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?
No to the spreading, yes to being taxed as individuals. The Supreme Court held on 4 September 2014 that interest awarded under section 28 of the Land Acquisition Act 1894 is an accretion to the value of the land, so it forms part of the enhanced compensation under section 45(5)(b) and is taxable in the year it is received, not spread over the years from dispossession. Interest under section 34, which compensates undue delay in making the award, stands differently. On status, three brothers who inherit land by operation of law and receive compensation on compulsory acquisition form no association of persons, because volition to produce income is absent.
Decided by the Supreme Court (Supreme Court of India; J. Chelameswar and A.K. Sikri JJ, judgment delivered by A.K. Sikri J) on 2014-09-04, reported as 2014 AIR SCW 6546; 2014 (16) SCC 449; AIR 2015 SC (SUPP) 668; (2014) 367 ITR 498; AIR 2015 SC (CIVIL) 381; (2015) 109 ALL LR 20; (2014) 10 SCALE 505. It bears on section 45(5), section 45(5)(b), section 155(16) of the Income Tax Act 1961, in Capital Gains and Assessment & Scrutiny matters.
This is the short Supreme Court authority that applies Ghanshyam (HUF) to the two questions that actually come up in an acquisition assessment. Practitioners cite it for the receipt-basis rule: once interest is characterised as section 28 interest, the accrual argument is closed, and the whole amount falls into the year of receipt subject only to later adjustment under section 155(16) if the compensation is reduced on appeal. It is equally useful on the other side of the file. Where land devolves on co-heirs by inheritance and the only income is what the State pays on acquiring it, there is no joint enterprise and no AoP — the Revenue conceded the point here, and the Court settled it on Meera and Company and Indira Balkrishna. The line between section 28 and section 34 interest is the practical takeaway; the Land Acquisition Act award has to be read before the return is filed.
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The three respondents are brothers. Their father died leaving land admeasuring 17 acres and 11 gunthas to them and to two other persons, who relinquished their rights in the brothers' favour. Part of that inherited land was compulsorily acquired by the State Government and compensation was paid. On the brothers' reference the compensation was enhanced and additional compensation together with interest was awarded. The brothers filed returns as individuals. Two issues arose. The Assessing Officer assessed them as an association of persons rather than as individuals, and he refused to spread the interest on enhanced compensation over the years, taxing it in the year of receipt. The High Court decided both against the Revenue: it held that the brothers were to be assessed as individuals, and that the interest was to be spread from assessment year 1987-88, the year of dispossession, to assessment year 1999-2000, when it was actually received, on accrual principles. The Revenue appealed to the Supreme Court in eight appeals covering different assessment years, the issue being identical in all of them.
The appeals were allowed in part. On status the Revenue's counsel candidly conceded, and the Court agreed, that the brothers were rightly assessed as individuals: that part of the High Court's judgment stood. On the year of taxability the Court set aside the High Court's direction. The spread-over of interest received under section 28 of the Land Acquisition Act 1894 on the enhanced compensation was disallowed, with a direction that it be taxed in the year in which such interest was received. The Court drew and applied the distinction made in Ghanshyam (HUF): interest under section 28 is an accretion to the value of the land and therefore part of the enhanced compensation exigible to tax under section 45(5)(b), while interest under section 34, which depends on undue delay in making the award, is not treated in that way.
Two settled lines of authority did the work. On status the Court applied Meera and Company, which had gathered up Indira Balkrishna and G. Murugesan & Brothers. An association of persons means two or more persons joining in a common purpose or common action, and where the section imposes a tax on income the object of the association must be to produce income. Volition is an essential ingredient. Here the land came to the brothers on inheritance from their father, by operation of law, and the interest arose not from any business venture of theirs but from the State's act of compulsorily acquiring the land. The basic test for an AoP was therefore absent. On the second question the Court applied Ghanshyam (HUF), which had separated the two interest provisions of the 1894 Act. Section 28 empowers the court to award interest on the excess compensation determined on a reference under section 18, and that interest, like the additional amount under section 23(1-A) and solatium under section 23(2), is an accretion in the value of the land — part of the enhanced compensation within section 45(5)(b). Section 34 interest depends on delay and is interest simpliciter. On timing, section 45(5) was inserted with effect from 1 April 1988 as an overriding provision precisely because compensation under the 1894 Act arises in stages, unlike a sale. The legislature therefore treated enhanced compensation as deemed income taxed on receipt. Clause (c) of section 45(5) and section 155(16), inserted from 1 April 2004, reinforce this by providing for recomputation if the compensation is later reduced. Taxation on receipt necessarily excludes spreading the interest on accrual.
