1.2 Before the introduction of Sec. 45(5) from the A.Y. 1988-89 [Pre-1988 Law], the Apex Court in the case of Hindustan Housing Land Development Trust Limited [161 ITR 524] had taken a view that such receipt of disputed Enhanced Compensation cannot be taxed in the year of receipt on the grounds that the same has not accrued to the assessee as the amount awarded is disputed by the Government in the final appeal.
1.3 To resolve the above issue, Sec. 45(5) was introduced from the A.Y. 1988-89, which, effectively, provided that where the capital gain arises on account of compulsory acquisition on account of transfer of such assets for which the consideration was determined or approved by the Central Government or the Reserve Bank of India [RBI] and the compensation or the consideration for such transfer is enhanced or further enhanced [Enhanced Compensation] by any court etc., the capital gain computed at the first instance based on the original compensation [or consideration originally determined or approved by the Central Government/RBI] is chargeable to tax in the previous year of receipt of such Enhanced Compensation or part thereof. It is also provided that if any such Compensation is enhanced or further enhanced by the Court etc., then the amount of such Enhanced Compensation shall be deemed to be income chargeable as capital gain of the previous year in which such enhanced amount is received by the assessee [Post-1988 Law].
1.4 As mentioned earlier, in many cases, such enhanced amount is disputed by the payer before the higher authority/court etc. and the amount of such disputed compensation is deposited with the Court and the assessee, in most cases, is allowed to withdraw the same on furnishing some security such as bank guarantee etc. or even without that [Disputed Enhanced Compensation]. The amendment of 1988 was primarily made to resolve the issue of the year of taxability of such Disputed Enhanced Compensation. However, various Benches of the Tribunal as well as various High Courts, even under Post-1988 Law, followed the principle laid down in the judgment of the Apex Court in the above referred case of Hindustan Housing & Land Development Trust Limited [hereinafter referred to as Hindustan Housing’s case] and took the view that unless the Enhanced Compensation is received without any embargo, leaving thereby no scope or likelihood of returning the same, such Disputed Enhanced Compensation cannot be taxed in the year of receipt. Some contrary views were also found on this issue. Accordingly, by and large, in spite of the introduction of section 45(5), the issue with regard to receipt of Disputed Enhanced Compensation continued and was under debate.
1.5 The above issue had become very relevant from the assessees’ point of view because if such Disputed Enhanced Compensation is taxed in the year of receipt and subsequently, the amount of such Compensation gets reduced on account of any order of the higher authority/court etc. and if, the assessee is required to refund the excess amount received by him, then there was no specific mechanism in the Income-Tax Act [the Act], whereby the effect of such reduction in the amount of such Enhanced Compensation can be given in the assessment of the assessee. To address this issue, the Finance Act, 2003 introduced Clause (c) in section 45(5) and section 155(16) [w.e.f. A.Y. 2004-05] to provide that in such an event, a proper rectification will be carried out in the assessment of relevant assessment year, in which such Disputed Enhanced Compensation was taxed on account of the receipt thereof [Post-2003 Law].
1.6 After the amendment made in Sec.45(5) by the Finance Act, 2003, the issue referred to in Para 1.4 was considered by the Special Bench of ITAT (Delhi) in the case of Kadam Prakash – HUF [10 SOT 1] in the context of the assessment year prior to A.Y. 2004-05 under the Post-1988 Law. In this case, the Special Bench of ITAT considered the effect of amendment of 2003 and took the view that such Disputed Enhanced Compensation can be taxed in the year of receipt and the amendment of 2003 will also apply to earlier years. At that time, it was felt that perhaps the issue should now be treated as almost settled. However, as it happens, subsequently, the Madras High Court in the case of Anil Kumar Firm [HUF] and connected appeals [289 ITR 245] had an occasion to consider the issue referred to in Para 1.4 above. In that case, even after noticing the amendment of 2003, the High Court still took the view that such Disputed Enhanced Compensation cannot be taxed in the year of receipt. On the other hand, the Kerala High Court in the case of C.P. Jacob [174 Taxman 154] took a contrary view and went a step further and held that even without the aid of amendment of 2003, the assessee is entitled to get assessment rectified, if additional compensation assessed on receipt basis is ordered to be repaid in appeal by the Court. According to the Kerala High Court, the assessee was not without remedy, if an additional compensation received through the Court would have been cancelled or reduced in further appeals by the Court and the final judgment in the matter of compensation was delivered by the Court beyond the period of limitation provided for rectification of an assessment. According to the Kerala High Court, the assessee, in such cases, is not helpless because as a last resort, the assessee can approach the High Court under Article 226 of the Constitution to redress his grievance against the judgment. Accordingly, the Kerala High Court took the view that it is clear from section 45(5) [i.e. Pre-2004 Law] that the statute provides for assessment of such capital gain in the acquisition proceedings on receipt basis and such Disputed Enhanced Compensation can be taxed in the year of receipt. Under the circumstances, the issue with regard to year of taxability of receipt of Disputed Enhanced Compensation continued.
