1984 (6) TMI 10 - HC - Income Tax

Summary

Issues Involved:
1. Basis for calculating interest on compensation for tax assessment.
2. Accrual of interest on compensation for tax purposes.
3. Year of taxability of interest on compensation.

Summary:

1. Basis for Calculating Interest on Compensation for Tax Assessment:
The primary issue was whether the Appellate Tribunal was correct in holding that only interest at 5% on Rs. 82,500, the balance of compensation awarded by the Land Acquisition Officer, was assessable for the assessment years 1972-73 to 1975-76. The Department contended that the assessee's claim for higher compensation should be the basis for calculating interest. The Tribunal upheld the Appellate Assistant Commissioner's decision, stating that the interest should be calculated only on the awarded amount, as the claim for higher compensation was still under dispute.

2. Accrual of Interest on Compensation for Tax Purposes:
The court examined the statutory provisions of the Land Acquisition Act, 1894, particularly sections 4, 6, 11, 12, 18, 23, 28, 31, and 34. It was noted that interest under sections 28 and 34 is awarded to compensate for the delay in payment of compensation. The Supreme Court in Dr. Shamlal Narula v. CIT [1964] 53 ITR 151 (SC) clarified that interest awarded under these sections is not compensation for loss of possession but for the delay in payment. The court reiterated that the right to receive compensation and enhanced compensation are not separate rights but part of the right to receive proper compensation.

3. Year of Taxability of Interest on Compensation:
The court addressed whether the interest on compensation should be taxed in the year it is received or accrued. Referring to E. D. Sassoon & Company Ltd. v. CIT [1954] 26 ITR 27 (SC), it was emphasized that income accrues when there is a right to receive it, not necessarily when it is received. The court held that the mere claim for higher compensation cannot be the basis for accruing interest for tax purposes. The interest should be taxed in the year it accrues, which is when the right to receive it is established by an enforceable decree. The court rejected the Department's alternative contention that interest should be taxed in the year it is received, citing the decision in CIT v. V. Sampangiramaiah [1968] 69 ITR 159 (Mys), which held that interest accrues from the date of dispossession and should be taxed proportionately over the relevant years.

Conclusion:
The court answered the question in the affirmative, against the Department, maintaining that interest on compensation should be assessed based on the awarded amount and accrued proportionately from the date of dispossession. The decision in CIT v. V. Sampangiramaiah was upheld, and no costs were ordered.