TMI Blog1962 (1) TMI 64X X X X Extracts X X X X X X X X Extracts X X X X ..... iala Government under Patiala Act 3 of 1995 Bk. On 15th October, 1951, possession of the land was taken over by the Government though by that date the amount of compensation to which the assessee was entitled had not been determined. An award was given by the Collector of Pepsu on 30th September, 1955, and the assessee received a sum of ₹ 2,81,822 which included a sum of ₹ 48,660 as interest. The following is the relevant extract from the award made by the Collector of Pepsu: Hence I am of the opinion that the market value of the land in question is ₹ 5,000 per bigha. The total amount of compensation of the land acquired comes to ₹ 2,02,750. The possession of this land was taken by the acquiring department on October 5, 1951. As such the owner of the land is entitled to receive an interest at the rate of 6% per annum on the amount to be paid as price of the land. The amount of interest comes to ₹ 48,660; in addition to it the owner of the land is entitled to receive an amount of ₹ 30,412 at the rate of 15% on account of the compulsory nature of acquisition. Thus the grand total of the amount comes to ₹ 2,81,822? The interest of S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... after hearing such objections and after an enquiry, may submit the case to the appropriate Government for its decision. On the appropriate Government being satisfied as to the need for acquisition, a declaration with particulars is published in the Official Gazette (section 6). The Collector then causes the land to be marked out, measured and a plan to be made (section 8), and causes a public notice inviting persons concerned to claim compensation (section 9). Under section 11, the Collector proceeds to enquire into the objections and then makes an award, which is final except as otherwise provided in the Act. On making the award, the Collector may take possession of the land which thereupon vests absolutely in the Government free from all encumbrances (section 16). The Collector has special powers in cases of emergency (section 17). The award made by the Collector is not decisive and any person who is dissatisfied with the award may require the Collector to refer it for the determination of the court (section 18); and the procedure for reference is provided: vide sections 19 to 22. Section 23 is important as it lays down the matters which the court must take into consideration in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss into court. Section 31 requires the Collector to tender payment of the compensation awarded by him and to pay the amount to persons interested unless prevented by certain specified contingencies. Section 34, the interpretation of which is sought in the question of law referred to us, deals with payment of interest and runs as under: 34. When the amount of such compensation is not paid or deposited on or before taking possession of the land, the Collector shall pay the amount awarded with interest thereon at the rate of six per centum per annum from the time of so taking possession until it shall have been so paid or deposited. The provisions that follow do not require any detailed notice as they deal with temporary occupation of land, acquisition of land for companies, and miscellaneous matters with which this court is not concerned for purposes of this case. The words compensation and interest which occur in section 34 may now be considered. In the absence of any statutory definitions, their uncircumscribed application is prone to cause confusion. As the connotation of these two terms does not admit of precision, and admits of considerable flexibility and var ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stitutes or is regarded as equivalent or recompense for loss or privation. Ordinarily, the word compensation connotes equivalency, which adequately remunerates for a loss or deprivation, or for a service rendered, though under a statutory definition, it may indicate not what constitutes, but what by the legislature is treated as equivalent. Thus it will be noticed that in whatever range the connotation of the term interest or compensation may oscillate, or, whether the sense in which it may be understood is strict or liberal, the meanings of the two terms largely overlap. In these circumstances, it will not be free from confusion if the answer to the question posed is to be furnished by styling the amount either as interest and therefore taxable or as compensation and, consequently, immune from tax liability. I am aware of certain decided cases in which the decision has rested on whether a particular sum is interest or compensation for incurring or avoiding tax liability. Blind adherence to nomenclature or labels will be treading on treacherous ground. It is the essence of the transaction more than the appellation which has to be looked for. What is of consequence is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of a fund and income partakes of the character of a flow. In popular and also in legal parlance capital is understood as the source of income and income as the fruit of capital. The yard-stick in all such cases will be not the caption but the contents whether styled as interest , compensation , damages , or award . This matter was examined by the House of Lords in Westminster Bank Ltd. v. Riches [1947] A.C. 390; 28 Tax Cas. 159, in considerable detail and certain observations are in the nature of loci classici. The House of Lords overruled the decision in In re National Bank of Wales Ltd. [1899] 2 Ch. 629, negativing the contention that interest which was really by way of damages could not be income for purposes of income-tax law. It was held that the real question in cases of this type was not whether the amount received was interest, principal or damages, but whether it was income or capital sum estimated in terms of interest. In that case, a decree was passed against the Westminster Bank for 36,255 as representing a debt due to Riches and in the exercise of its statutory powers the court also awarded a further sum of 10,028 as representing interest due on the debt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r sense' or 'interest proper', expressions heard many times by your Lordships. This argument appears to me fallacious. It assumes an incompatibility between the ideas of interest and damages for which I see no justification. It confuses the character of the sum paid with the authority under which it is paid. Its essential character may be the same, whether it is paid under the compulsion of a contract, a statute or a judgment of the court. In the first case it may be called 'interest', and in the second and third cases 'damages in the nature of interest', or even 'damages'. But