The court enhanced my acquisition compensation with interest. Which year is it taxed, and is the interest capital?
Interest awarded under s.28 of the Land Acquisition Act, 1894 is part of the amount of compensation; interest under s.34 is not, because it is only compensation for delay in paying a sum already determined. The additional amount under s.23(1A) and the solatium under s.23(2) are likewise part of enhanced compensation, and the whole of it — including s.28 interest — is taxed under s.45(5) in the year of receipt, even where the claimant has withdrawn it against security while the Revenue's or the State's appeal is pending.
Decided by the Supreme Court (Aftab Alam J and S.H. Kapadia J) on 2009-07-16, reported as Civil Appeal No. 4401 of 2009 (arising out of S.L.P.(C) No. 17640 of 2008) and a batch of connected civil appeals arising out of S.L.P.(C) Nos. 17641 to 17647 of 2008, 8350 of 2009, 8451 of 2008, 4832 to 4835 of 2008, 20657 to 20659 of 2008, 7599 of 2009, 3054 of 2008, 3717 of 2009, 4174 of 2009, 31566 of 2008, 713 of 2009, 5300 of 2009 and 6378 of 2009. It bears on section 45(5), section 45(5)(b), section 45(5)(c), section 45(1), section 2(47), section 155(16), section 194LA, section 194A of the Income Tax Act 1961, in Capital Gains, How Tax Law Is Read and TDS Defaults matters.
This is the decision that fixes the characterisation on which every downstream question about withholding on acquisition money turns — whether the payer deducts under s.194LA (which speaks of compensation and consideration) or under s.194A (which speaks of interest), and whether the receipt is capital gains that can attract s.10(37) or ordinary income that cannot. But read it with the calendar in front of you. The Court decided it on 16 July 2009 on assessment years 1991-92 and 1992-93, before s.56(2)(viii) and s.57(iv) were on the statute book. The Punjab and Haryana High Court held in Mahender Pal Narang, decided 19 February 2020, that those insertions displace this characterisation for the years they govern, and the Special Leave Petition against that judgment was dismissed on 4 March 2021. So Ghanshyam remains the authority on what s.28 interest IS under the Land Acquisition Act, and on the year of taxability under s.45(5); whether it still fixes the HEAD of income for a post-amendment year is exactly what is contested. Note also the Court's own limitation on relief: having settled the law, it declined to order recomputation in the batch before it because the acquisition proceedings were a decade old.
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The assessee received enhanced compensation, and interest on it, during the previous year relevant to assessment year 1999-2000 on lands acquired by the Haryana Urban Development Authority. The reference court had enhanced the compensation, the State had appealed to the High Court, and the assessee had been allowed to withdraw the enhanced amount under an interim order of the High Court against security furnished to the satisfaction of the executing court. In his return the assessee did not offer either the enhanced compensation of Rs 87,13,517 or the interest of Rs 1,47,575, on the plea that nothing had accrued to him while the whole amount was in dispute in the State's appeal. The Assessing Officer taxed both in the year of receipt under section 45(5). The Commissioner (Appeals) accepted the assessee's plea, relying on CIT v. Hindustan Housing & Land Development Trust Ltd. [1986] 161 ITR 524 (SC); the Tribunal upheld that order and the High Court dismissed the Department's appeal under section 260A on the same footing. The Department appealed, and twenty-five appeals were heard together.
The departmental appeals were allowed with no order as to costs (paragraphs 37 and 38). Interest under s.28 of the 1894 Act is part of the amount of compensation, because it is an accretion to the value of the land; interest under s.34 is not, because it is only for delay in making payment after the compensation has been determined (paragraphs 24 and 33). The additional amount under s.23(1A) and the solatium under s.23(2) also form part of enhanced compensation under s.45(5)(b) (paragraph 33). Enhanced compensation or consideration, including s.28 interest, is taxable in the year of receipt, and remains so even where the claimant has been permitted to withdraw it against security while an appeal is pending, subject to later adjustment under s.155(16) (paragraph 35). Hindustan Housing does not apply, because it pre-dates s.45(5), arose under the 1922 Act, and concerned an Act whose s.12B contained no specific reference to compulsory acquisition of the kind s.2(47) of the 1961 Act carries (paragraph 28). Having settled the controversy, the Court directed that recomputation would not be done in the decade-old matters before it (paragraph 36).
