Section 278 — Taxability of certain income. Successor to s.145B of the 1961 Act.
Section 278 is in Chapter XVI — Procedure for Assessment, which runs from section 268 to section 301.
Sub-section (1) fixes the year of charge for interest received on compensation or on enhanced compensation: it is deemed to be the income of the tax year in which it is received, irrespective of anything to the contrary in section 276. Sub-section (2) deals with a claim for escalation of price in a contract, and with export incentives: each is deemed to be the income of the tax year in which reasonable certainty of its realisation is achieved. Sub-section (3) provides that the income referred to in section 2(49)(w) is treated as the income of the tax year in which it is received, if it has not been charged to income-tax in any earlier tax year.
Each of the three receipts is one whose entitlement is disputed, contingent or spread over years, so the ordinary method of accounting would either accrue it before it is certain or scatter it across the years to which it relates. The section pins each to a single identifiable year — receipt for interest on compensation and for the section 2(49)(w) income, reasonable certainty of realisation for escalation claims and export incentives — and sub-section (1) says so notwithstanding section 276, so the method of accounting does not displace it.
Sub-section (1) is a receipt rule and it overrides section 276, so interest on compensation is taxed in the year the money comes in even where it relates to several earlier years and even where the assessee's method of accounting would spread it. The test in sub-section (2) is not receipt at all: an escalation claim or an export incentive is charged when reasonable certainty of realisation is achieved, which can precede actual receipt. Sub-section (3) carries its own protection against double taxation, charging the section 2(49)(w) income on receipt only "if not charged to income-tax in any earlier tax year".
An individual whose land was compulsorily acquired receives, in one tax year, enhanced compensation together with interest of eighteen lakh rupees computed over six earlier years. Sub-section (1) charges the whole eighteen lakh in the year of receipt, irrespective of section 276 and of the years to which the interest relates. In the same year a contractor's escalation claim of forty lakh rupees is accepted in principle so that its realisation becomes reasonably certain, though payment will follow later; sub-section (2) charges that forty lakh in this year, not in the year the money arrives.
You meet this when reporting a compensation or enhanced compensation receipt, an accepted escalation claim, or an export incentive in a return, and in the assessment that shifts such an amount from the year you offered it to the year the section prescribes. It is a common ground of dispute in reassessment or appeal about which tax year a delayed interest or incentive receipt belongs to.
Any interest received by an assessee on any compensation or on enhanced compensation, shall be deemed to be the income of the tax year in which it is received, irrespective of anything to the contrary contained in section 276.
Any claim for escalation of price in a contract or export incentives shall be deemed to be the income of the tax year in which reasonable certainty of its realisation is achieved.
shall be treated as the income of the tax year in which it is received, if not charged to income-tax in any earlier tax year
See the full 1961 to 2025 concordance.
