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?
The Punjab and Haryana High Court held that the insertion of s.56(2)(viii) and s.57(iv) has changed the position, and that interest received on compensation or enhanced compensation is to be treated as income from other sources and not under the head capital gains. It said in terms that Ghanshyam does not come to the rescue of a claimant seeking to have s.28 interest treated as compensation, and it expressly recorded its disagreement with the Gujarat High Court in Movaliya Bhikhubhai Balabhai.
Decided by the High Court (Ajay Tewari J and Avneesh Jhingan J (High Court of Punjab and Haryana at Chandigarh)) on 2020-02-19, reported as CWP No. 17971 of 2019. It bears on section 56(2)(viii), section 57(iv), section 145A, section 10(37), section 45(5), section 45 of the Income Tax Act 1961, in Capital Gains, How Tax Law Is Read and Assessment & Scrutiny matters.
This is the decision that most Assessing Officers now rely on to bring the interest component of an acquisition award to tax at full rates under s.56(2)(viii), with the fifty per cent deduction under s.57(iv), instead of letting it ride into exempt or concessionally taxed capital gains. Three things about it matter for how far you can push back. First, it is a High Court decision, binding in Punjab, Haryana and Chandigarh and persuasive elsewhere. Second, the Supreme Court dismissed the Special Leave Petition against it on 4 March 2021 by a one-line order with no reasons — that leaves the judgment standing but it is not an affirmance of the reasoning and does not make it the law of the land under Article 141. Third, the Court did not distinguish the Gujarat High Court; it disagreed with it, saying so in terms. So on the interest question there is a genuine conflict between two High Courts, and outside Punjab and Haryana a claimant is entitled to argue for the Gujarat view, with the additional point that a Revenue petition against the Gujarat judgment was pending in the Supreme Court after notice was issued on 17 July 2017. Note also what the Court did NOT decide: it was not concerned with the s.96 RFCTLARR exemption, and it says nothing about compensation as opposed to interest.
Binding within that High Court's jurisdiction. Persuasive elsewhere.
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The petitioner's land was compulsorily acquired. He challenged an order dated 30 January 2019 rejecting his claim, and asked the High Court to hold that interest received under s.28 of the Land Acquisition Act, 1894 was part of compensation assessable under the head capital gains, relying on the Supreme Court in Ghanshyam (HUF), on clause 46.1 of CBDT Circular No. 5 of 2010, and on the Gujarat High Court in Movaliya Bhikhubhai Balabhai. He also argued that because no corresponding amendment had been made to s.10(37), the position under Ghanshyam was unchanged. The Revenue relied on ss.56(2)(viii) and 57(iv). The petitioner was represented by Mr. Pankaj Jain, Senior Advocate; the respondents by Mr. Sandeep Goyal, Senior Standing Counsel.
The writ petition was dismissed. Interest received on compensation or enhanced compensation is to be treated as income from other sources and not under the head capital gains. In view of ss.56(2)(viii) and 57(iv), Ghanshyam does not assist a claimant seeking to have s.28 interest treated as compensation. The absence of an amendment to s.10(37) does not change the position, because s.10 does not lay down what is to be included under the head capital gains. The Court declined to follow the Gujarat High Court in Movaliya Bhikhubhai Balabhai, recording that with utmost respect it was not in agreement with the view taken there.
The Court held that the scheme for chargeability of interest received on compensation and enhanced compensation has undergone a sea change with the insertion of ss.56(2)(viii) and 57(iv): s.56(2)(viii) brings interest received on compensation or enhanced compensation as referred to in clause (b) of s.145A under the head income from other sources, and s.57(iv) gives a fifty per cent deduction on it. On the circular, it held that the taxpayer had read clause 46.1 alone, which speaks of the hardship of taxing arrears of interest on accrual, and clause 46.2, which explains the amendment to s.145A; clause 46.3, which deals with s.56(2)(viii) and states that such interest shall be assessed as income from other sources, had been ignored. On the Gujarat decision, the Court noted that it had proceeded on Circular No. 5 of 2010 and held that the Finance Act, 2010 amendments were directed at the hardship created by Rama Bai rather than at Ghanshyam, and that s.28 interest continues to partake of the character of compensation — and said it was not in agreement. It added that the language of ss.56(2)(viii) and 57(iv) is plain, simple and unambiguous, leaving no scope for taking outside aid, and cited the Supreme Court in I.T.C. Ltd. v. Commissioner of Central Excise, 2004(7) SCC 591, for the rule that words in a fiscal statute are construed according to their ordinary and natural meaning irrespective of the object with which the provision was introduced.
