TMI Blog2011 (3) TMI 1671X X X X Extracts X X X X X X X X Extracts X X X X ..... count of loss of earning of tea estate was income or capital receipt. It was observed that quality of payment was decisive of the character of income and compensation received was not income. In the context of compensation received under the Motor Vehicle Act, the compensation is either on account of loss of earning capacity on account of death or injury or on account of pain and suffering. Such receipt is not by way of earning or profit. Award of compensation is on the principle of restitution to place the claimant in the same position in which he would have been had the loss of life or injury not been suffered. In GOBALD MOTOR SERVICE LTD. ANOTHER VERSUS R.M.K. VELUSWAMI OTHERS. [ 1961 (4) TMI 100 - SUPREME COURT] The claim for damages falls under two separate heads. First, if the deceased had not been killed, but had eked out the full span of life to which in the absence of the accident he could reasonably have looked forward, what sums during that period would he probably have applied out of his income to the maintenance of his wife and family Having regard to nature of receipt of compensation as per award under the M.V.Act, compensation is in the nature of capi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that all the appeals involve common question of law. assessee under Section 260A of the Income Tax Act, 1961 (hereinafter referred to as the Act ) against order dated 31.10.2008 passed by the Income Tax Appellate Tribunal, Chandgiarh Bench (SMC-B), Chandigarh in ITA No.386/Chandi/2008, for the assessment year 2000-01, claiming following substantial questions of law:- i) Whether interest allowed by the Ld. MACT in accident case on the amount of award can be termed as 'Income from interest' or the same is a part of compensation for the delay caused in legal proceedings? ii) Whether the department can initiate action afterwards when it has already made the assessment and no infirmity was pointed out at the time of assessment? iii) Whether an order passed by the court is absolute and has to be complied with in Toto? iv) Whether the Judgment Debtor can make deductions and if so, whether it would amount to contempt of court? v) Whether interest allowed on compensation amount can be equated with interest earned on Principal amount? vi) Whether the interest awarded by the MACT is not a part of compensation? 3. The assessee is providi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest income from the compensation awarded by the MACT upto ₹ 50,000/- in a financial year. He also relies on Section 171 of the M.V.Act to submit that interest was not part of compensation but separate from it. 7. We have considered the rival submissions. 8. The question for consideration is whether interest component in MACT award has to be treated as taxable income or as part of compensation which being in the nature of capital receipt is not taxable. In our view, interest component is a part of compensation and is not taxable. 9. Admittedly, compensation under the award of MACT is not income. The expression income used in Entry 82 of List I of Seventh Schedule to the Constitution can be given widest meaning. Under Section 2(24), inclusive and not exhaustive definition has been given. 10. In absence of an express provision to the contrary, income can be held to refer to something earned. What is received as compensation for loss in one or the other form may not be income. 11. Considering this aspect, it was observed in Commissioner of Income Tax, Bengal Vs. Shaw Wallace and Company, AIR 1932 Privy Council 138 by Privy Council:- The object ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l conclusion that it is only in a case in which, if the payment is discontinued, the recipient will have an immediate right of action against the payer, that it will be income in his hands in the Indian income-tax sense. That is to put too limited a construction on the word income. If the payments are such as to come within the category of payments which are casual and nonrecurring, then it is to be observed that the Act itself has taken them out of the category of income . The very fact that the framers of the Indian Income-tax Act found it necessary by a special clause to exempt casual and non-recurring receipts from the category of income, profits and gains is itself, in my opinion, an indication that, but for that exemption, they are to be regarded as capable of falling within the class of income, profits or gains under the charging section. If it is to be assumed that ex hypothesi a casual and nonrecurring payment could never be income, then, as I see it, the statutory exception of it would be otiose and unnecessary. Another reason is afforded by Section 4 (3)(ii) of the Income-tax Act for inducing me to think that so narrow a construction cannot be placed on the word ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a period, are not income, but instalments payable at specified future dates of a purchase price. Such a case is illustrated by (1903) A.C.299. But, in their Lordships' judgment, the royalties here are clearly income and not capital. They are periodical payments for the continuous enjoyment of the various benefits under the leases. The actual acquisition of the property in a particular ton of coal at the moment when the lessees have cut and taken away the coal is only the final stage. 