the interest earned under Section 28, which is on enhanced compensation, is treated as a accretion to the value and therefore, part of the enhanced compensation or consideration making it exigible to tax
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Handle my notice → Ask a CA on WhatsAppNo to the spreading, yes to being taxed as individuals. The Supreme Court held on 4 September 2014 that interest awarded under section 28 of the Land Acquisition Act 1894 is an accretion to the value of the land, so it forms part of the enhanced compensation under section 45(5)(b) and is taxable in the year it is received, not spread over the years from dispossession. Interest under section 34, which compensates undue delay in making the award, stands differently. On status, three brothers who inherit land by operation of law and receive compensation on compulsory acquisition form no association of persons, because volition to produce income is absent. This was decided by the Supreme Court (Supreme Court of India; J. Chelameswar and A.K. Sikri JJ, judgment delivered by A.K. Sikri J) and bears on section 45(5), section 45(5)(b), section 155(16) of the Income Tax Act 1961. It is reported as 2014 AIR SCW 6546; 2014 (16) SCC 449; AIR 2015 SC (SUPP) 668; (2014) 367 ITR 498; AIR 2015 SC (CIVIL) 381; (2015) 109 ALL LR 20; (2014) 10 SCALE 505. This is the short Supreme Court authority that applies Ghanshyam (HUF) to the two questions that actually come up in an acquisition assessment. Practitioners cite it for the receipt-basis rule: once interest is characterised as section 28 interest, the accrual argument is closed, and the whole amount falls into the year of receipt subject only to later adjustment under section 155(16) if the compensation is reduced on appeal. It is equally useful on the other side of the file. Where land devolves on co-heirs by inheritance and the only income is what the State pays on acquiring it, there is no joint enterprise and no AoP — the Revenue conceded the point here, and the Court settled it on Meera and Company and Indira Balkrishna. The line between section 28 and section 34 interest is the practical takeaway; the Land Acquisition Act award has to be read before the return is filed. If it applies to you, the first step is this: Get the reference court's award and identify which head each sum falls under — additional amount under section 23(1-A), solatium under section 23(2), section 28 interest, section 34 interest — because the tax treatment follows that characterisation and nothing else.
The three respondents are brothers. Their father died leaving land admeasuring 17 acres and 11 gunthas to them and to two other persons, who relinquished their rights in the brothers' favour. Part of that inherited land was compulsorily acquired by the State Government and compensation was paid. On the brothers' reference the compensation was enhanced and additional compensation together with interest was awarded. The brothers filed returns as individuals. Two issues arose. The Assessing Officer assessed them as an association of persons rather than as individuals, and he refused to spread the interest on enhanced compensation over the years, taxing it in the year of receipt. The High Court decided both against the Revenue: it held that the brothers were to be assessed as individuals, and that the interest was to be spread from assessment year 1987-88, the year of dispossession, to assessment year 1999-2000, when it was actually received, on accrual principles. The Revenue appealed to the Supreme Court in eight appeals covering different assessment years, the issue being identical in all of them. The matter was decided on 2014-09-04 by the Supreme Court (Supreme Court of India; J. Chelameswar and A.K. Sikri JJ, judgment delivered by A.K. Sikri J). On those facts the Supreme Court held as follows. The appeals were allowed in part. On status the Revenue's counsel candidly conceded, and the Court agreed, that the brothers were rightly assessed as individuals: that part of the High Court's judgment stood. On the year of taxability the Court set aside the High Court's direction. The spread-over of interest received under section 28 of the Land Acquisition Act 1894 on the enhanced compensation was disallowed, with a direction that it be taxed in the year in which such interest was received. The Court drew and applied the distinction made in Ghanshyam (HUF): interest under section 28 is an accretion to the value of the land and therefore part of the enhanced compensation exigible to tax under section 45(5)(b), while interest under section 34, which depends on undue delay in making the award, is not treated in that way.