In view of the above, it is held that the interest received on compensation or enhanced compensation is to be treated as "income from other sources" and not under the head "Capital gains".
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Handle my notice → Ask a CA on WhatsAppThe Punjab and Haryana High Court held that the insertion of s.56(2)(viii) and s.57(iv) has changed the position, and that interest received on compensation or enhanced compensation is to be treated as income from other sources and not under the head capital gains. It said in terms that Ghanshyam does not come to the rescue of a claimant seeking to have s.28 interest treated as compensation, and it expressly recorded its disagreement with the Gujarat High Court in Movaliya Bhikhubhai Balabhai. This was decided by the High Court (Ajay Tewari J and Avneesh Jhingan J (High Court of Punjab and Haryana at Chandigarh)) and bears on section 56(2)(viii), section 57(iv), section 145A, section 10(37), section 45(5), section 45 of the Income Tax Act 1961. It is reported as CWP No. 17971 of 2019. This is the decision that most Assessing Officers now rely on to bring the interest component of an acquisition award to tax at full rates under s.56(2)(viii), with the fifty per cent deduction under s.57(iv), instead of letting it ride into exempt or concessionally taxed capital gains. Three things about it matter for how far you can push back. First, it is a High Court decision, binding in Punjab, Haryana and Chandigarh and persuasive elsewhere. Second, the Supreme Court dismissed the Special Leave Petition against it on 4 March 2021 by a one-line order with no reasons — that leaves the judgment standing but it is not an affirmance of the reasoning and does not make it the law of the land under Article 141. Third, the Court did not distinguish the Gujarat High Court; it disagreed with it, saying so in terms. So on the interest question there is a genuine conflict between two High Courts, and outside Punjab and Haryana a claimant is entitled to argue for the Gujarat view, with the additional point that a Revenue petition against the Gujarat judgment was pending in the Supreme Court after notice was issued on 17 July 2017. Note also what the Court did NOT decide: it was not concerned with the s.96 RFCTLARR exemption, and it says nothing about compensation as opposed to interest. If it applies to you, the first step is this: Identify the year. This judgment is about years governed by s.56(2)(viii) and s.57(iv), which the Court traced to the Finance Act, 2010 amendments explained in CBDT Circular No. 5 of 2010. For earlier years Ghanshyam applies undiluted.
The petitioner's land was compulsorily acquired. He challenged an order dated 30 January 2019 rejecting his claim, and asked the High Court to hold that interest received under s.28 of the Land Acquisition Act, 1894 was part of compensation assessable under the head capital gains, relying on the Supreme Court in Ghanshyam (HUF), on clause 46.1 of CBDT Circular No. 5 of 2010, and on the Gujarat High Court in Movaliya Bhikhubhai Balabhai. He also argued that because no corresponding amendment had been made to s.10(37), the position under Ghanshyam was unchanged. The Revenue relied on ss.56(2)(viii) and 57(iv). The petitioner was represented by Mr. Pankaj Jain, Senior Advocate; the respondents by Mr. Sandeep Goyal, Senior Standing Counsel. The matter was decided on 2020-02-19 by the High Court (Ajay Tewari J and Avneesh Jhingan J (High Court of Punjab and Haryana at Chandigarh)). On those facts the High Court held as follows. The writ petition was dismissed. Interest received on compensation or enhanced compensation is to be treated as income from other sources and not under the head capital gains. In view of ss.56(2)(viii) and 57(iv), Ghanshyam does not assist a claimant seeking to have s.28 interest treated as compensation. The absence of an amendment to s.10(37) does not change the position, because s.10 does not lay down what is to be included under the head capital gains. The Court declined to follow the Gujarat High Court in Movaliya Bhikhubhai Balabhai, recording that with utmost respect it was not in agreement with the view taken there.
