I withdrew enhanced land acquisition compensation under an interim High Court order while the appeal is still pending. Is it taxable now?
Yes. The Supreme Court held that assessees who received enhanced compensation and interest on it under an interim order of the High Court in pending land acquisition appeals are liable to tax on those amounts in the year of receipt. It followed its earlier decision in CIT, Faridabad v Ghanshyam (HUF), where it had held that section 45(5) treats enhanced compensation as deemed income taxed on receipt, so that even where the court permits withdrawal against security pending appeal the amount is taxable. The orders of the High Court and the Tribunal were set aside and the Revenue's appeals allowed, parties bearing their own costs.
Decided by the Supreme Court (Supreme Court of India - R.K. Agrawal and Dr D.Y. Chandrachud JJ) on 2017-09-12, reported as Civil Appeal No. 13053 of 2017 arising out of SLP (C) No. 751 of 2009, with Civil Appeal Nos. 13054 to 13061 of 2017. It bears on section 45(5), section 45(5)(b), section 45(5)(c), section 155(16) of the Income Tax Act 1961, in Capital Gains matters.
Land acquisition compensation arrives in stages, and the question of when it becomes taxable used to be litigated for decades. This order applies the settled answer to the hardest version of the facts - money taken out under an interim order while the quantum is still in dispute on appeal - and holds that the receipt is enough. The scheme it applies is worth holding in mind as a whole: section 45(5) was inserted with effect from 1 April 1988 as an overriding provision precisely because compensation is payable at multiple stages, so receipt is the taxing event; and clause (c) of section 45(5) with section 155(16), from 1 April 2004, provide the corrective where a court later reduces the compensation, by recomputation and amendment of the assessment. Taxing on receipt is therefore not final in the way it first appears.
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The order does not set out the facts at length. The respondent assessees had land acquired under the Land Acquisition Act, 1894 and appeals on the quantum of compensation were pending before the High Court. During the pendency of those appeals they received amounts of enhanced compensation, and interest on it, under interim orders of the High Court. The Revenue assessed those receipts in the years in which they were received. The Tribunal and, by judgment dated 16 May 2007 in ITA No. 361/2005, the High Court of Punjab and Haryana decided against the Revenue. The Revenue's special leave petitions were filed in 2009 and leave was granted. The single question before the Supreme Court was whether assessees who have received some amount of enhanced compensation and interest on it under an interim order passed by the High Court in pending land acquisition appeals are liable to be assessed to income tax in the year in which it has been received.
The appeals were allowed. The orders of the High Court and of the Tribunal were set aside, and the respondents were held liable to pay tax on the enhanced amount of compensation and the interest received by them during the year in question. Parties were left to bear their own costs. The Court reached that result by respectfully following its decision in Commissioner of Income Tax, Faridabad v Ghanshyam (HUF), reproducing paragraphs 53 to 56 of that judgment, in which it had held that after the amendment a person who receives enhanced compensation and interest on it, even under an interim order passed by the court, is to be assessed to tax on that enhanced compensation.
The reasoning is that of Ghanshyam, adopted here. Section 45(5) was inserted with effect from 1 April 1988 as an overriding provision because compensation under the Land Acquisition Act, 1894 arises and is payable in multiple stages, unlike a transfer by sale; the legislature therefore provided that as and when the claimant is in receipt of enhanced compensation it is treated as deemed income and taxed on receipt. That reading is supported by the insertion of clause (c) in section 45(5) and of section 155(16) with effect from 1 April 2004, which address a subsequent reduction by a court, tribunal or other authority and the consequent recomputation and amendment of the assessment. Read as a whole, section 45(5) deals not only with reworking but with the change in the full value of the consideration, and because the enhanced compensation, including interest under section 28 of the 1894 Act, becomes payable at different stages, its receipt is taxed in the year of receipt subject to later adjustment under section 155(16). It follows that where, pending appeal, the court permits the claimant to withdraw the disputed enhanced compensation against security or otherwise, that amount is liable to be taxed under section 45(5). The position was the same before clause (c) and section 155(16) were inserted, since the right to receive payment under the 1894 Act is not in doubt. The Court there also noted that enhanced compensation is awarded on the footing that the earlier award had not compensated the owner for the full value of the property as on the date of the section 4 notification.