The Court analysed ss.23, 23(1A), 23(2), 28 and 34 of the 1894 Act. Section 23(1A), introduced by the Land Acquisition (Amendment) Act, 1984, gives twelve per cent per annum on the market value from the s.4(1) notification to the award or possession, whichever is earlier; it is neither interest nor solatium but additional compensation designed to offset the rise in prices during the pendency of the acquisition, and must be reckoned as part of the market value (paragraph 22). Solatium under s.23(2) is mandatory and is part of compensation (paragraph 23). Section 28 interest is discretionary, applies only to the excess determined by the court on a s.18 reference, and depends on a claim, whereas s.34 interest is mandatory, runs at nine per cent from the taking of possession, and depends on undue delay in payment (paragraphs 23, 24 and 25). Relying on the Constitution Bench in Sunder v. Union of India for the proposition that s.28 speaks of compensation or the sum equivalent thereto and therefore covers solatium as well, the Court concluded that s.28 interest is an accretion to value and therefore part of enhanced compensation, while s.34 interest is not (paragraphs 25 and 33). On the year of taxability, the Court read s.45(5) as an overriding provision inserted with effect from 1 April 1988 to deal with compensation payable in multiple stages, reinforced by clause (c) inserted by the Finance Act, 2003 with effect from 1 April 2004 and by s.155(16), and held that the legislature had stepped in to say that enhanced compensation is deemed income taxed on receipt (paragraphs 29 to 35). The assessee's argument that s.45(5)(b) deals only with re-working was rejected (paragraph 35).
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.
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Handle my notice → Ask a CA on WhatsAppInterest awarded under s.28 of the Land Acquisition Act, 1894 is part of the amount of compensation; interest under s.34 is not, because it is only compensation for delay in paying a sum already determined. The additional amount under s.23(1A) and the solatium under s.23(2) are likewise part of enhanced compensation, and the whole of it — including s.28 interest — is taxed under s.45(5) in the year of receipt, even where the claimant has withdrawn it against security while the Revenue's or the State's appeal is pending. This was decided by the Supreme Court (Aftab Alam J and S.H. Kapadia J) and bears on section 45(5), section 45(5)(b), section 45(5)(c), section 45(1), section 2(47), section 155(16), section 194LA, section 194A of the Income Tax Act 1961. It is reported as Civil Appeal No. 4401 of 2009 (arising out of S.L.P.(C) No. 17640 of 2008) and a batch of connected civil appeals arising out of S.L.P.(C) Nos. 17641 to 17647 of 2008, 8350 of 2009, 8451 of 2008, 4832 to 4835 of 2008, 20657 to 20659 of 2008, 7599 of 2009, 3054 of 2008, 3717 of 2009, 4174 of 2009, 31566 of 2008, 713 of 2009, 5300 of 2009 and 6378 of 2009. This is the decision that fixes the characterisation on which every downstream question about withholding on acquisition money turns — whether the payer deducts under s.194LA (which speaks of compensation and consideration) or under s.194A (which speaks of interest), and whether the receipt is capital gains that can attract s.10(37) or ordinary income that cannot. But read it with the calendar in front of you. The Court decided it on 16 July 2009 on assessment years 1991-92 and 1992-93, before s.56(2)(viii) and s.57(iv) were on the statute book. The Punjab and Haryana High Court held in Mahender Pal Narang, decided 19 February 2020, that those insertions displace this characterisation for the years they govern, and the Special Leave Petition against that judgment was dismissed on 4 March 2021. So Ghanshyam remains the authority on what s.28 interest IS under the Land Acquisition Act, and on the year of taxability under s.45(5); whether it still fixes the HEAD of income for a post-amendment year is exactly what is contested. Note also the Court's own limitation on relief: having settled the law, it declined to order recomputation in the batch before it because the acquisition proceedings were a decade old. If it applies to you, the first step is this: Separate the award into its components before doing anything else: market value, additional amount under s.23(1A), solatium under s.23(2), interest under s.28 and interest under s.34. The Court's whole reasoning turns on that division.
