Land acquisition interest before award treated as capital compensation and not taxable under the compensation framework.

Interest received on compensation for compulsory acquisition of land, relating to the period before the award and before vesting in the Government, was treated as part of compensation for deprivation of property and therefore as a capital receipt not taxable. The court distinguished possession taken by agreement from possession under the statutory vesting provisions of the Land Acquisition Act, 1894, and held that the anterior-period interest retained the character of compensation. Interest relatable to the period after the award was not accepted on the same footing.

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Issues: Whether interest received on compensation for compulsory acquisition of land, for the period before the award and before vesting of the property in the Government, was capital receipt and therefore not taxable.

Analysis: The amount was paid as compensation for the deprivation of property after possession had been taken by agreement and not under the vesting provisions applicable where possession is taken under the Land Acquisition Act, 1894. Interest paid for the anterior period was treated as part of the compensation for such deprivation and not as revenue income. The distinction between statutory possession leading to vesting and possession otherwise taken was applied, and the prior period interest was held to retain the character of capital receipt. Only the amount relatable to the period after the award, when the nature of possession changed, was not accepted as capital receipt.

Conclusion: The interest received up to the date of the award was capital receipt and was not taxable; the question was answered in favour of the assessee.

Ratio Decidendi: Where possession of acquired land is taken otherwise than under the vesting provisions of the Land Acquisition Act, interest paid for the period before the award is compensation for deprivation of property and has the character of capital receipt.

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