the respondents are liable to pay tax on the enhanced amount of compensation and interest received by them during the year in question
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Handle my notice → Ask a CA on WhatsAppYes. The Supreme Court held that assessees who received enhanced compensation and interest on it under an interim order of the High Court in pending land acquisition appeals are liable to tax on those amounts in the year of receipt. It followed its earlier decision in CIT, Faridabad v Ghanshyam (HUF), where it had held that section 45(5) treats enhanced compensation as deemed income taxed on receipt, so that even where the court permits withdrawal against security pending appeal the amount is taxable. The orders of the High Court and the Tribunal were set aside and the Revenue's appeals allowed, parties bearing their own costs. This was decided by the Supreme Court (Supreme Court of India - R.K. Agrawal and Dr D.Y. Chandrachud JJ) and bears on section 45(5), section 45(5)(b), section 45(5)(c), section 155(16) of the Income Tax Act 1961. It is reported as Civil Appeal No. 13053 of 2017 arising out of SLP (C) No. 751 of 2009, with Civil Appeal Nos. 13054 to 13061 of 2017. Land acquisition compensation arrives in stages, and the question of when it becomes taxable used to be litigated for decades. This order applies the settled answer to the hardest version of the facts - money taken out under an interim order while the quantum is still in dispute on appeal - and holds that the receipt is enough. The scheme it applies is worth holding in mind as a whole: section 45(5) was inserted with effect from 1 April 1988 as an overriding provision precisely because compensation is payable at multiple stages, so receipt is the taxing event; and clause (c) of section 45(5) with section 155(16), from 1 April 2004, provide the corrective where a court later reduces the compensation, by recomputation and amendment of the assessment. Taxing on receipt is therefore not final in the way it first appears. If it applies to you, the first step is this: Offer enhanced compensation and the interest on it in the year of receipt, even where you have drawn it under an interim order or against security and the appeal is still running.
The order does not set out the facts at length. The respondent assessees had land acquired under the Land Acquisition Act, 1894 and appeals on the quantum of compensation were pending before the High Court. During the pendency of those appeals they received amounts of enhanced compensation, and interest on it, under interim orders of the High Court. The Revenue assessed those receipts in the years in which they were received. The Tribunal and, by judgment dated 16 May 2007 in ITA No. 361/2005, the High Court of Punjab and Haryana decided against the Revenue. The Revenue's special leave petitions were filed in 2009 and leave was granted. The single question before the Supreme Court was whether assessees who have received some amount of enhanced compensation and interest on it under an interim order passed by the High Court in pending land acquisition appeals are liable to be assessed to income tax in the year in which it has been received. The matter was decided on 2017-09-12 by the Supreme Court (Supreme Court of India - R.K. Agrawal and Dr D.Y. Chandrachud JJ). On those facts the Supreme Court held as follows. The appeals were allowed. The orders of the High Court and of the Tribunal were set aside, and the respondents were held liable to pay tax on the enhanced amount of compensation and the interest received by them during the year in question. Parties were left to bear their own costs. The Court reached that result by respectfully following its decision in Commissioner of Income Tax, Faridabad v Ghanshyam (HUF), reproducing paragraphs 53 to 56 of that judgment, in which it had held that after the amendment a person who receives enhanced compensation and interest on it, even under an interim order passed by the court, is to be assessed to tax on that enhanced compensation.
The reasoning is that of Ghanshyam, adopted here. Section 45(5) was inserted with effect from 1 April 1988 as an overriding provision because compensation under the Land Acquisition Act, 1894 arises and is payable in multiple stages, unlike a transfer by sale; the legislature therefore provided that as and when the claimant is in receipt of enhanced compensation it is treated as deemed income and taxed on receipt. That reading is supported by the insertion of clause (c) in section 45(5) and of section 155(16) with effect from 1 April 2004, which address a subsequent reduction by a court, tribunal or other authority and the consequent recomputation and amendment of the assessment. Read as a whole, section 45(5) deals not only with reworking but with the change in the full value of the consideration, and because the enhanced compensation, including interest under section 28 of the 1894 Act, becomes payable at different stages, its receipt is taxed in the year of receipt subject to later adjustment under section 155(16). It follows that where, pending appeal, the court permits the claimant to withdraw the disputed enhanced compensation against security or otherwise, that amount is liable to be taxed under section 45(5). The position was the same before clause (c) and section 155(16) were inserted, since the right to receive payment under the 1894 Act is not in doubt. The Court there also noted that enhanced compensation is awarded on the footing that the earlier award had not compensated the owner for the full value of the property as on the date of the section 4 notification. In the words reproduced by the source cited on this page: "the respondents are liable to pay tax on the enhanced amount of compensation and interest received by them during the year in question"