1.7 Recently, the Apex Court had an occasion to consider the issue referred to in Para 1.6 in the case of Ghanshyam [HUF] in the context of A.Y. 1999-2000 and other appeals under the Pre-2003 Law and the issue was decided. Considering the importance of the issue which is under debate for a long time, it is thought fit to consider this judgment in this column.
CIT vs Ghanshyam (HUF) – 315 ITR 1 (SC)
2.1 The issue referred to in Para 1.6 above came up for consideration before the Apex Court in the above case in the context of A.Y. 1999-2000. In the above case, brief facts were: The assessee’s land was acquired by Haryana Urban Develop-ment Authority (HUDA) and the issue with regard to Enhanced Compensation was in dispute and pending before the High Court. In terms of the Interim Order of the High Court, the assessee had received the Enhanced Compensation of Rs.87, 13,517 and the interest thereon of Rs.1, 47,575 during the previous year relevant to the A.Y. 1999-2000 on furnishing the requisite security. While furnishing the return of income, the assessee took the stand that as the entire amount was in dispute before the High Court in the appeal filed by the State, the amount of Enhanced Compensation received had not accrued during the year of receipt and accordingly, the receipt of such Disputed Enhanced Compensation and interest thereon was not taxable during the Asst. Year 1999-2000. The Assessing Officer [A.O.] took the view that on account of provisions of section 45 (5), the amount so received by the assessee was taxable. The First Appellate Authority accepted the claim of the assessee, relying on the judgment of the Apex Court in Hindustan Housing’s case [supra] and the Appellate Tribunal also decided the issue in favour of the assessee. When the matter came up before the Punjab and Haryana High Court, the Courts took the view that the case of the assessee is squarely covered by the judgment of the Apex Court in Hindustan Housing’s case [supra]. According to the High Court, when the State is in appeal against the order of the Enhanced Compensation and interest thereon, the receipt of such amounts is not taxable as income as the said two items are disputed by the Government in appeal. On these facts, the matter came up before the Apex Court at the instance of the Revenue along with other similar appeals.
2.2 After referring to the facts of the above case, the Court noted that the short question to be decided in this batch of Civil Appeals is as under:
"Whether the Income-tax Appellate Tribunal was right in ordering the deletion of the enhanced compensation and interest thereon from the total income of the assessee on the ground that the said two items, awarded by the reference court, were under dispute in first appeal before the High Court".
2.3 To decide the issue, the Court referred to the definition of the term, ‘transfer’ contained in section 2(47) as well as the provisions of section 45(1). The Court also referred to the provisions contained in section 45(5) under the Pre-2003 Law as well as the Post-2003 Law. The Court also noted the provisions of section 155(16) introduced by the Finance Act, 2003 referred to in para 1.5 above. After referring to these provisions and conditions for the chargeability of the amount under the head ‘Capital Gains’, the Court stated that the Capital Gain is an artificial income. From the scheme of section 45, it is clear that Capital Gain is not an income which accrues from day-to-day during the specific period, but it arises at a fixed point of time, namely, on the date of transfer. According to the Court, Sec.45 defines Capital Gains. It makes them chargeable to tax and it allots an appropriate year for such charge and section 48 lays down the mode of computation of Capital Gains and deductions therefrom.
