TMI Blog1985 (12) TMI 117X X X X Extracts X X X X X X X X Extracts X X X X ..... llage S. No. land owner Ac. Cts. ------------------------------------------------------------------------ Kolluru Ramaiah Marripalem 145-1Ai 0-98 141-1A 3-73 146-3B 0-77 146-3C 0-02 ---- Total 5-50 ------------------------------------------------------------------------ 3. The Government acquired 73.38 cents for Boys Training Establishment. The particulars in Form No. 'J' were published in the AP Gazette dated 11-1-1973. By its letter dated 26-2-1977, the Government of India accorded sanction for payment of Rs. 33,93,875.73 towards payment of compensation for the acquired land. In the abovesaid notification published in the AP Gazette it is clearly noted that inter alia, the above lands were also sought to be acquired under section 7(1) of the said Act. Out of the tentative value fixed as compensation the assessee received payment in two ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the date of notification. The notification was made in December 1972. Had the competent authority fixed the compensation and paid the same, the claimant would have invested the same for better purposes. The claimant was derived out utilising the amount from December 1972. So far as the claim for interest no provision has been made in the Act. Section 1 of the Interest Act (33 of 1979) vest in the every Court the discretion to allow interest on all sums certain which are payable by one part to other. The amount of compensation payable by the government to the land owner under the Act becomes a sum certain as soon as it is ascertained by passing award by the arbitrator. The arbitrator has, therefore, the jurisdiction to award interest under section 1 of the Interest Act even in the absence of any specific provision under RAIP Act. The proviso to section 1 is also significant. That shows that the liability to pay interest created by the purview of that section is intended to fill in a gap in that respect which has been left in section 8 of the Act which creates the liability of the State to pay the amount of compensation to the owner. The claim of interest at the rate of 16 per cent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore, taxable. (ii) The calculation of interest may be used merely as a means of arriving at a capital sum of damages in which event it would not be exigible to tax. The AAC held that in the case before him the compensation has been fixed separately at a fixed sum and interest is awarded thereon. Therefore, he deduced that it is not a case where compensation is computed through the medium of interest. He had distinguished the Orissa High Court decision in Govinda Choudhury Sons' case. by stating that in the said case interest was not awarded under any statute or contract whereas in the case before us interest was awarded by the learned arbitrator by invoking the provisions of section 1 of the Interest Act, 1979. It was argued before the AAC that if the interest can be granted under the said Act then only it is taxable but if interest is allowed by invoking the provisions of the Interest Act then it is not taxable and the principle in the Orissa High Court in Govinda Choudhury Sons' case cannot but be applied. The AAC held that following the decision of the Hon'ble Supreme Court in the case of Dr. Shamlal Narula v. CIT [1964] 53 ITR 151 the term interest should be given its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ause the person is kept out of his money, the interest received is chargeable to tax as income." 5. The alternative contention that the entire amount of interest should be spread over the entire period beginning December 1972 to March 1980 was negatived by following the decision in the case of CIT v. Smt. Sankari Manickyamma [1976] 105 ITR 172 (AP). It was contended before the AAC that the decision in the case of Smt. Sankari Manickyamma was rendered with reference to the provisions of section 28 of the Land Acquisition Act, 1894, under which award of interest on the additional compensation is discretionary and it arises only from the discretion exercised in favour of the claimant. However, in this case the said Act does not contain any provision for grant of interest and so the decision in Smt. Sankari Manickyamma's case does not apply to the facts of the case. However, the AAC did not appreciate the distinction thus drawn between the two cases and he held as follows: "In my opinion this much of distinction will not decide the issue. In the case of CIT v. Smt. Sankari Manickyamma [1976] 105 ITR 172 (AP) the decision is based upon the reasoning that award of interest being disc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tent authority from the date of notification i.e., from 14-12-1972 till 31-3-1981 is held to have accrued to the assessee during the financial year 1980-81 in which year the arbitrator has passed his award and, therefore, it became assessable in the assessment year 1981-82. He also directed the ITO to find out the basis of calculation made by the Government while quantifying the interest in terms of the arbitrator's award and following the same basis he directed the ITO to recalculate as to the accrual of interest to the assessee on the quantum of the original compensation at the rate of 6 per cent as fixed by the arbitrator and, accordingly, he should arrive at the quantum of interest. Aggrieved against the impugned order of the AAC, the assessees came up in second appeals before this Tribunal and thus the matters stand for our disposal. 6. Before this Tribunal it is contended firstly by Shri M.J. Swamy, the learned advocate for the assessees, that there is no provision for grant of interest in the said Act. Under section 7, a property which is under requisition already can be acquired by the Government. Under section 7(2) when a notice of acquisition is put in the Official Gaze ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere is no specific provision for grant of interest under the said Act some High Courts took the view that interest can be granted when properties were acquired under the said Act. But he is quick to add that the High Courts considered the interest thus granted only as part of compensation or as part of the costs awarded by the arbitrator. 7. The learned departmental representative, on the other hand, relied upon the orders of the lower authorities and he contended that cogent reasons were given for coming to the conclusion, firstly that the interest is revenue receipt and secondly that it is taxable in a lump sum in the assessment year 1981-82. 8. Thus we have considered the arguments and we are inclined to agree with the learned advocate for the assessee. Firstly, we have to hold that unlike in the Land Acquisition Act, in the said Act, there is no provision empowering either the competent authority or the arbitrator to grant either solatium or statutory interest or discretionary interest. Despite the absence of any such provision the Courts were in the habit of granting interest. In order to substantiate this point we may refer to the decision in Binu Nalufar Haq v. Collector ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t was paid though called interest was in truth compensation for loss suffered on account of deprivation of property. These two cases were approved as having been correctly decided by the Hon'ble Supreme Court in T.N.K. Govindaraju Chetty v. CIT [1967] 66 ITR 465. Referring to these two English decisions it is observed by the Supreme Court as follows : "... It may be recalled that in those cases the arbitrator and the Arbitral Tribunal, were, in awarding interest, not seeking to give effect to or to recognise a right to interest, conferred by statute or contract..." The Orissa High Court had the occasion to consider the correct ratio of the Hon'ble Supreme Court in T.N.K. Govindaraju Chetty's case in Govinda Choudhury Sons' case. The High Court held the ratio of the Supreme Court in T.N.K. Govindaraju Chetty's case as follows : "The Supreme Court in Govindarajulu Chetty's case [1967] 66 ITR 465 laid down the clear rule that where interest has been awarded under statute or under contract, the same is income exigible to tax and where it is not attributable to either statute or contract, but has been awarded on ex gratia basis, it would partake the character of compensation. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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