It was decided by the Supreme Court on 2017-09-12 and is reported as Civil Appeal No. 13053 of 2017 arising out of SLP (C) No. 751 of 2009, with Civil Appeal Nos. 13054 to 13061 of 2017. Binding on every court and authority in India. A Supreme Court decision binds every assessing officer, every Commissioner (Appeals), every bench of the Income Tax Appellate Tribunal and every High Court in India. An officer who declines to follow it is acting contrary to law, and that refusal is itself a ground of appeal. On section 45(5), section 45(5)(b), section 45(5)(c), section 155(16), the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the department, and it appears in this library for that reason — you need to know what the Assessing Officer will cite against you. The appeals were allowed. The orders of the High Court and of the Tribunal were set aside, and the respondents were held liable to pay tax on the enhanced amount of compensation and the interest received by them during the year in question. Parties were left to bear their own costs. The Court reached that result by respectfully following its decision in Commissioner of Income Tax, Faridabad v Ghanshyam (HUF), reproducing paragraphs 53 to 56 of that judgment, in which it had held that after the amendment a person who receives enhanced compensation and interest on it, even under an interim order passed by the court, is to be assessed to tax on that enhanced compensation. It arises in Capital Gains matters, on section 45(5), section 45(5)(b), section 45(5)(c), section 155(16) of the Income Tax Act 1961, and was decided by Supreme Court of India - R.K. Agrawal and Dr D.Y. Chandrachud JJ. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Keep the record of the withdrawal order and the security furnished, because that is what you will need if the compensation is later reduced. If the compensation is cut down on appeal, apply for recomputation under the machinery in section 155(16) rather than treating the earlier assessment as unassailable. Check the current treatment of interest on compensation separately before you compute; this order follows a decision on the pre-existing scheme and does not deal with the later provisions on interest.
Still good law. A citator search returns 68 later decisions citing the order, the most recent a Jaipur Tribunal order of 10 November 2025. It is applied in the Chandigarh Tribunal's own reasoning in Sh. Joginder Singh v ITO, Ambala (30 July 2019), which sets it out — 'the Hon'ble Apex Court in the case of CIT Vs. Chet Ram (HUF) [2018] 400 ITR 23 held ... that the assessees who had received some amount of enhanced compensation as also interest thereon under an interim order passed by the High Court in pending appeals relating to land acquisition were liable to be assessed to income-tax in the year in which it was received' — and decides the section 154 rectification issue on that footing. In DCIT v Ashok Sharma, Rewari (Jaipur Tribunal, 10 November 2025) the passage distinguishing the Murari Lal line for failing to refer to Chetram is the assessee's written submission, not the Tribunal's own holding; the Tribunal decided the appeal on Ghanshyam (HUF) and the Kerala High Court's Anvar Ali Poolakkodan, and did not itself apply Chet Ram. Nothing overruling or doubting it was found. Two limits should be carried: it is a short order applying CIT, Faridabad v Ghanshyam (HUF), and it does not address the separate statutory treatment of interest on enhanced compensation introduced after the assessment years before it, so the charge for a current year must be worked out under the provisions in force. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
This is a short order rather than a full judgment. It does not set out the facts of any of the nine appeals - the assessment years, the amounts, the terms on which withdrawal was permitted, or the reasoning of the High Court and the Tribunal that it set aside - and it contains no analysis of its own beyond adopting Ghanshyam. It also does not deal separately with the character of the interest as against the compensation, nor with the deduction now available in respect of interest on compensation, and does not decide what happens on the facts if the compensation is later reduced beyond noting the machinery in section 155(16). The batch line gave no reporter citations, so the appeal numbers from the order's own first page are used. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The appeals were allowed. The orders of the High Court and of the Tribunal were set aside, and the respondents were held liable to pay tax on the enhanced amount of compensation and the interest received by them during the year in question. Parties were left to bear their own costs. The Court reached that result by respectfully following its decision in Commissioner of Income Tax, Faridabad v Ghanshyam (HUF), reproducing paragraphs 53 to 56 of that judgment, in which it had held that after the amendment a person who receives enhanced compensation and interest on it, even under an interim order passed by the court, is to be assessed to tax on that enhanced compensation.
TaxSphere, “CIT v Chet Ram (HUF)”, https://taxnotice.vittsphere.com/caselaw/case/cit-v-chet-ram-huf/ (validity last checked 2026-08-29)
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The court enhanced the compensation for my acquired land and awarded interest running back many years — can I spread that interest over those years, and are my brothers and I an AoP because we inherited the land together?
An arbitrator enhanced the compensation for my land, the State has appealed against the whole of it, and I have taken the money out of court against a security bond. Has that enhanced amount accrued to me?
For a year after 2010, is the interest I received under s.28 of the Land Acquisition Act still capital gains following Ghanshyam, or has s.56(2)(viii) changed that?