2.4 After referring to the basic scheme with regard to the taxation of Capital Gains, the Court referred to the historical background and reasons for which section 45(5) was inserted by the Finance Act, 1987 [w.e.f. 1.4.1988]. The Court noted that Capital Gains arising on transfer of capital asset are chargeable in the year of transfer of such asset. However, it was noticed that in cases of compulsory acquisition of assets, the additional compensation stood awarded in several stages by different appellate authorities, which necessitated rectification of the original assessment at each stage as provided in section 155(7A). It was also noticed that the repeated rectification of assessment on account of Enhanced Compensation by different courts often resulted in mistakes in computation of tax. Therefore, with a view to removing these difficulties, the Finance Act, 1987 inserted section 45 (5) for taxation of such additional compensation in the year of receipt instead of in the year of transfer of the capital asset. Accordingly, such additional compensation is treated as deemed income in the hands of the recipient, even if the actual recipient happens to be a person different from the original transferor by reason of death, etc. For this purpose, the cost of acquisition in the hands of the receiver of additional compensation is deemed to be nil. The Court also noted the insertion of section 54H by the Finance Act, 1991, which effectively provides for reckoning the time limit for making requisite investments for claiming certain exemptions from the date of receipt of such compensation, instead of from the date of transfer as provided in various sections referred to in section 54H. The Court also referred to Circular No.621 dated 19.12.1991 [195 ITR (St) 154, 171] explaining the effect of such amendments.
2.5 The Court, then summarized the overriding effect of the provisions of section 45 (5) and stated that in situations covered by section 45(5), from A.Y. 1988-89, the gain is to be dealt with as under [page 11]:
"(a) the Capital Gain computed with reference to the compensation awarded in the first instance or, as the case may be
- the consideration determined or approved in the first instance by the Central Government or the Reserve Bank of India is chargeable as income under the head "Capital Gains" of the previous year, in which such compensation or part thereof, or such consideration or part thereof, was first received; and
(b) the amount by which the compensation or consideration is enhanced or further enhanced by the Court, Tribunal or other authority is to be deemed to be the income chargeable under the head "Capital Gains" of the previous year in which such an amount is received by the assessee.
2.6 The Court, then, proceeded to analyse the relevant provisions of the Land Acquisition Act, 1894 [L.A. Act]. The Court noted the provisions of section 23(1) and stated that the same provide for determining the amount of compensation on the basis of market value of the land on the date of publication of the relevant notification for acquisition and other matters to be considered for determining such amount. Referring to section 23(1A), which provides for payment, in addition to the market value of the land, of an additional amount @12% per annum of such market value for a period from the date of publication of notification to the date of award of compensation by the Collector or to the date of taking possession of the land, whichever is later. According to the Court, this is provided to mitigate the hardship to the owner, who is deprived of his enjoyment by taking possession from him and using it for public purposes, because of considerable delay in making the award and offering payment thereof. This additional amount payable u/s. 23(1A) of the L.A. Act is neither interest nor solatium. It is an additional compensation, which compensates the owner of the land for the rise in price during the pendency of the acquisition proceedings. It is a measure to offset the effect of inflation and continuous rise in the value of the property. This represents the additional compensation and has to be reckoned with as part of the market value of the land, which is to be paid in every case. The Court then noted Sec. 23(2) of the L.A. Act, which, in substance, provides that the Court shall in every case award, in addition to the market value of the land, a sum of 30% of such market value in consideration of the compulsory acquisition of the land. In short, it talks about the solatium. The award of solatium as well as the payment of additional amount u/s 23(1A) are mandatory.
2.6.1 The Court, then, noted the provisions of section 28 and section 34, which provide for interest payable under L.A. Act. The Court then explained that section 28 applies when the amount originally awarded has been paid or deposited and when the Court awards excess amount [i.e. Enhanced Compensation]. Section 28 empowers the Court to award interest on excess amount awarded by it [i.e. Enhanced Compensation] over the compensation awarded by the Collector. The Court also stated that such Enhanced Compensation also includes additional amount payable u/s. 23(1A) and the solatium payable u/s. 23(2) of the L.A. Act. The interest on such Enhanced Compensation becomes payable u/s. 28 if, the Court awards interest under that section. Award of interest u/s. 28 is not mandatory, but is left to the discretion of the Court. section 28 does not apply to the cases of undue delay in making award for compensation; it only applies to the amount of Enhanced Compensation. The Court also noted that such interest is different from compensation as held by the Apex Court in the cases of Ramchand vs Union of India [(1994) 1 SCC 44 and Shri Vijay Cotton and Oil Mills Limited (1994) 1 SCC 262]. The Court also noted the provision for interest payable u/s. 34 of the L.A. Act, which effectively provides for payment of interest at the specified rate for delay in payment of compensation after taking possession of the land.
