1978 (2) TMI 38 - HC - Income Tax

Summary

Issues involved: Determination of taxability of interest income received by a retired Deputy Collector from land acquisition compensation, spread-over of interest income in different assessment years, interpretation of provisions of the Income Tax Act and Land Acquisition Act.

Summary:

The High Court of Allahabad considered a case where a retired Deputy Collector received compensation for land acquisition, including interest, and spread-over the interest income in different assessment years. The Commissioner, u/s 263 of the I.T. Act, directed the entire interest income to be assessed in the year 1968-69, which was challenged by the assessee. The Tribunal upheld the assessee's claim, stating that the right to interest started from the date of land takeover, not the date of compensation determination. The Court was asked to decide the taxability of the interest amount in the assessment year 1968-69 or previous years.

The Court referred to various legal precedents and held that income accrues when the right to receive it comes into existence. Interest under the Land Acquisition Act is a debt that accrues from the date of land possession, creating a statutory liability for the Collector to pay interest until compensation is paid. The interest income accrued each year and should be taxed accordingly. The assessee, not being a property dealer, was not required to maintain accounts, and the method of maintaining accounts was irrelevant.

The Court distinguished other cases where compensation was considered revenue due to profit-making schemes or business transactions. In this case, the interest income was correctly spread-over the years it accrued. The Court ruled in favor of the assessee, stating that the interest income should be taxed based on the year it accrued. The assessee was awarded costs amounting to &8377; 200.

In conclusion, the Court held that the interest income from land acquisition compensation should be taxed based on the year it accrued, supporting the assessee's position and ruling against the department.