The Court held that the scheme for chargeability of interest received on compensation and enhanced compensation has undergone a sea change with the insertion of ss.56(2)(viii) and 57(iv): s.56(2)(viii) brings interest received on compensation or enhanced compensation as referred to in clause (b) of s.145A under the head income from other sources, and s.57(iv) gives a fifty per cent deduction on it. On the circular, it held that the taxpayer had read clause 46.1 alone, which speaks of the hardship of taxing arrears of interest on accrual, and clause 46.2, which explains the amendment to s.145A; clause 46.3, which deals with s.56(2)(viii) and states that such interest shall be assessed as income from other sources, had been ignored. On the Gujarat decision, the Court noted that it had proceeded on Circular No. 5 of 2010 and held that the Finance Act, 2010 amendments were directed at the hardship created by Rama Bai rather than at Ghanshyam, and that s.28 interest continues to partake of the character of compensation — and said it was not in agreement. It added that the language of ss.56(2)(viii) and 57(iv) is plain, simple and unambiguous, leaving no scope for taking outside aid, and cited the Supreme Court in I.T.C. Ltd. v. Commissioner of Central Excise, 2004(7) SCC 591, for the rule that words in a fiscal statute are construed according to their ordinary and natural meaning irrespective of the object with which the provision was introduced. In the words reproduced by the source cited on this page: "In view of the above, it is held that the interest received on compensation or enhanced compensation is to be treated as "income from other sources" and not under the head "Capital gains"." The decision followed or applied I.T.C. Ltd. v. Commissioner of Central Excise, New Delhi, 2004(7) SCC 591 — applied, on strict construction of unambiguous fiscal language; CIT v. Ghanshyam (HUF) — held not to assist the petitioner for a year governed by ss.56(2)(viii) and 57(iv); Movaliya Bhikhubhai Balabhai v. ITO (TDS), Gujarat High Court — expressly dissented from; Rama Bai v. CIT — referred to, as the decision at which the Finance Act, 2010 amendment was said by the Gujarat High Court to be directed.
It was decided by the High Court on 2020-02-19 and is reported as CWP No. 17971 of 2019. Binding within that High Court's jurisdiction. Persuasive elsewhere. A High Court decision binds the assessing officer, the Commissioner (Appeals) and the Income Tax Appellate Tribunal within that state, and is persuasive elsewhere. If your assessment is in a different jurisdiction, check whether your own High Court has taken the same view before relying on it. On section 56(2)(viii), section 57(iv), section 145A, section 10(37), section 45(5), section 45, 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 writ petition was dismissed. Interest received on compensation or enhanced compensation is to be treated as income from other sources and not under the head capital gains. In view of ss.56(2)(viii) and 57(iv), Ghanshyam does not assist a claimant seeking to have s.28 interest treated as compensation. The absence of an amendment to s.10(37) does not change the position, because s.10 does not lay down what is to be included under the head capital gains. The Court declined to follow the Gujarat High Court in Movaliya Bhikhubhai Balabhai, recording that with utmost respect it was not in agreement with the view taken there. It arises in Capital Gains, How Tax Law Is Read and Assessment & Scrutiny matters, on section 56(2)(viii), section 57(iv), section 145A, section 10(37), section 45(5), section 45 of the Income Tax Act 1961, and was decided by Ajay Tewari J and Avneesh Jhingan J (High Court of Punjab and Haryana at Chandigarh). 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. Split the receipt into compensation and interest. This judgment reaches only the interest; the compensation, the s.23(1A) additional amount and the s.23(2) solatium are untouched by it. If you are in Punjab, Haryana or Chandigarh, offer the interest under s.56(2)(viii) and claim the s.57(iv) fifty per cent deduction rather than fighting the head of income — and check that the Assessing Officer has actually allowed the fifty per cent. Outside that jurisdiction, put the Gujarat High Court's view in Movaliya Bhikhubhai Balabhai on record and note that this Court disagreed with it rather than distinguishing it, so there is no reconciliation to be drawn from the judgment itself. Do not overstate the Supreme Court's dismissal of the Special Leave Petition on 4 March 2021 — it is a refusal of leave, not a judgment, and does not merge the High Court's reasoning into a Supreme Court holding. Read CBDT Circular No. 5 of 2010 in full before citing clause 46.1. The Court's answer to the taxpayer was that clause 46.3 of the same circular deals with s.56(2)(viii) and says the interest shall be assessed as income from other sources.