2.6.2 Having analysed the above referred provisions of the L.A. Act, the Court stated as under [pages 14-15]:
"To sum up, interest is different from compensation. However, interest paid on the excess amount under section 28 of the 1894 Act depends upon a claim by the person, whose land is acquired whereas interest under section 34 is for delay in making payment. This vital difference needs to be kept in mind in deciding this matter. Interest under section 28 is part of the amount of compensation, whereas interest under section 34 is only for delay in making payment after the compensation amount is determined. Interest under section 28 is a part of the enhanced value of the land, which is not the case in the matter of payment of interest under section 34".
2.6.3 Finally, the Court summarised the relevant provisions of the L.A. Act as under [page 15]:
"It is clear from a reading of section 23(1A), 23(2) as also section 28 of the 1894 Act that additional benefits are available on the market value of the acquired lands under section 23(1A) and 23(2), whereas section 28 is available in respect of the entire compensation. It was held by the Constitution Bench of the Supreme Court in Sunder vs Union of India [2001] 7 SCC 211, that "indeed the language of section 28 does not even remotely refer to market value alone and in terms, it talks of compensation or the sum equivalent thereto. Thus, interest awardable under section 28, would include within its ambit, both the market value and the statutory solatium. It would be thus evident that even the provisions of section 28 authorise the grant of interest on solatium as well". Thus, "solatium" means an integral part of compensation, interest would be payable on it. Section 34 postulates award of interest at 9 per cent per annum from the date of taking possession only until it is paid or deposited. It is a mandatory provision. Basically section 34 provides for payment of interest for delayed payment."
2.7 After considering and analysing the effect of the relevant provisions of the L.A. Act, the Court proceeded to consider the taxability of amount received with reference to the provisions of section 45(5) of the Act. For this purpose, the Court then noted as under [page 15]:
"The question before this Court is: whether additional amount under section 23(1A), solatium under section 23(2), interest paid on excess compensation under section 28 and interest under section 34 of the 1894 Act could be treated as part of the compensation under section 45(5) of the 1961 Act? "
2.8 The Court then proceeded to consider the relevance and effect of Hindustan Housing’s case on which heavy reliance was placed by the representatives of the assessees as well as by the High Court and the appellate authorities. The Court noted that in that case, after awarding the original compensation, the Enhanced Compensation was granted with interest by an award of arbitrator, against which the State Government was in appeal. Pending the appeal, the State Government deposited in the Court an additional amount of award [including interest] and the assessee was permitted to withdraw the same on furnishing the security bond for refunding the amount in the event of the said appeal of the Government being allowed. The issue of taxability of this amount in the A.Y. 1956-57 had come up for consideration. On these facts, the Court had taken a view that since the entire amount was in dispute in the appeal filed by the State Government, there was no absolute right to receive the amount at that stage. If the appeal was to be allowed in its entirety, right to payment of Enhanced Compensation would have fallen altogether. Accordingly, it was held that the amount so received was not income accrued to the assessee during the previous year, relevant to the A.Y. 1956-57.
2.8.1 Explaining the effect of Hindustan Housing’s case on the issue before the Court, the Court stated that the said judgment was delivered on 29th July, 1986 under the Pre-1988 Law, i.e. before the introduction of the provisions of Sec.45(5) of the Act. The Court also stated that the said judgment was delivered in the context of the Income-Tax Act, 1922 [1922 Act], when the definition of the term ‘transfer’ in section 12B did not contain a specific reference to compulsory acquisition. According to the Court, after the insertion of section 45(5), a totally new scheme stood introduced keeping in mind the compulsory acquisition, where the compensation is payable at multiple stages and the amount has been withdrawn and used by the assessee for several years pending the litigation. Accordingly, the Court took the view that the judgment of the Apex Court in Hindustan Housing’s case is not applicable to the present case.
2.9 The Court then proceeded to consider the taxability of receipt of such amount under the Post-1988 Law, independent of the judgment of the Apex Court in Hindustan Housing’s case. For this purpose, the Court referred to the provision of section 45(5) as introduced by the Finance Act, 1987 [i.e. Post-1988 Law] and noted that under the said provisions, the Enhanced Compensation is to be deemed as income of the recipient of the previous year of receipt. The Court then explained the effect of the provisions of section 45(5) and the issue to be decided by the Court in that context as under [page 17]:
"Two aspects need to be highlighted. Firstly, section 45(5) of the 1961 Act deals with transfer(s) by way of compulsory acquisition and not by way of transfers by way of sales, etc., covered by section 45(1) of the 1961 Act. Secondly, section 45(5) of the 1961 Act talks about enhanced compensation or consideration, which in terms of L.A. Act, 1894, results in payment of additional compensation.
