2008 (10) TMI 434 - HC - Income Tax

Interest on compensation - interest granted to the land owner under Section 28 of the Land Acquisition Act, 1894 on the enhanced amount of compensation Held that - Interest payable under Section 28 of the Land Acquisition Act, 1894 is a part of compensation and is not interest at all and therefore, must be taxed as compensation. - interest is not taxable on year to year basis or in the year in which the amount is actually credited to the landowner. Decision of Apex Court in Commissioner of Income Tax, Faridabad versus Ghanshyam, (HUF), ( 2009 (7) TMI 12 - SUPREME COURT

Summary

Issues:
Calculation of interest under Section 28 of the Land Acquisition Act, 1894 for tax purposes.

Analysis:
1. The main issue in this case revolves around the calculation of interest granted to the landowner under Section 28 of the Land Acquisition Act, 1894 for tax computation. The question arises whether the interest should be calculated on a year-to-year basis or in the year when the amount is actually credited to the landowner.

2. The judgment highlights that the interest payable under Section 28 of the Land Acquisition Act is considered a part of compensation and not interest as traditionally understood. The Supreme Court's ruling emphasizes that interest under Section 28 is an accretion to the value of the land acquired and forms part of the enhanced compensation or consideration, unlike interest under Section 34 which is solely for delay in payment after the compensation amount is determined.

3. Referring to the case law of Commissioner of Income Tax, Faridabad versus Ghanshyam, the Supreme Court clarified the distinction between interest and compensation. It was emphasized that interest under Section 28 is part of the enhanced value of the land and is to be taxed in the year of receipt. The judgment further explains that even in cases where the claimant withdraws the enhanced compensation pending appeal, it is still liable to be taxed under Section 45(5) of the Income Tax Act, 1961.

4. The conclusion drawn from the Apex Court's judgment is that the amount granted under Section 28 of the Land Acquisition Act is to be treated as part of compensation itself and not as interest. Therefore, the question of law regarding the calculation of interest for tax purposes does not hold significance anymore. The appellate court has disposed of the appeal in accordance with the Supreme Court's decision, directing the Assessing Officer to proceed accordingly without any costs imposed.