the real question is still what is its intrinsic character, and in the consideration of this question a description due to the authority under which it is paid may well mislead. (page 194). Lord Simonds also referred to a decision in Glenboig Union Fireclay Co. Ltd. v. Commissioners of Inland Revenue [1922] 12 Tax Cas. 427., where the claim to tax was rejected because, though certain sums were described as interest, yet in substance a capital sum of compensation was awarded, the element of interest being introduced in modum aestimationis . Reference was also made t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mentioned in section 23 which in the hands of the person whose land is acquired would come as a capital receipt. Besides the amount which represents such compensation , the Collector is required to pay the amount awarded with interest at 4 per cent. per annum from the time of taking possession until payment. This payment calculated at the rate of 4 per cent. per annum represents the return on the capital or income which the statute determines and to which such a person is entitled on the investment of the amount of compensation as comprehended by section 23. In other words, this is the quid pro quo for the loss of income which would have been earned on the investment of the capital sum which has been replaced by the land acquired. It, therefore, essentially retains the character of income and cannot be confused with capital. Section 34 makes it obligatory on the Collector to pay this amount as a recompense for the delayed payment of the compensation, representing the value of the land, of which he has been deprived by reason of compulsory acquisition. The observations of the Supreme Court in the case of Satinder Singh v. Umrao Singh [1961] 3 S.C.R. 676; A.I.R. 1961 S.C. 908 are a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x Act was: Whether the sum of ₹ 12,415 received by the petitioner as interest from the Improvement Trust was part of his income, profits or gains within the meaning of the Act? The view expressed by the Allahabad High Court was that the interest awarded under section 28 of the Act was in the nature of compensation for the loss of the late owner's right to retain possession of the property acquired. In other words, it was damages assessed in terms of interest for loss of possession of property up to the date of the receipt of its consideration. The Bench expressed the opinion that the money in question did not represent the interest which the assessee might have received by investing the principle sum. One reason which induced the Bench to come to that conclusion was that under section 28 the awarding of interest was not mandatory, but was discretionary with the court and the claimant was not entitled to it as of right under any rule of law, but under section 34 under which the interest in the instant case has been calculated, it is compulsorily awardable. While answering the question referred in the negative, the High Court observed: It was not without conside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... servations which have already been cited above. The above Full Bench decision of the Allahabad High Court is helpful as the observations made in it bear some analogy to the nature of the amount which the Commissioner of Income-tax claims to be chargeable to income-tax. Just as the interest of 2 per cent. payable under the compensation bonds partook of the nature of income, being a return for the use of the assessee's money by the Government for similar reasons in this case, the interest of 4 per cent. which is being paid under section 34 of the Land Acquisition Act is for deprivation of the use of the amount of compensation which was payable on or before taking of possession of the land. The Madras High Court in Narayanan Chettiar's case* doubted the correctness of the decision in Behari Lal Bhargava's case# and the reasoning of the Allahabad High Court was not followed. In the Madras case on the death of the assessee's father the amount due to the assessee and his brother on account of their father's share was held to be a specified sum due to them in 1921, the date of the death of their father. The assessee and his brother being minors, the amount was not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would not be chargeable to income-tax as that is a part of damages, but where a sum is due on a definite date with interest for use of the principal amount, it is none the less interest and chargeable to income-tax, although it is recovered along with the principal. Reliance was placed, inter alia, upon the observations of Lord Johnston in Schulze v. Bensted [1915] 7 Tax Cas. 30. The principle propounded in the judgment is unexceptionable. Referring to the sum received by the assessee as interest at the rate of 3 per cent., Lord Johnston remarked: When it reached the hands of the trustees it was a surrogatum for that which ought to have termly reached the hands of the trustees and have been applied by them as income, in which case it would have been subject to income-tax,... The receipts may fall between either of the two categories regardless of how they are styled. Whether they partake of the nature of capital receipts even if styled as interest or of revenue receipts, though called by the name of damages or compensation, does not really matter. There is no observation in the above named Patna case which could be treated as laying down any proposition in support of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l income of the person receiving it in view of section 4(3)(vii) of the Income-tax Act. I do not think this argument is helpful to the assessee. This matter was also considered in Commissioner of Income-tax v. Kameshwar Singh [1953] 23 I.T.R. 212, to which decision a reference has already been made in another connection. The Income-tax Officer had assessed to tax a sum of ₹ 10,497 which in the hands of the assessee had been calculated as interest due, the assessee's contention on the other hand being that the amount was not taxable, because it was really not interest but was in the nature of damages for retention of money and also because it was a casual and non-recurring receipt within the meaning of section 4(3)(vii). The last argument also did not find favour with the High Court and it seems to have adopted the view taken by the House of Lords in Westminster Bank Ltd. v. Riches [1947] 28 Tax Cas. 159, 197; [1947] A.C. 390.. The relevant observations of Lord Simonds are: ...I do not understand why a sum which is calculated upon the footing that it accrues de die in diem has not the essential quality of recurrence in sufficient measure to bring it within the scope of ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
