finally settled when the High Court quashed the withdrawal notification, and the interest thereafter represented yearly accretions rather than a single receipt arising only on payment. The method of accounting did not alter this result, because the taxable event was the legal accrual of the income, not its physical receipt.

Conclusion: Only the portion of interest referable to the relevant assessment year was assessable in that year, and the balance could not be included in the assessment year in question.

Ratio Decidendi: Interest on compensation under section 34 of the Land Acquisition Act accrues when the assessee acquires a legally enforceable right to receive it, and it is taxable year by year as it becomes due and recoverable, not wholly in the year of actual receipt.

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