The assessee received enhanced compensation, and interest on it, during the previous year relevant to assessment year 1999-2000 on lands acquired by the Haryana Urban Development Authority. The reference court had enhanced the compensation, the State had appealed to the High Court, and the assessee had been allowed to withdraw the enhanced amount under an interim order of the High Court against security furnished to the satisfaction of the executing court. In his return the assessee did not offer either the enhanced compensation of Rs 87,13,517 or the interest of Rs 1,47,575, on the plea that nothing had accrued to him while the whole amount was in dispute in the State's appeal. The Assessing Officer taxed both in the year of receipt under section 45(5). The Commissioner (Appeals) accepted the assessee's plea, relying on CIT v. Hindustan Housing & Land Development Trust Ltd. [1986] 161 ITR 524 (SC); the Tribunal upheld that order and the High Court dismissed the Department's appeal under section 260A on the same footing. The Department appealed, and twenty-five appeals were heard together. The matter was decided on 2009-07-16 by the Supreme Court (Aftab Alam J and S.H. Kapadia J). On those facts the Supreme Court held as follows. The departmental appeals were allowed with no order as to costs (paragraphs 37 and 38). Interest under s.28 of the 1894 Act is part of the amount of compensation, because it is an accretion to the value of the land; interest under s.34 is not, because it is only for delay in making payment after the compensation has been determined (paragraphs 24 and 33). The additional amount under s.23(1A) and the solatium under s.23(2) also form part of enhanced compensation under s.45(5)(b) (paragraph 33). Enhanced compensation or consideration, including s.28 interest, is taxable in the year of receipt, and remains so even where the claimant has been permitted to withdraw it against security while an appeal is pending, subject to later adjustment under s.155(16) (paragraph 35). Hindustan Housing does not apply, because it pre-dates s.45(5), arose under the 1922 Act, and concerned an Act whose s.12B contained no specific reference to compulsory acquisition of the kind s.2(47) of the 1961 Act carries (paragraph 28). Having settled the controversy, the Court directed that recomputation would not be done in the decade-old matters before it (paragraph 36).
The Court analysed ss.23, 23(1A), 23(2), 28 and 34 of the 1894 Act. Section 23(1A), introduced by the Land Acquisition (Amendment) Act, 1984, gives twelve per cent per annum on the market value from the s.4(1) notification to the award or possession, whichever is earlier; it is neither interest nor solatium but additional compensation designed to offset the rise in prices during the pendency of the acquisition, and must be reckoned as part of the market value (paragraph 22). Solatium under s.23(2) is mandatory and is part of compensation (paragraph 23). Section 28 interest is discretionary, applies only to the excess determined by the court on a s.18 reference, and depends on a claim, whereas s.34 interest is mandatory, runs at nine per cent from the taking of possession, and depends on undue delay in payment (paragraphs 23, 24 and 25). Relying on the Constitution Bench in Sunder v. Union of India for the proposition that s.28 speaks of compensation or the sum equivalent thereto and therefore covers solatium as well, the Court concluded that s.28 interest is an accretion to value and therefore part of enhanced compensation, while s.34 interest is not (paragraphs 25 and 33). On the year of taxability, the Court read s.45(5) as an overriding provision inserted with effect from 1 April 1988 to deal with compensation payable in multiple stages, reinforced by clause (c) inserted by the Finance Act, 2003 with effect from 1 April 2004 and by s.155(16), and held that the legislature had stepped in to say that enhanced compensation is deemed income taxed on receipt (paragraphs 29 to 35). The assessee's argument that s.45(5)(b) deals only with re-working was rejected (paragraph 35). In the words reproduced by the source cited on this page: "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." The decision followed or applied Sunder v. Union of India (2001) 7 SCC 211 (Constitution Bench) — relied on, that interest under s.28 covers market value and statutory solatium alike; Assistant Commissioner, Gadag Sub-Division, Gadag v. Mathapathi Basavannewwa, AIR 1995 SC 2492 — referred to on the object of s.23(1A); State of Tamil Nadu v. L. Krishnan, AIR 1996 SC 497 — referred to on s.23(1A) as an offset to inflation; Ram Chand v. Union of India, 1994(1) SCC 44 — referred to, that s.28 does not apply to undue delay in making the award; Shree Vijay Cotton & Oil Mills Ltd. v. State of Gujarat (1991) 1 SCC 262 — referred to, that interest is different from compensation; CIT v. Hindustan Housing and Land Development Trust Ltd. — distinguished and held inapplicable.