The issue to be decided before us – what is the meaning of the words "enhanced compensation/consideration" in section 45(5) (b) of the 1961 Act? Will it cover "interest"? These questions also bring in the concept of the year of taxability".
2.10 The Court then again referred to the relevant provisions of the L.A. Act and the impact thereof as explained earlier [para 2.6 above]. The Court then stated as under [page 18]:
"….. It is equally true that section 45(5) of the 1961 Act refers to compensation. But, as discussed hereinabove, we have to go by the provisions of the 1894 Act, which awards "interest" both as an accretion in the value of the lands acquired and interest for undue delay. Interest under section 28, unlike interest under section 34, is an accretion to the value; hence, it is a part of enhanced compensation or consideration, which is not the case with interest under section 34 of the 1894 Act. So, also additional amount under section 23(1A) and solatium under section 23(2) of the 1894 Act forms part of enhanced compensation under section 45(5) (b) of the 1961 Act … "
2.11 The Court then considered the argument on behalf of the assessee that section 45(5) (b) of the Act deals only with reworking and its object is not to convert the amount of Enhanced Compensation into deemed income in the year of the receipt. Rejecting this argument, the Court stated that an overriding provision in the form of section 45(5) was inserted in the Post-1988 Law to treat the receipt of such Disputed Enhanced Compensation as deemed income and tax the same on receipt basis. This position gets further support from the insertion of clause (c) in section 45(5) and section 155(16) by the Finance Act, 2003. While concluding that the receipt of such Disputed Enhanced Compensation is taxable in the year of receipt, the Court finally held as under [page 19]:
"… Hence, the year in which enhanced compensation is received is the year of taxability. Consequently, even in cases where pending appeal, the court/ Tribunal/authority before which appeal is pending, permits the claimant to withdraw against security or otherwise the enhanced compensation (which is in dispute), the same is liable to be taxed under section 45(5) of the 1961 Act. This is the scheme of section 45(5) and section 155(16) of the 1961 Act. We may clarify that even before the insertion of section 45(5)(c) and section 155(16) with effect from April 1, 2004, the receipt of enhanced compensation under section 45(5)(b) was taxable in the year of receipt, which is only reinforced by insertion of clause (c) because the right to receive payment under the 1894 Act is not in doubt…"
2.12 Since the Court has explained the nature of interest u/s. 28 and section 34 of the L.A. Act and drawn a distinction between the two [referred to in paras 2.6.2 and 2.6.3], the Court noted the practical difficulties which are likely to be faced in giving effect to its judgment in the old matters under consideration. In view of this, the Court also directed not to carry out re-computation on the basis of this judgment, particularly in the context of interest under two different provisions of the L.A. Act and stated under [page 19]:
"Having settled the controversy going on for the last two decades, we are of the view that in this batch of cases which relate back to the assessment years 1991-92 and 1992-93, possibly the proceedings under the Land Acquisition Act, 1894, would have ended. In a number of cases, we find that proceedings under the 1894 Act have been concluded and taxes have been paid. Therefore, by this judgment, we have settled the law but we direct that since matters are a decade old and since we are not aware of what has happened in the Land Acquisition Act proceedings in pending appeals, the recomputation on the basis of our judgment herein, particularly in the context of type of interest under section 28 vis-à-vis interest under section 34, additional compensation under section 23(1A) and solatium under section 23(2) of the 1894 Act, would be extremely difficult after all these years, will not be done ".
Conclusion
3.1 In view of the above judgment of the Apex Court, a very old controversy with regard to the year of taxability of the receipt of Disputed Enhanced Compensation is now resolved and the same is taxable in the year of receipt, notwithstanding the fact that the dispute with regard to the ultimate right of receiving such compensation under the L.A. Act is finally not settled. The judgment of the Apex Court in the above case also makes it clear that the above position with regard to the taxability of receipt of such compensation will apply under the Post-1988 Law and such cases will not be governed by the judgment of the Apex Court in Hindustan Housing’s case. Accordingly, the view taken in the decision of the Special Bench of ITAT in the case of Kadam Prakash [referred in Para 1.6 above] gets approved in an implied manner.
3.1.1 In the above judgment, the Apex Court has also taken a view that the term ‘Enhanced Compensation’ used in section 45(5)(b) includes the additional amount received u/s. 23(1A) as well as the amount of solatium u/s. 23(2) of the L.A. Act. Accordingly, the same will also have to be dealt with as such.