15. In Navinchandra Mafatlal, Bombay Vs.Commissioner of Income Tax, Bombay City, AIR 1955 S.C. 58, while considering the question whether capital gain could be treated as income if so provided for under statutory provisions, it was observed:- 7. What, then, is the ordinary, natural and grammatical meaning of the word income ? According to the dictionary it means a thing that comes in. (See Oxford Dictionary, Vol. V. p. 162; Stroud, Vol. II, pp. 14-16). In the United States of America and in Australia both of which also are English speaking countries the word income is understood in a wide sense so as to include a capital gain. Reference may be made to - 'Eisner v. Macomber', ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... doubt be some rational connection between the item taxed and the concept of income liberally construed. If the legislature realises that the private controlled companies generally adopt the device of making advances or giving loans to their shareholders with the object of evading the payment of tax, it can step in to meet this mischief, and in that connection, it has created a , fiction by which the amount ostensibly and nominally advanced to a shareholder, as a loan is treated in reality for tax purposes as the payment of dividend to him. We have already explainer how a small number of shareholders controlling a private company adopt this device. Having regard to the fact that the legislature was . aware of such devices, would it not be competent to the legislature to device a fiction for treating the ostensible loan as the receipt of dividend? In our opinion, it would be difficult to hold that in making the fiction, the legislature has travelled beyond the legislative field assigned to it by entry 82 in List 1. 18. In Senairam Doongarmall Vs. Commissioner of Income-Tax, Assam, AIR 1961 SC 1579, the question was whether compensation received from military authority on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . In the United States of America and in Australia both of which also are English speaking countries the word income is understood in a wide sense so as to include a capital gain. Reference may be made to Eisner v. Macomber, 252 US 189; Merchants Loan and Trust Co. v. Smietunka, 255 US 209 and United States v. Stewart, 311 US 60 and Resch v. Federal Commissioner of Taxation, 66 CLR 198 (1943). In each of these cases very wide meaning was ascribed to the word income as its natural meaning. The relevant observations of learned Judges deciding those cases which have been quoted in the judgment of Tendolkar, J. quite clearly indicate that such wide meaning was put upon the word income not because of any particular legislative practice either in the United States or in the Commonwealth of Australia but because such was the normal concept and connotation of the ordinary English word income . Its natural meaning embraces any profit or gain which is actually received. This is in consonance with the observations of Lord Wright to which reference has already been made. The argument founded on an assumed legislative practice being thus out of the way, there can be no di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Tribunal to award interest on the claim made under the Act from the date of making the claim. It reads thus: 171.Award of interest where any claim is allowed: Where any Claims Tribunal allows a claim for compensation made under this Act, such Tribunal may direct that in addition to the amount of compensation simple interest shall also be paid at such rate and from such date not earlier than the date of making the claim as it may specify in this behalf. 24. In the context of compensation under the provisions of Land Acquisition Act, 1894, the Hon'ble Supreme Court in Commissioner of Income-Tax Vs. Ghanshyam (HUF), (2009) 315 ITR 1 SC held that interest paid by the Collector under Section 34 of the said Act was part of compensation and was treated to be at par with the compensation for purposes of taxability. The relevant observations therein are:- Section 28 of the 1894 Act applies only in respect of the excess amount determined by the Court after reference under Section 18 of the 1894 Act. It depends upon the claim, unlike interest under Section 34 which depends on undue delay in making the award. It is true that interest is not compensation. It is equ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he principal sum actually advanced, so as to become an amalgam of principal in such cases where it is permissible or obligatory for the Court to hold so. Where the principal sum (on the date of suit) has been so adjudged, the same shall be treated as principal sum for the purpose of such principal sum - the expression employed later in Section 34 of C.P.C. The expression principal sum cannot be given different meanings at different places in the language of same section, i.e. Section 34 of C.P.C. 26. The principle in Ghanshyam applies to award of interest from the date of claim to the date of receipt of the awarded amount under the Land Acquisition Act. 27. The apex Court in Tuticorin Alkali Chemicals and Fertilizers Limited v. Commissioner of Income Tax, (1997) 227 ITR 172 had noted that ordinarily, the interest received is income but it would not be of revenue nature where it is received by way of damages or compensation. 28. In view of the above, the interest component in compensation awarded by MACT is part of compensation and has to be treated as capital receipt and not income till the claimant received the amount in pursuance of award. However, differen ..... X X X X Extracts X X X X X X X X Extracts X X X X
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