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TMI Blog1962 (1) TMI 64X X X X Extracts X X X X X X X X Extracts X X X X ..... tiala State. This land was acquired by the Patiala 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 co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y object to the acquisition and the Collector, 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 w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... land to the date of payment of such excess 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 no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... money. It also is considered in the nature of premia paid for use of money usually reckoned on percentage basis. The term "compensation" is used to indicate what constitutes 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& ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income or is merely a substitute for capital would depend upon the interpretation of the statutory provisions examined in the background of its essential character having regard to the facts and circumstances of the particular case. That which is derived, gained or accrues from capital is income, the essential difference being that the capital is in the nature 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 tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agreement or statute, as for instance under section 57 of the Bills of Exchange Act, 1882, or was unliquidated and claimable under the Act as in the present case. The essential quality of the claim for compensation is the same, and the compensation is properly described as interest." (page 189). Lord Simonds remarked: "Here the argument is that, call it interest or what you will, it is damages and, if it is damages, then it is not 'interest in the proper 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 d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ideration in determining "compensation" for the acquisition of the land. This compensation represents the value of the land acquired and from its very nature assumes the character of capital. The words in section 34 "when the amount of such compensation is not paid or deposited on or before taking possession of the land......" refer to the principal amount which takes the place of the loss of capital assets resultant from the acquisition. The words "such compensation" refer to the compensation 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eference having been made by him to the Tribunal, the amount of compensation was increased. Consequently, the Improvement Trust who had acquired the property was directed under section 28 of the Land Acquisition Act to pay interest to him from the date of taking possession of the property to the date of payment. On his father's death the assessee received a certain sum as share of interest and the income-tax authorities assessed this amount to income-tax. The question of law referred to the High Court under section 66 of the Income-tax 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce" and, therefore, taxable. In this connection the earlier Allahabad decision in Behari Lal Bhargava's case [1941] 9 I.T.R. 9 was considered and distinguished. It was also mentioned that the decision was not followed in the following cases: Commissioner of Income-tax v. Narayanan Chettiar [1943] 11 I.T.R. 470; Gopaldas Mohta v. Commissioner of Income-tax [1951] 20 I.T.R. 516; Commissioner of Income-tax v. Kameshwar Singh*** for the reason, that the learned judges who decided that case were not very sure about the correctness of their conclusion in view of their observations 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 2½ 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gh Court in Commissioner of Income-tax v. Rani Prayag Kumari Debi [1940] 8 I.T.R. 25. These observations relate to the particular facts of that case which are no analogue for this case. The Patna decision referred to cases dealing with the situation where damages, pure and simple, had been awarded. The essential test which was preferred by the Patna High Court on a review of a number of decisions in English cases was that nomenclature did not matter. A sum may be recovered by styling it as interest, though essentially it may be by way of damages. If that be so, its receipt 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 3½ per cent., Lord Johnston remarked: "When it reached the hands of the trustees it was a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pensation for loss of profits for the period during which, it was imagined, the assessee's business would remain stopped before it could be restarted at new premises, and that being so, it was a revenue receipt and liable to tax. It was also observed that as it was a trading receipt, it could not be held to be exempt from tax under section 4(3)(vii) of the Income-tax Act either. The next argument urged before us by the learned counsel for the assessee was that the amount of ₹ 48,660 was "of a casual and nonrecurring nature" and as such could not be included in the total 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 natur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch compensation" as is payable under section 23. This receipt is not casual in the sense of what happens by accident or what is brought about by an unknown cause. A casual happening is one which comes to pass without design and without being foreseen or expected; it may be said to be fortuitous or accidental or the result of an unknown cause or chance. The payment under section 34 cannot be said to be without apparent cause, or in any unaccountable manner, or as a mere coincidence, or not designedly brought about in the sense of being unexpected, unforeseen or without regularity. The word "casual" is an antonym for "regular" in the sense that something happens at uncertain times. In this sense payment under section 34 is not casual. Once payment of the compensation under section 23 is withheld after the taking of possession of the land acquired, the payment of interest at 4 per cent. per annum becomes not casually but regularly and recurrently payable. I cannot, therefore, persuade myself to treat the receipt as exempt from tax on the ground that it is "of a casual and non-recurring nature". For reasons stated above I would answer the question of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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