Two settled lines of authority did the work. On status the Court applied Meera and Company, which had gathered up Indira Balkrishna and G. Murugesan & Brothers. An association of persons means two or more persons joining in a common purpose or common action, and where the section imposes a tax on income the object of the association must be to produce income. Volition is an essential ingredient. Here the land came to the brothers on inheritance from their father, by operation of law, and the interest arose not from any business venture of theirs but from the State's act of compulsorily acquiring the land. The basic test for an AoP was therefore absent. On the second question the Court applied Ghanshyam (HUF), which had separated the two interest provisions of the 1894 Act. Section 28 empowers the court to award interest on the excess compensation determined on a reference under section 18, and that interest, like the additional amount under section 23(1-A) and solatium under section 23(2), is an accretion in the value of the land — part of the enhanced compensation within section 45(5)(b). Section 34 interest depends on delay and is interest simpliciter. On timing, section 45(5) was inserted with effect from 1 April 1988 as an overriding provision precisely because compensation under the 1894 Act arises in stages, unlike a sale. The legislature therefore treated enhanced compensation as deemed income taxed on receipt. Clause (c) of section 45(5) and section 155(16), inserted from 1 April 2004, reinforce this by providing for recomputation if the compensation is later reduced. Taxation on receipt necessarily excludes spreading the interest on accrual. In the words reproduced by the source cited on this page: "the interest earned under Section 28, which is on enhanced compensation, is treated as a accretion to the value and therefore, part of the enhanced compensation or consideration making it exigible to tax"
It was decided by the Supreme Court on 2014-09-04 and is reported as 2014 AIR SCW 6546; 2014 (16) SCC 449; AIR 2015 SC (SUPP) 668; (2014) 367 ITR 498; AIR 2015 SC (CIVIL) 381; (2015) 109 ALL LR 20; (2014) 10 SCALE 505. 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 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 cuts both ways and is cited by both sides. The appeals were allowed in part. On status the Revenue's counsel candidly conceded, and the Court agreed, that the brothers were rightly assessed as individuals: that part of the High Court's judgment stood. On the year of taxability the Court set aside the High Court's direction. The spread-over of interest received under section 28 of the Land Acquisition Act 1894 on the enhanced compensation was disallowed, with a direction that it be taxed in the year in which such interest was received. The Court drew and applied the distinction made in Ghanshyam (HUF): interest under section 28 is an accretion to the value of the land and therefore part of the enhanced compensation exigible to tax under section 45(5)(b), while interest under section 34, which depends on undue delay in making the award, is not treated in that way. It arises in Capital Gains and Assessment & Scrutiny matters, on section 45(5), section 45(5)(b), section 155(16) of the Income Tax Act 1961, and was decided by Supreme Court of India; J. Chelameswar and A.K. Sikri JJ, judgment delivered by A.K. Sikri 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. Offer section 28 interest in the year of receipt; do not file on a spread-over basis and do not revise earlier years, because that argument is foreclosed. If the compensation is later reduced on further appeal, apply under section 155(16) for rectification rather than trying to adjust the original computation. Where co-heirs take by inheritance and do nothing jointly beyond receiving what the State pays, file as individuals and put the source of title on record; the absence of volition is the whole answer to an AoP assessment.
Still good law. A Supreme Court judgment of 4 September 2014, reported at (2014) 367 ITR 498, though the copy is marked Non-Reportable. It rests entirely on Ghanshyam (HUF), (2009) 8 SCC 412. A citator search returns 134 citing documents, almost all of them orders of the Tribunal. The Chandigarh Bench applied it in ITO v. Smt. Birmati, M.A. Nos. 61-109/Chd/2014, 7 February 2018, which was read: the Bench treated the proposition as settled by Ghanshyam (HUF) as reiterated here and dismissed the miscellaneous applications on that footing. Nothing overruling or doubting the judgment was found. But the reader must be shown a real division at Tribunal level on how far it reaches. Delhi Benches have held that it does not answer the question of taxability under the present provisions - see Jagjit Singh Kataria v. PCIT, 10 December 2024, and Vachaspati Sharma v. ITO, Ward-4(1), Gurgaon, 21 November 2024, both of which say that a deeper analysis shows it does not deal with any issue pertaining to a change in taxability - and the Chandigarh Bench in Kuldeep Singh v. PCIT, Hisar, 31 October 2018, said that the judgment 'would be of no help' because in it Ghanshyam was simply followed. Those orders were identified from the citator and not read. In two others the judgment appears only in the grounds of appeal, as in Giridhar Gopal Thakur v. ITO, Ward 2, Panvel, ITAT Pune, 24 November 2025, which was read and which decides nothing on the point. The statutory treatment of interest on compensation has also been altered since the assessment years in issue, so the timing rule must be read against the current provisions before it is relied on. 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 does not say which assessment years the eight appeals cover beyond the one worked example, and it does not set out the amounts. The Court gives no reasons of its own on the AoP question beyond applying Meera and Company, the Revenue having conceded it. More important for a current file: the assessment years here run to 1999-2000, so the Court was applying section 45(5) as it then stood. The batch line listed sections 56(2)(viii), 57(iv), 145B and 2(24) — the later scheme under which interest on compensation is charged as income from other sources with a standard deduction — and none of those provisions is mentioned or considered in this judgment. Whether and how far this decision survives that scheme is not something the judgment can answer, and I could not verify it. 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 in part. On status the Revenue's counsel candidly conceded, and the Court agreed, that the brothers were rightly assessed as individuals: that part of the High Court's judgment stood. On the year of taxability the Court set aside the High Court's direction. The spread-over of interest received under section 28 of the Land Acquisition Act 1894 on the enhanced compensation was disallowed, with a direction that it be taxed in the year in which such interest was received. The Court drew and applied the distinction made in Ghanshyam (HUF): interest under section 28 is an accretion to the value of the land and therefore part of the enhanced compensation exigible to tax under section 45(5)(b), while interest under section 34, which depends on undue delay in making the award, is not treated in that way.
TaxSphere, “CIT v Govindbhai Mamaiya”, https://taxnotice.vittsphere.com/caselaw/case/cit-v-govindbhai-mamaiya/ (validity last checked 2026-09-16)
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I withdrew enhanced land acquisition compensation under an interim High Court order while the appeal is still pending. Is it taxable now?
The court enhanced my acquisition compensation with interest. Which year is it taxed, and is the interest capital?
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?