It was decided by the Supreme Court on 2009-07-16 and is reported as Civil Appeal No. 4401 of 2009 (arising out of S.L.P.(C) No. 17640 of 2008) and a batch of connected civil appeals arising out of S.L.P.(C) Nos. 17641 to 17647 of 2008, 8350 of 2009, 8451 of 2008, 4832 to 4835 of 2008, 20657 to 20659 of 2008, 7599 of 2009, 3054 of 2008, 3717 of 2009, 4174 of 2009, 31566 of 2008, 713 of 2009, 5300 of 2009 and 6378 of 2009. 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 45(1), section 2(47), section 155(16), section 194LA, section 194A, 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 departmental appeals were allowed with no order as to costs (paragraphs 37 and 38). Interest under s.28 of the 1894 Act is part of the amount of compensation, because it is an accretion to the value of the land; interest under s.34 is not, because it is only for delay in making payment after the compensation has been determined (paragraphs 24 and 33). The additional amount under s.23(1A) and the solatium under s.23(2) also form part of enhanced compensation under s.45(5)(b) (paragraph 33). Enhanced compensation or consideration, including s.28 interest, is taxable in the year of receipt, and remains so even where the claimant has been permitted to withdraw it against security while an appeal is pending, subject to later adjustment under s.155(16) (paragraph 35). Hindustan Housing does not apply, because it pre-dates s.45(5), arose under the 1922 Act, and concerned an Act whose s.12B contained no specific reference to compulsory acquisition of the kind s.2(47) of the 1961 Act carries (paragraph 28). Having settled the controversy, the Court directed that recomputation would not be done in the decade-old matters before it (paragraph 36). It arises in Capital Gains, How Tax Law Is Read and TDS Defaults matters, on section 45(5), section 45(5)(b), section 45(5)(c), section 45(1), section 2(47), section 155(16), section 194LA, section 194A of the Income Tax Act 1961, and was decided by Aftab Alam J and S.H. Kapadia J. 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. Treat s.23(1A) and s.23(2) amounts as part of enhanced compensation for s.45(5)(b), not as separate receipts. Fix the year of taxability at receipt, not accrual, and do not defer on the ground that the State's appeal is pending — the Court holds the receipt taxable even where withdrawal was permitted against security. If the compensation is later reduced by a court, tribunal or authority, use s.45(5)(c) and s.155(16) to have the assessment recomputed rather than resisting the original charge. Do NOT carry the s.28 characterisation forward into a year governed by s.56(2)(viii) and s.57(iv) without first reading Mahender Pal Narang and checking whether your High Court has taken the Gujarat view or the Punjab and Haryana view. Where you rely on Hindustan Housing, note that the Court distinguished it on three grounds — it was decided on 29 July 1986, before s.45(5) came in on 1 April 1988; it concerned assessment year 1956-57 under the 1922 Act; and s.12B of the 1922 Act had no reference to compulsory acquisition of the kind s.2(47) of the 1961 Act now carries.
Still good law. The label. It is kept as good law because no court has overruled any part of it and the Supreme Court reaffirmed it in Union of India v. Hari Singh. But its reach on one point is contested, and the validity vocabulary here has no value for "partly displaced by later legislation, and disputed between High Courts". Read the rest of this note first. What is contested. Sections 56(2)(viii) and 57(iv), inserted with effect from AY 2010-11, tax interest received on compensation or enhanced compensation as income from other sources in the year of receipt, with a flat fifty per cent deduction. The Punjab and Haryana High Court in Mahender Pal Narang v. CBDT (CWP No. 17971 of 2019, decided 19 February 2020) held in terms that in view of those insertions "the decision of Apex Court in Ghanshyam's case (supra) does not come to the rescue of the petitioner to claim that interest received under Section 28 of the 1894 Act is to be treated as compensation and to be dealt with under 'Capital gains'". The Special Leave Petition against that judgment, SLP(C) No. 3021 of 2021, was dismissed by the Supreme Court on 4 March 2021 by a one-line order carrying no reasons, which is no declaration of law. What cuts the other way. The Gujarat High Court in Movaliya Bhikhubhai Balabhai took the contrary view, that s.28 interest continues to partake of the character of compensation; that judgment has not been read directly and is known here only as reproduced inside the Punjab and Haryana judgment, and the Supreme Court issued notice on the Revenue's petition against it on 17 July 2017, tagged with W.P.(C) No. 590 of 2016; the outcome is not known. The Delhi Tribunal in Mange Ram v. PCIT (IT Appeal No. 710 (Delhi) of 2024, order dated 15 January 2026) held that ss.56(2)(viii)/145A(b) were enacted to deal with the accrual problem in Rama Bai v. CIT and were "not ... the overruling of the ratio laid down in Ghanshyam", and distinguished Mahender Pal Narang on the ground that Ghanshyam had been reaffirmed in Hari Singh before it. What is not contested. Ghanshyam's holdings on the year of taxability under s.45(5), on the s.23(1A) additional amount and the s.23(2) solatium forming part of enhanced compensation, and on taxability where the amount is withdrawn against security pending appeal, were not touched by any of this and stand. Practical effect. For AY 2010-11 onwards, do not advise that s.28 interest is necessarily capital gains. Compute both ways, and say which High Court governs the claimant. 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.
