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Issues:
Taxability of interest income on enhanced compensation received by the assessee in the assessment year 1998-99. Analysis: 1. The assessee appealed against the order of the CIT (Appeals) for the assessment year 1998-99, challenging the taxability of interest income on enhanced compensation. Various grounds were raised, including denial of liability under section 147, jurisdiction of the assessment order, and taxability of interest income. 2. The case involved the acquisition of agricultural land by the LAO, HUDA, Gurgaon, with subsequent enhancement of compensation by the Addl. District and Session Judge. The enhanced compensation, along with interest, was paid to the assessee by HUDA. The Assessing Officer taxed the entire interest income in the assessment year 1998-99 based on receipt basis. 3. The CIT (Appeals) upheld the taxability of interest income, stating that when no books of account are maintained, taxability on an accrual basis does not arise. The interest received was considered compensation for loss due to land acquisition and was taxable in the year of receipt. 4. The Tribunal analyzed the taxability of interest income, emphasizing that income received as interest should be taxed in the year to which it pertains, even if received in a lump sum. Interest should be taxed on an accrual basis in the relevant years rather than in the year of receipt. 5. The Tribunal examined the Land Acquisition Act procedures and the tax treatment of interest income. It highlighted that interest on enhanced compensation accrues year after year and should be assessed in the respective years to which it pertains, as per judicial precedents. 6. The Tribunal clarified that interest income should be taxed based on accrual or receipt during the relevant previous year. The distinction between "accrue," "arise," and "is received" was explained, emphasizing the enforceable right to income for tax purposes. 7. It was established that interest accrued on compensation should be assessed in the relevant year when awarded or received by the assessee, not spread over multiple years. The Income-tax Act does not allow assessing accrued income in a different year than when it accrues. 8. Referring to judicial decisions, the Tribunal concluded that interest on enhanced compensation should be spread over the years to which it pertains, not taxed entirely in the year of receipt. The tax treatment should align with the accrual of interest income over time. 9. Consequently, the Tribunal directed the Assessing Officer to spread over the interest income over the relevant assessment years between the acquisition of land and the actual payment of enhanced compensation and interest based on accrual in each respective year. 10. Ultimately, the appeal of the assessee was allowed, and the tax treatment of interest income on enhanced compensation was clarified and adjusted according to the accrual basis over the relevant assessment years.
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