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TMI Blog1967 (4) TMI 12X X X X Extracts X X X X X X X X Extracts X X X X ..... rnment of Madras absolutely in consequence of an order made on May 24, 1949, by the Collector of Madras, under section 5 of the Requisitioned Land (Continuance of Powers) Act, 1947, declaring the intention of the Government of Madras to acquire that property. The assessees declined the offer made by the Collector to pay Rs. 2,40,000 as compensation for acquisition of the property and interest at the rate of 6 per cent. thereon from the date of the notification for acquisition, and the dispute relating to the compensation payable to the assessees was referred to the Chief Judge of the Court of Small Causes, Madras. By order of the High Court of Madras in appeal from the order of the Chief Judge it was adjudged that the assessees be paid Rs. 5,00,000 as compensation for the property. The High Court also awarded interest at the rate of 6% on the amount of compensation from the date of the notification for acquisition. During the two previous years corresponding to the assessment years 1955-56 and 1956-57, the assessees received, pursuant to the order of the High Court, a total sum of Rs. 6,28,716 : In the proceedings for the assessment of tax for the assessment years 1955-56 and 1956 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pplicable. An appeal lies against the award of the arbitrator to the High Court. Sub-sections (2) and (3) of section 19 confer upon the Central Government authority to frame rules for the purpose of carrying into effect the provisions of section 19. In exercise of that power, the Government of India framed " The Defence of India (Payment of Compensation and Arbitration) Rules, 1943, " which amongst other provisions directed that the Collector shall pay compensation as soon as may be practicable. But neither section 19(1) of the Defence of India Act, nor the Rules framed under section 19(2) and (3) provide that interest shall be paid on the amount of compensation. In the present case, interest was, however, offered to be paid by the Collector; and the High Court also awarded interest on the amount of compensation from the date of the notification of acquisition. It was held by this court in Dr. Shamlal Narula v. Commissioner of Income-tax that the statutory interest paid under section 34 of the Land Acquisition Act, 1894, on the amount of compensation awarded from the date on which the Collector has taken possession of the land compulsorily acquired under the Land Acquisition Act, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... name of interest was part of damages, and was not "interest of money" chargeable to income tax under Case III of Schedule D. Lord President Clyde observed : " Now it is familiar that an assessment of the kind may contain as one of its constituent elements an allowance in respect that the claimant has lain for a long time out of his remedy. The propriety of such an allowance may depend on the character of the claim, and its amount may depend on many considerations of which time is only one. But an interest calculation is a natural and legitimate guide to be used by an arbiter in arriving at what he thinks would be a fair amount. In most cases in which such an allowance is a constituent of an award it does not separately appear, but is slumped along with other elements in the gross sum decerned for ; but there is nothing to prevent an arbiter, if he thinks it just and reasonable in a particular case, to make the allowance in the form of an actual interest calculation from a past date until the sum fixed as at that date is paid. In all such cases, however---whether the allowance is wrapped up in a slump award or is separately stated in the decree---the interest calculation is used i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... what was paid, though called " interest ", was in truth compensation for loss suffered on account of deprivation of property. According to the view taken by this court in Dr. Shamlal Narula's case, if the source of the obligation imposed by the statute to pay interest arises because the claimant is kept out of his money, the interest received is chargeable to tax as income. The same principle would apply if interest is payable under the terms of an agreement and the court or the arbitrator gives effect to the terms of the agreement---express or implied---and awards interest which has been agreed to be paid. It is therefore necessary to determine whether the obligation to pay interest awarded under the order of the High Court of Madras arose out of the statute or out of the award. In Satinder Singh v. Amrao Singh, lands forming part of Cis-Sutlej Jagir were compulsorily acquired under the East Punjab Acquisition and Requisition of Immovable Property (Temporary Powers) Act, 1948. The climants to the lands claimed in addition to statutory compensation, interest from the date from which they were dispossessed and till the date of payment of compensation. The arbitrator appointed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ory acquisition interest should be paid to him on the said amount of compensation. The scheme of the East Punjab Acquisition and Requisition of Immovable Property (Temporary Powers) Act, 1948, is similar to the scheme of the Requisitioned Land (Continuance of Powers) Act, 1947. The court in Satinder Singh's case held that, because of the injunction expressly to apply the provisions of section 23(1) of the Land Acquisition Act, 1894, in the determination of compensation, the application of sections 28 and 34 dealing with the payment of interest on the amount awarded as compensation cannot be deemed excluded. This court also held that when the owner of property is dispossessed pursuant to an order for compulsory acquisition, an agreement that the acquiring authority will pay interest on the amount of compensation is implied." The reasoning on which the right of the owner of the lands acquired to interest was affirmed in Satinder Singh's case, prima facie, applies in this case, Counsel for the assessees contended that the application of sections 28 and 34 of the Land Acquisition Act in proceedings for arbitration under the Requisitioned Lands (Continuance of Powers) Act, 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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