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TMI Blog1972 (8) TMI 37X X X X Extracts X X X X X X X X Extracts X X X X ..... e said Act. 3.24 acres of land in the other village came to be notified for acquisition on April 12, 1957. On October 18, 1957, possession thereof was taken and the competent authority under rule 5 offered compensation of Rs. 2,514.03 on August 11, 1958. The assessee objected to the quantum of compensation and claimed higher compensation. Under section 7 of the Orissa Act, the dispute was referred to arbitration and the arbitrator ultimately determined the compensation on the basis of the law laid down in the case of State of Orissa v. Bharat Chandra Nayak. On 30th of January, 1961, the entire compensation was paid for both the lands including interest of Rs. 15,519 for the first acquisition and Rs. 941 for the second acquisition. As indicated above possession had been taken of the lands in village Pudapara in June, 1956. Therefore, payment of interest of Rs. 15,519 was for the period between June 11, 1956, and 30th of January, 1961. In regard to the lands in the other village, possession had been taken from April, 1957, and the interest paid related to the period from 1957 up to 1961. On receipt of the notices under the Act calling for the return for the assessment year 1961-62, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... value of the land. Their Lordships of the Supreme Court in the case of Dr. Sham Lal Narula v. Commissioner of Income-tax have laid down that while the amount of compensation is not liable to tax as income being a capital receipt, interest is income and is exigible to income-tax. That view has been reiterated in the case of Commissioner of Income-tax v. Saila Behari Lal Singha. The Income-tax Act of 1922 remained in force till March 31, 1962, and with effect from 1st of April, 1962, the Income-tax Act of 1961 came into force. The income arose at a time when the 1922 Act was in force, but the liability to make a return, if any, arose under the new Act. Section 4(1)(b)(i) of the 1922 Act provided : " Subject to the provisions of this Act, the total income of any previ ous year of any person includes all income, profits and gains from whatever source derived which-...... (b) if such person is resident in the taxable territories during such year,- (i) accrue or arise or are deemed to accrue or arise to him in the taxable territories during such year, or, In the new Act, section 4 of the Act is the charging section. Under sub-section (1): " Where, any Central Act enacts that income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n only such part out of the total of income which accrued to the assessee during the assessment year 1961-62 could be brought into the net of taxation. In the case of. E. D. Sasson & Company Ltd. v. Commissioner of Income-tax, their Lordships stated : " It is clear, therefore that income may accrue to an assessee without the actual receipt of the same. If the assessee acquires a right to receive the income, the income can be said to have accrued to him though it may be received later on its being ascertained. The basic conception is that he must have acquired a right to receive the income. There must be a debt owed to him by somebody. There must be as is otherwise expressed debitum in preasenti, solvendum in futuro.... Unless and until there is created in favour of the assessee a debt due by somebody it cannot be said that he has acquired a right to reveive the income or that income has accured to him." Their Lordships again said : " It is no doubt true that the accrual of income does not upon its ascertainment or the accounts cast by the assessee. The accounts may be made up at a much later date. That depends upon the convience of the assessee and also upon the exigencies of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a particular contract. No other relevant provision of the Act has been brought to our notice for there is none which provides an exception that though an assessee does not acquire a right to receive an income under a contract in a particular accounting year, by some fiction the amount received by him in a subsequent year in connection with the contract, though not arising out of a right accrued to him in the earlier year, could be related back to the earlier year and made taxable along with the income of that year. But that legal position which is sought to be reached by a process of reasoning found favour with English courts. It is said that on the basis of proper commercial accounting practice, if a transaction takes place in a particular year, all that has accrued in respect of it, irrespective of the year when it accrues, should belong to the year of transaction and for the purpose of reaching that result closed accounts could be reopened. Whether this principle is justified in the English law, it has no place under the Indian Income-tax Act. When an Income-tax Officer proceeds to include a particular income in the assessment, he should ask himself, inter alia, two questions, n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,519.00 941.00 16,460.00 -------------------------------------------------------------------------------------------------------------------------------------------------- According to the assessee, the total interest paid to him of Rs. 16,460 related to five accounting. years as indicated above and interest had accrued to the assessee to the extent indicated during each of the years. As such, portions of the total amount of interest received by him to the extent indicated during the different accounting years can only be taken into account for the purposes of assessment under the Act in the respective years. On such basis, the proportionate income during each.year falls below the taxable limit and, therefore, the assessee had no liability under the Act, either to make a return or suffer an assessment. The revenue has taken the stand that the assessee does not maintain any books of account and, therefore, cannot as a matter of right ask for a particular method of accounting to be followed. The assessee had not offered for assessment the income as and when it accrued. In other words the assessee had not chosen the accrual method. Therefore, he cannot be permitted to adopt the sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... maintain accounts in this case. The assessee is a non-trader and but for the acquisition of his capital assets, namely, the agricultural lands, and payment of compensation in lieu thereof together with interest, the assessee would have had no liability to be dealt with under the Act. As already indicated, the right to receive interest under the Land Acquisition Act is based on the concept that the owner of the land entitled to receive compensation is kept out of the land by being dispossessed and is not paid the compensation representing the market value of such land. Interest accrues during the intervening period between dispossession on one side and paying it of compensation on the other. Thus the right to receive interest flows out of the statutory provision and at the rate of six per cent. on the total amount of compensation and such interest is payable for the period between the two events indicated above. Quantification of interest is dependent upon what the compensation. ultimately turns out to be. In the instant case, the assessee was dispossessed long before the actual quantification of the compensation by the arbitrator.Thus the right to receive interest had accrued and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , and the assessee acquired the right to recover it from him. The direction of the District Judge for the payment of interest on the enhanced compensation, which his decree made on February 28, 1951, incorporated, produced the right to recover such interest at least on the date of that decree. Then again, when compensation was further enhanced by the former High Court of Mysore which made a similar direction for the payment of interest on such enhanced compensation, all that interest which that amount so earned from February 19, 1949, became immediately due and payable under an executable decree ......." So, the premise that the right to no part of the interest was born until the Land Acquisition Officer made his arithmetic after the Supreme Court disposed of the appeals cannot have the support of reason. There was thus a complete acquisition of the right to recover the accumulated interest on the amount awarded by the Land Acquisition Officer when possession was taken, and on the enhancement, when the appropriate decree made such enhancement and to subsequent interest so long as it ran but was not paid. Such interest became income which accrued in the year in which it became so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. The omission by the assessee to include the interest which had so accrued to him in the returns of the earlier years cannot yield the deduction that he chose to treat the interest as the income of the year in which he received it. Indeed, no such theory was evolved at any stage. On the contrary, it should be remembered that the contention of the assessee has all along been that no part of the interest was a revenue receipt and it is not unintelligible that it is due to that reason that there was an omission to disclose the interest which had accrued due when he produced the returns for the earlier years." The explanation of the assessee in the instant case was also similar, namely, no part of the payment by the competent authority was taxable under the Income-tax Act. In the Punjab judgment, it has again been reiterated: "The interest is definitely accruing each year and is payable as such after the possession is taken from the owner." We are satisfied that the assessee's stand is supported by the aforesaid decision. Both the Mysore and the Punjab judgments have relied upon the principles laid down by the Supreme Court and in our view have come to the correct conclusion on t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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