Interest received on enhanced compensation u/s 56(2)(viii) is ...

Interest on enhanced compensation is taxable as income from other sources, not capital gains, per Income Tax Act amendment.

July 10, 2024

Case Laws     Income Tax     AT

Interest received on enhanced compensation u/s 56(2)(viii) is taxable as income from other sources and not under capital gains. The Punjab & Haryana High Court's decision in Mahender Pal Narang case that interest on compensation is taxable as income from other sources is binding on tax authorities in that jurisdiction. The PCIT rightly relied on this subsequent case law. The 2010 amendment to Sections 56(2)(viii) and 57(iv) was a conscious legislative departure from the earlier position. Interest, whether on compensation or enhanced compensation, is exigible to income tax under income from other sources as per the plain language of these provisions. The Supreme Court's decision in Sham Lal Narula that interest u/s 28 of Land Acquisition Act is not compensation still holds good. The Ghanshyam HUF case is not applicable after the 2010 amendment. The assessment order not following the jurisdictional High Court's binding precedent was erroneous and prejudicial to revenue.

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