Taxability of acquisition compensation interest turns on accrual when the right to receive it arises, not later lump-sum payment.

Interest statutorily payable on compensation for compulsory acquisition accrues when the right to receive it arises, namely on dispossession, even though the exact amount may be quantified and paid later. The receipt of a lump sum in a later assessment year does not shift accrual to the year of payment. Accordingly, the entire interest amount could not be brought to tax on a receipt basis merely because it was disbursed in the relevant assessment year; taxation had to follow the year-wise accrual of the vested right to receive the interest.

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Issues: Whether interest received on compensation for acquired land was taxable in the assessment year of receipt on a receipt basis, or whether it accrued year-wise from the date of dispossession and was therefore not wholly assessable in the year of payment.

Analysis: The compensation interest arose from statutory entitlement for the period during which the assessee was kept out of possession and deprived of both the land and its value. The right to receive such interest was held to accrue when possession was taken, though quantification depended on the ultimate fixation of compensation. Income is taxable when the right to receive it becomes vested, and the mere fact that the amount was later quantified and paid in one lump sum does not defer accrual to the year of receipt. On that basis, the whole amount could not be brought to tax merely because it was disbursed in the assessment year in question.

Conclusion: The inclusion of the entire sum of Rs. 16,460 on receipt basis for the assessment year 1961-62 was not justified, and the answer was in favour of the assessee.

Ratio Decidendi: Interest that statutorily accrues on compensation for compulsory acquisition becomes taxable in the year in which the right to receive it arises, even if its quantification and payment occur later; it cannot be taxed wholly on receipt merely because it was paid in a subsequent year.

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