3.1.2 The Court has also distinguished the nature of interest payable under two different provisions of the L.A. Act [viz. section 28 and section 34] and taken a view that interest granted u/s 28 of the L.A. Act [unlike interest granted u/s 34 of the said Act] is an accretion to the value and hence, the same also forms part of the Enhanced Compensation or consideration referred u/s 45(5)(b). Accordingly, the same may also have to be dealt with as such.
3.1.3 On the other hand, interest granted u/s 34 of the L.A. Act will not form part of the enhanced compensation [unlike interest u/s 28 as aforesaid] and will continue to be taxed as interest. For this, useful reference may also be made to the judgment of the Apex Court in the case of Dr. Shamlal Narula [53 ITR 151].
3.1.4 In the above judgment, the Court has also directed not to make re-computation based on the judgment in these cases for stated reasons [Ref. 2.12 above]
3.2 Interestingly, the issue with regard to the year of taxability [under the Mercantile System] of interest payable in such cases had come-up before the Courts in the past. The Madras High Court in the case of T.N.K. Govindarajulu Chetty [87 ITR 22] had an occasion to consider the year of taxability of interest included in the amount fixed as compensation by the Court in a case where the property was acquired by the Government under the Requisitioned Land [Continuance of Powers] Act, 1947 under a notification issued by the Collector of Madras dated 24.5.1949. The Court had taken a view that such interest accrues year after year. This judgment of the Madras High Court is upheld by the Apex Court [165 ITR 231].
It is worth mentioning that in the earlier judgment of the Apex Court [66 ITR 465], in the same case [it appears that in the first round of litigation], the Apex Court, while rejecting the case of the assessee with regard to non-taxability of such interest altogether had stated thus : "In the case on hand, the right to interest arose by virtue of the provisions of sections 28 and 34 of the Land Acquisition Act, 1894, and the arbitrator and the High Court merely gave effect to that right in awarding interest on the amount of compensation. Interest received by the assessee was therefore properly held taxable".
The question regarding the period of accrual of interest payable u/s 28 and 34 of the L.A. Act had come up for consideration before the Apex Court in a batch of cases and the Apex Court, in its judgment, reported as Ramabai vs C.I.T. and other cases [181 ITR 400], has taken view that this issue is concluded by the Apex Court in the case of T.N.K. Govindarajulu Chetty [165 ITR 231]. The Court specifically stated thus: "The effect of the decision, we may clarify, is that the interest cannot be taken to have accrued on the date of the order of the Court granting enhanced compensation but has to be taken as having accrued year after year from the date of delivery of possession of the lands till the date of such order." This was the position settled by the Apex Court with regard to the point of time at which such interest accrues and taxability thereof accordingly.
Now, the Apex Court in the case of Ghanshyam [HUF] has held that the interest u/s 28 of the L.A. Act forms part of the Enhanced Compensation contemplated u/s 45(5)(b). Hence such interest on Disputed Enhanced Compensation becomes taxable in the year of receipt along with such compensation. However, no reference is found to have been made in this case of the earlier above referred judgments of the Apex Court in the cases of Govindarajulu Chetty (supra) or Ramabai and other cases (supra). It may also be noted that those earlier judgments of the Apex Court have been delivered by the benches of three judges, whereas the judgment in the
case of Ghanshyam [HUF] has been delivered by the bench of two judges. This may throw open some interesting issues with regard to the character of interest u/s 28 of the L.A. Act as well as the year of taxability thereof. This also may have to be considered in the light of the amendments made for the Finance Act, 2009, referred to hereinafter.
3.3 In the context of the year of taxability of interest on compensation or on enhanced compensation, the Act is now specifically amended by the Finance Act, 2009 w.e.f. the A.Y. 2010-11 [Ref. sections 145A(b), 56(2)(viii) and 57(iv)]. Under the amended provisions, effectively, 50% of the interest received by the assessee on compensation or on Enhanced Compensation is taxable in the year of receipt. These provisions do not distinguish between the interest received u/s 28 or 34 of the L.A. Act. In fact, these provisions also do not make any reference to compulsory acquisition or to the L.A. Act. Therefore, some issues are likely to come up for consideration with regard to the applicable provisions for the taxability of such interest and in particular, in the context of interest awarded u/s 28 of the L.A. Act.
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