DR. SHAMLAL NARULA vs COMMISSIONER OF INCOME-TAX, PUNJAB

The Supreme Court held that the interest payable under Section 34 of the Land Acquisition Act, 1894 is not a capital receipt but a revenue receipt, thus liable to tax under the Indian Income-tax Act, 1922. The Court overruled previous decisions that classified such interest as capital, establishing that it compensates for the deprivation of the use of money rather than for the land itself. The appeal was dismissed, affirming the High Court's ruling that the interest is taxable income.