Interest on Enhanced Land Acquisition Compensation Taxable as 'Income from Other Sources' Post-2010 Amendment: ITAT [Read Order]

The Income Tax Appellate Tribunal (ITAT), New Delhi, held that interest received on enhanced compensation under Section 28 of the Land Acquisition Act, 1894 was taxable as 'Income from Other Sources' under Section 56(2)(viii) read with Section 145B(1), effective from 01.04.2010.

The Assessee, Shri Bir Singh, appealed against the CIT(A)/NFAC order dated 12.12.2024 for A.Y. 2017-18.

The Assessee received interest of Rs. 33,03,628/- under Section 28 of the Land Acquisition Act, 1894 on enhanced compensation for compulsory acquisition of agricultural land during A.Y. 2017-18. The Assessing Officer taxed this interest as 'Income from Other Sources', while allowing 50% deduction under Section 57(iv).

The Section 57(iv) of the Income Tax Act, 1961, explained that: Deductions

“The income chargeable under the head "Income from other sources" shall be computed after making the following deductions, namely:-

(iv) in the case of income of the nature referred to in clause (viii) of sub-section (2) of section 56, a deduction of a sum equal to fifty per cent. of such income and no deduction shall be allowed under any other clause of this section.”

Further, the assessee claimed exemption under Section 10(37), pointing out that interest on enhanced compensation forms part of compensation. The CIT(A) confirmed the AO's action. Aggrieved, the assessee appealed before the ITAT. Whereby none appeared for the assessee during the hearing, and the Tribunal proceeded with the assistance of the Department Representative.

The Senior Departmental Representative for the Respondent, Rajesh Kumar Dhanesta, stated that interest on enhanced compensation under Section 28 of the Land Acquisition Act, 1894 was taxable as 'Income from Other Sources’, effective from 01.04.2010. The exemption under Section 10(37) applies only to 'compensation' for compulsory acquisition of agricultural land and did not extend to 'interest on compensation or enhanced compensation'.

Further, the Department relied on the Supreme Court's decision in Sham Lal Narula (Dr.) v. CIT [(1964) 53 ITR 151], which held that interest under Section 28 was not compensation for loss of land but for delayed payment, making it a revenue receipt. Post-2010 amendment provisions were plain and unambiguous, and the decision in Ghanshyam HUF (2009) pertains to pre-amendment law and was not applicable.

The Section 28 of the Land Acquisition Act, 1894 explained that: Collector may be directed to pay interest on excess compensation

“If the sum which, in the opinion of the Court, the Collector ought to have awarded as compensation is in excess of the sum which the Collector did award as compensation, the award of the Court may direct that the Collector shall pay interest on such excess at the rate of [nine per centum] [Substituted by Act 68 of 1984, Section 18, for " six per centum" (w.e.f. 24.9.1984).] per annum from the date on which he took possession of the land to the date of payment of such excess into Court:”

The Tribunal consisted of Judicial Member, Anubhav Sharma and Accountant Member, Naveen Chandra, heard and reviewed the matter.

The Tribunal, after considering the material on record, held that the language of Section 56(2)(viii) and Section 145B(1) was plain, simple and unambiguous. The interest of Rs. 33,03,628/- received on enhanced compensation under Section 28 of the Land Acquisition Act, 1894 was taxable.

Further, the Tribunal observed that the assessee's direction for exemption under Section 10(37) was baseless as it applied only to 'compensation' and not to 'interest on compensation or enhanced compensation'. Followed by the Supreme Court's decision in Sham Lal Narula vs CIT, the Tribunal upheld the CIT(A)'s order to tax the interest with 50% deduction under Section 57(iv).

Accordingly, the Tribunal dismissed the appeal of the assessee. The Order was pronounced in open court on 17.12.2025.

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