High Courts differ on this point. The judgment itself stands. The Special Leave Petition against it, SLP(C) No. 3021 of 2021, was dismissed by the Supreme Court (Rohinton Fali Nariman and Hrishikesh Roy JJ) on 4 March 2021 by an order reading in its entirety: 'The Special Leave Petition is dismissed. Pending application stands disposed of.' That is a refusal of leave without reasons and is not a declaration of law; it leaves the High Court's reasoning where it was and does not make it binding elsewhere under Article 141. The conflict is between two High Courts, and it is a stated disagreement rather than a distinction. This Court records in terms that it is not in agreement with the Gujarat High Court in Movaliya Bhikhubhai Balabhai. The Supreme Court issued notice on the Revenue's petition against that Gujarat judgment on 17 July 2017 in Diary No. 15394/2017 and tagged it with W.P.(C) No. 590 of 2016; the outcome has not been traced, and until it is known the conflict stands unresolved at the highest level. No search for later Punjab and Haryana or Supreme Court decisions on the point has been carried out beyond the Special Leave Petition record. The practical consequence is jurisdictional. In Punjab, Haryana and Chandigarh this judgment governs, and the interest should be offered under s.56(2)(viii) with the fifty per cent deduction under s.57(iv) claimed. Elsewhere the claimant may argue for the Gujarat view, and should say plainly that this Court disagreed with it rather than distinguishing it, so there is no reconciliation available from the judgment itself. What would displace it: a decision of the Supreme Court on the Gujarat appeal, or a larger Bench holding that s.56(2)(viii) taxes only interest of the s.34 kind and leaves the s.28 accretion inside compensation. 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.
IMPORTANT ON LOCATORS: this judgment carries NO numbered paragraphs. It runs as continuous prose. Numbered inventories of it are in circulation — one gives fourteen paragraphs — but those numbers are not the Court's and do not correspond to anything in the judgment. No paragraph number is therefore cited anywhere in this entry, and the key quotation is located by its position: it is the concluding holding immediately before the disposal. The quoted sentence has been confirmed a second time in identical words. The judgment's own concluding page marker reads '9 of 9', which is how its length can be checked. On the Gujarat High Court decision it disagrees with: Movaliya Bhikhubhai Balabhai has NOT been read for this entry. Its substantive judgment is dated 31 March 2016, and what is readily available under that name is an oral order of 30 March 2016 recording that arguments were concluded and the matter posted for dictation of judgment on the following day, together with a later miscellaneous application. Everything said in this entry about the Gujarat view is what THIS Court says about it, and is labelled as such throughout. A practitioner intending to run the Gujarat view must read that judgment himself; it is not safe to take it second-hand from the Court that rejected it. Two things about the shape of the decision are worth carrying. It is a writ judgment dismissing a challenge to an order of 30 January 2019 rejecting the claim, so it upholds an administrative refusal rather than deciding an assessment appeal. And the Court's route on the circular is narrow and easily answered in argument: it did not hold Circular No. 5 of 2010 irrelevant, but that the taxpayer had read clause 46.1 in isolation and ignored clause 46.3, which deals with s.56(2)(viii) and states that such interest shall be assessed as income from other sources. Anyone citing clause 46.1 should be ready for clause 46.3. Finally, what the Court did NOT decide. It was not concerned with the s.96 exemption under the 2013 Act, and it says nothing about compensation as distinct from interest: the s.23(1A) additional amount and the s.23(2) solatium are untouched by it. Two further points about the shape of the litigation. The challenge was to an order of 30 January 2019 rejecting the claim, so the Court was reviewing an administrative refusal and not deciding an appeal from an assessment. And the petitioner's argument that the absence of any amendment to s.10(37) left Ghanshyam intact was answered on the ground that s.10 does not lay down what is to be included under the head capital gains — which is a point of structure and is available in any jurisdiction. 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 writ petition was dismissed. Interest received on compensation or enhanced compensation is to be treated as income from other sources and not under the head capital gains. In view of ss.56(2)(viii) and 57(iv), Ghanshyam does not assist a claimant seeking to have s.28 interest treated as compensation. The absence of an amendment to s.10(37) does not change the position, because s.10 does not lay down what is to be included under the head capital gains. The Court declined to follow the Gujarat High Court in Movaliya Bhikhubhai Balabhai, recording that with utmost respect it was not in agreement with the view taken there.
TaxSphere, “Mahender Pal Narang v Central Board of Direct Taxes”, https://taxnotice.vittsphere.com/caselaw/case/mahender-pal-narang-v-cbdt-section-28-interest-taxable-as-income-from-other-sources-after-2010/ (validity last checked 2026-09-08)
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