TMI Blog1939 (9) TMI 3X X X X Extracts X X X X X X X X Extracts X X X X ..... , a collateral, took possession of all these properties as the owner of the Jharia Raj. In 1919 the assessee along with two other co-widows of the late Raja instituted a suit for recovery of possession of the whole of the impartible Raj including the moveable and immovable properties thereof chiefly on the ground that Raja Shiva Prasad Singh was not the rightful owner and that the three Ranis as heirs of their deceased husband were entitled to succeed to the Raj and all other properties left by the previous Raja. The defendant, Raja Shiva Prasad Singh, claimed to be in rightful possession of all the properties in suit as the rightful Raja and also relied upon certain deeds called bantannamas executed by the plaintiffs by which the Ranis were alleged to have relinquished their claims for consideration. He also pleaded that the acquisitions made by the Raja were accretions to the Raj and therefore belonged to the defendant by virtue of his right of ownership to the impartible Raj. The history of the litigation is elaborately set out in Shiba Prasad Singh v. Prayag Kumari Debi (I.L.R. 61 Cal. 711). The decision of the Calcutta High Court was affirmed substantially by the Privy Council ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... received a sum of Rs. one lakh which according to the terms of the compromise just set out was credited in the proportion of six annas towards the capital (Rs. 37,500) and the balance (Rs. 62,500) towards damages. The Income-tax Department taxed the assessee on among other items this sum of ₹ 62,500 which was asserted as being income received by the assessee in the previous year. The contention of the assessee that this amount was not income but merely an amount received by her on account of damages awarded to her for the detention of her properties was overruled. The question for consideration, therefore, is whether the sum of ₹ 62,500 received by the assessee by way of damages awarded to her by a decree in the circumstances stated above is assessable to income-tax. As has been pointed out by the Lord President in Renfrew Town Council v. Commissioners of Inland Revenue (19 Tax Cas. 13 at page 18) the question is never more embarrassing than when it is concerned with payments in the nature of compensation or damages. The Income Tax Rules are of little assistance when it becomes necessary to distinguish between a capital receipt and a revenue one . A large number of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting the consent agreement of the parties at the stage when the case was before Romer, J. (See per Lord Wright towards the end of his judgment). Lord Justice Slesser in his judgment pointed out that it is important to turn to the statement of claim upon which Captain Barnato ultimately succeeded in obtaining money through the process of the order of the Court the investigation and ultimate compromise, to see whether there is any suggestion in that statement of claim that damages in the sense in which they were claimed, or said to have been claimed, in the case of the National Bank of Wales (1899, 2 Ch. 629) were ever demanded at all and he pointed out that the whole matter was put as on a basis of wrongful accounting and failure to account for matters which ought to have been accounted for and made this important observation: It seems to me that such a demand for an account and inquiry as to the administration of the trusts and the partnership is wholly different from a claim sounding in damages or anything like damages . Towards the end of his judgment he also indicates that where on the consideration of the realities of the case, it emerges that the money is paid as in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ze v. S.W. Bensted (7 Tax Cas. 30) Lord Johnston observed: The question is whether a sum paid under decree eo nomine as interest on a principal sum recovered by the pursuers in an action, was interest in their hands which fell to be assessed to income tax. Where a pursuer recovers damages with interest from the date of decree, I do not think that that interest is chargeable. It is part of the damages. But where a sum is due on a definite date, with interest from the date of advance and decree goes out the case is different. The interest ought to have been in the creditor's hands on the stipulated date, and is none the less interest when it is recovered along with the principal under the decree. Between these two cases there may be many, some partaking more of the characteristics of the one, some more of those of the other; and at the same page he later on observed that in the circumstances of the case there was restored to the trust a principal sum which ought throughout to have been in the trustee's hands and bearing interest, and there was also restored to the trust a sum representing that interest at the rate of 3? per cent. so that when it reached the hands of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , if he thinks it just and reasonable in a particular case, to make the allowance in the from 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 in modum aestimationsis only. The interest is such merely in name, for it truly constitutes that part of the compensation decerned for which is attributable to the fact that the claimant has been kept out of his due for a long period of time . Simpson v. Executors of Bonner Maurice as Executor of Edward Kay (14 Tax Cas. 580) has an important bearing on the question which is now before us. In that case a naturalized British subject, domiciled and ordinarily resident in the United Kingdom,had at various dates deposited securities, stocks and shares in banks in Germany with instructions to collect the interest thereon; he died during the Great War. Before the termination of the war, however, the interest and dividend in respect of the securities were duly collected by the Bank but owing to the legal position created by the war the owner or his r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nstrument at a certain time, or after a demand has been made giving notice that interest will be charged. Now it is quite clear that there was no contract made by the Germans to pay this interest. The duty to pay compensation was imposed upon them by the Treaty. The Statute does not apply it, and the root of the payment is the duty to pay compensation. So far as English law goes, as pointed out by Lord Herschell and the others, and much as they would desire to impose a liability to pay interest, yet interest cannot be given under English law by way of damages for the detention of the debt; and he concluded his remarks thus: For withholding this sum, for preventing Mr. Kay, or his executors, exercising the power of disposition over his property, the Germans have been compelled to pay compensation. The way to estimate that compensation or damages-the sensible way no doubt-would be by calculating a sum in terms of what interest it would have earned. That has been done, but the sum that was paid has not been turned into interest so as to attach Income Tax to it. Lord Justice Lawrence and Lord Justice Russell came to the same conclusion. This group, then, deals with th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Limited v. Commissioners of Inland Revenue, (16 Tax Cas. 67), the appellant company jointly with another company bought a motor vessel second-hand and immediately placed it in the hands of repairers for overhaul. But the time stipulated for completion of the overhaul was exceeded and the owning companies claimed from the repairers damages calculated by reference to the estimated profit which would have been earned by the vessel had she been trading during the excess time taken for overhaul. The claim having been compromised and the repairers having paid certain sums towards the amount agreed upon, the question arose whether the sum was assessable to income-tax. The Court of Session, Scotland, came to the conclusion that the amount received was a trading receipt and should be included in the computation of the Company's profits. This group, therefore concerns with the receipts of damages or compensation in the course of business or trade carried on by a trader. The present case falls, in my opinion, within the second line of cases referred to by me above. The amount of ₹ 60,500 was received as damages for detention of the moveable properties of the Rani for the wrongfu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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