The judgment runs to thirty-eight numbered paragraphs, ending with the disposal. This entry uses paragraphs 22 to 38, and pinpoints are given throughout so that the reader can go to the paragraph rather than to the entry. The disposal is worth stating precisely, because it is easy to get backwards. The appeals before the Supreme Court were the DEPARTMENT's, and they were ALLOWED. The assessee had succeeded before the Commissioner (Appeals), the Tribunal and the High Court on the strength of Hindustan Housing, and all of that was set aside. Two points of transparency about the sections tagged on this entry. The array lists s.194LA and s.194A although the judgment itself mentions neither. They are listed because the characterisation this judgment settles is what decides which withholding provision a payer of acquisition money is working under — s.194LA speaks of compensation and consideration, s.194A of interest — and a reader arriving from a withholding question needs to find the page. But the Court was not asked about either section, said nothing about either, and this entry states no holding about either. The 'reported' field carries only what the text of the judgment itself prints. No law-report citation has been established for it, so none is stated; a reader who needs one will have to take it from a reporter. One internal inconsistency should be carried in mind and is set out in the gaps field: the lead matter is stated to be assessment year 1999-2000 at paragraphs 4 to 6, while at paragraph 36 the Court describes the batch as relating back to assessment years 1991-92 and 1992-93. Nothing in the reasoning turns on it, and this entry does not resolve it. Finally, the relationship between this entry and the validity note. The holdings on s.45(5), on the s.23(1A) additional amount and the s.23(2) solatium, and on taxability of an amount withdrawn against security pending appeal, are undisturbed. The characterisation of s.28 interest as part of compensation is the contested limb, and it is contested by reason of later legislation rather than by any court doubting this judgment. Read the validity note before advising on a year from 2010-11 onwards, and note that the gaps field records a second limit: the provisions inserted in 2009 that bear on the contest, s.56(2)(viii), s.57(iv) and s.145B, have not been confirmed clause by clause against the enacted text. The judgment is internally inconsistent about the years before the Court: the lead matter is stated to be assessment year 1999-2000 (paras 4 to 6), while at para 36 the Court describes the batch as relating back to assessment years 1991-92 and 1992-93. The related provisions inserted in 2009 — sections 56(2)(viii), 57(iv) and 145B — were not confirmed clause by clause against a primary source. 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 departmental appeals were allowed with no order as to costs (paragraphs 37 and 38). Interest under s.28 of the 1894 Act is part of the amount of compensation, because it is an accretion to the value of the land; interest under s.34 is not, because it is only for delay in making payment after the compensation has been determined (paragraphs 24 and 33). The additional amount under s.23(1A) and the solatium under s.23(2) also form part of enhanced compensation under s.45(5)(b) (paragraph 33). Enhanced compensation or consideration, including s.28 interest, is taxable in the year of receipt, and remains so even where the claimant has been permitted to withdraw it against security while an appeal is pending, subject to later adjustment under s.155(16) (paragraph 35). Hindustan Housing does not apply, because it pre-dates s.45(5), arose under the 1922 Act, and concerned an Act whose s.12B contained no specific reference to compulsory acquisition of the kind s.2(47) of the 1961 Act carries (paragraph 28). Having settled the controversy, the Court directed that recomputation would not be done in the decade-old matters before it (paragraph 36).
TaxSphere, “CIT v Ghanshyam (HUF)”, https://taxnotice.vittsphere.com/caselaw/case/cit-v-ghanshyam-huf-45-5/ (validity last checked 2026-09-08)
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