TMI Blog1986 (5) TMI 9X X X X Extracts X X X X X X X X Extracts X X X X ..... also awarded interest on the enhanced compensation from the date of acquisition to the date of payment of compensation at the rate of 6% per annum. The amount of interest up to November, 1970, was calculated to be Rs. 47,034. The Income-tax Officer took the view that the entire interest was assessable in the assessment year 1971-72. He, therefore, included the interest of Rs. 47,034 in the assessment of the assessee. On appeal, it was submitted before the Appellate Assistant Commissioner that the interest accrued to the assessee from year to year from the date of taking possession of the property by the Government up to the date of payment of the enhanced compensation and that the interest accruing in any particular year was assessable in that year. The Appellate Assistant Commissioner accepted the assessee's contention. He computed the interest receivable in the year under consideration at Rs. 3,939 and held that this amount was taxable in the year under consideration and allowed relief to the assessee of Rs. 43,095. Aggrieved by the order of the Appellate Assistant Commissioner, the Department came up in appeal before the Appellate Tribunal. It was submitted before the Tribu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accrue to the assessee from year to year but the interest under section 28 which is awarded by the court is liable to be assessed only in the year when the assessee either receives such interest or the liability for payment of such interest is finally determined. A large number of decisions had been cited by Mr. Bhattacharjee. It appears that there is a divergence of judicial opinion on the question of assessability of interest on the additional compensation awarded pursuant to the decree of the court. The High Courts of Andhra Pradesh, Gujarat, Kerala and Madhya Pradesh have taken the view that the right to additional compensation and interest thereon accrue only when such compensation and interest are finally determined by the statutorily designated authorities under the Land Acquisition Act. On the other hand, the High Courts of Mysore, Madras, Allahabad, Orissa and Delhi have taken a contrary view. It is, therefore, necessary to briefly discuss the relevant decisions to appreciate the contentions raised before us. In Khan Bahadur Ahmed Alladin Sons v. CIT [1969] 74 ITR 651 (AP), the land of the assessee was acquired in July, 1954. The Collector gave his award in October, 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e [1969] 74 ITR 651 (AP) are, by way of analogical extension, equally applicable to the case of interest and interest income under section 28 of the Land Acquisition Act accrues to the assessee on the date when the compromise decree was passed on May 9, 1963, whenfrom it was rendered payable or enforceable. In Topandas Kundammal v. CIT [1978] 114 ITR 237(Guj), the relevant notification under section 4 of the Land Acquisition Act was issued on October 15, 1959. The Special Land Acquisition Officer made an award on July 18, 1962, offering an amount of Rs. 24,293 by way of compensation for acquisition of the land. The assessee, being dissatisfied with the offer made, sought a reference under section 18 of the Land Acquisition Act. The Civil judge, Jamnagar, enhanced the amount of compensation and directed the Government to pay interest at the rate of 4%. The assessee was thus allowed additional compensation by the Civil Judge. It may be mentioned that the State Government carried the matter in appeal to the High Court and the High Court ultimately set aside the order of the Civil judge but in the meantime the question arose as regards the assessability of the additional compensation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quisition Officer awarded compensation to the assessee which was enhanced by the Subordinate District judge on October 28, 1968. The court also decreed to the assessee interest at the rate of 6% from the date of dispossession till the date of payment. The Kerala High Court, following its earlier decision in M. Jairam's case [1979] 117 ITR 638 (Ker), held that the interest on enhanced compensation could not be spread over the entire period commencing from the date of dispossession to the date of the decree passed by the court. The court was of the view that interest on the enhanced compensation decreed by the court was dependent on the discretion to be exercised by the court and that interest allowed on the enhanced compensation accrued to the assessee only on the date of the decree. In CIT v. Maharaja Yashwant Rao Pawar [1981] 127 ITR 650 (MP), the compensation was enhanced by the court by its decree dated February 7, 1970, which included interest of Rs. 43,431 for the period from April 1, 1965, to March 31, 1968, under section 28 of the Act and the enhanced amount of compensation including interest was received by the assessee in the previous year relevant to the assessment year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le in the year. There was 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 was income which accrued in the year in which it became so recoverable, within the meaning of section 4(1)(b)(i) of the Indian Income-tax Act, 1922. The attribution of the whole of that interest to the year of receipt was manifestly wrong. There the Mysore High Court observed as follows : " 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 recoverable within the meaning of section 4(1)(b)(i) of the Indian Income-tax Act, 1922, so long as that Act was in force, and, of section 5(1)(b) of the Income-tax Act, 1961, when that Act c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee by the Government for a property acquired in 1949 was ultimately fixed at Rs. 5,00,000 and the Government paid Rs. 2,54,885 in the assessment year 1955-56 and Rs. 3,73,831 in the assessment year 1956-57. The Officer took the view that the additional sum of Rs. 1,28,716 represented interest and apportioned the same for the two years. The matter came in reference before the Madras High Court. The Madras High Court held (headnote): " the liability to pay interest would arise when the compensation amount due to the assessee had not been paid in each of the relevant years and the method of accounting of the assessee being mercantile, the accrual of interest will have to be spread over the years between the date of acquisition and the date of actual payment." The Madras High Court, however, did not agree with the view of the Mysore High Court in the case of Sampangiramaiah [1968] 69 ITR 159 (Mys) in so far as it proceeded to hold that the accrual alone should be taken as the basis for assessment. In Joyanarayan Panigrahi v. CIT [1974] 93 ITR 102 (Orissa), an extent of land belonging to the assessee was acquired under two notifications and possession thereof taken on June ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... v. Virendra Singh [1979] 118 ITR 923 (All), the Bihar Government acquired lands belonging to the assessee, a retired Deputy Collector, and compensation amounting to Rs. 86,070.92 including interest of Rs. 2,506.92 up to the end of August, 1959, was paid to the assessee. As result of further appeals, the Patna High Court by order dated September 28, 1967, determined the compensation at Rs. 3,32,632.50, in addition to the amount fixed by the Land Acquisition Officer, and on this amount interest amounting to Rs. 1,68,176 was paid to the assessee on December 16, 1967. The assessee filed returns for the years 1960-61 to 1968-69, spreading the amount of interest over these years and the Income-tax Officer upheld the spread over and taxed the assessee on his returns. The Commissioner, on revision under section 263 of the Income-tax Act, 1961, held that the assessee's right to receive the interest came into existence only in consequence of the decision of the High Court quantifying the amount of compensation and directing payment of interest thereon and the Income-tax Officer had no power to relate back income that accrued or arose in a subsequent year to earlier years and set aside the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion. The Government is obliged to pay it : the assessee acquires a right to receive it. It is a debt owed by the Government: its liability to pay is certain although the amount is yet to be quantified." Thus, the view taken by the several High Courts is that the interest awarded by the court under section 28 of the Land Acquisition Act, will be assessable from year to year as the interest accrues from the date of dispossession. But the question is whether having regard to the nature of the proceeding under the Land Acquisition Act, it can be said that the assessment of interest shall be made on accrual basis. There is invariably a time lag between the taking of possession of the acquired land by the Collector and the payment or deposit of compensation to the owner of the land acquired. If the offer made by the Collector is not accepted, the owner of the land is entitled to have the matter decided by the civil court. The proceedings may not end in the first court and the question of correct amount of award may ultimately be decided by the highest court of the land. It might also happen that the order or award by the civil court or the High Court might be reversed. There is, there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... " are used to contradistinguish the word " receive ". Income is said to be received when it reaches the assessee. When the right to receive the income becomes vested in the assessee, it is said to accrue or arise. The basic concept is that he must have acquired a right to receive the income. There must be a debt owed to him by someone. Can it be said that as soon as an application is made under section 18 for a reference on the question of award or compensation by the Collector, the assessee has a right to get additional compensation or interest thereon ? From the date of dispossession, the assessee is entitled to compensation. He has got a right to receive the compensation as well as interest thereon under section 34 of the Act. But such compensation cannot, even if it accrues to him from the date of dispossession, unless there is an adjudication thereof by the Collector and award is made, the quantum cannot be determined. The right to receive an undetermined amount of compensation cannot be said to be a right in praesenti. Where the mercantile system of accounting is followed and interest is payable on the basis of accrual and where no date is fixed for payment of interest, inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... preme Court was considering the scope of section 34 of the Land Acquisition Act and whether the award given by the Collector was compensation for depriving the owner of the land of his right to possession of his property and, therefore, a capital receipt not liable to tax. The Supreme Court held that section 34 itself made a distinction between the amount awarded as compensation and the interest payable on the amount so awarded. The interest shall be paid on the amount awarded from the time the Collector takes possession until the amount is paid or deposited (at p. 154),: " If interest on the amount of compensation determined under section 23 is considered to be a part of the compensation or given in consideration of the compulsory nature of the acquisition, the Legislature would have provided for it in section 23 itself. But instead, payment of interest is provided for separately under section 34 in Part V of the Act under the, heading 'Payment'. It is so done, because interest pertains to the domain of payment after the compensation has been ascertained. It is a consideration paid either for the use of the money or forbearance from demanding it after it has fallen due." The S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd the compensation is properly described as interest." Thereafter, the Supreme Court observed (p. 156): " This passage indicates that interest, whether it is statutory or contractual, represents the profit the creditor might have made if he had the use of the money or the loss he suffered because he had not that use. It is something in addition to the capital amount, though it arises out of it. Under section 34 of the Act when the Legislature designedly used the word 'interest' in contradistinction to the amount awarded, we do not see any reason why the expression should not be given the natural meaning it bears. The scheme of the Act and the express provisions thereof establish that the statutory interest payable under section 34 is not compensation paid to the owner for depriving him of his right to possession of the land acquired, but that given to him for the deprivation of the use of the money representing the compensation for the land acquired." Thus, if the interest is paid to the owner for deprivation of the use of money representing the compensation for the land acquired, in that event there cannot be any option on the part of the court not to award interest under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther appeal, the Appellate Tribunal allowed the appeal and held that, as the appeal to the High Court challenging the validity of the enhanced amount was still pending and the claim of the assessee to receive the amount was sub judice and as the assessee had drawn the amount only after furnishing security, the assessee had no absolute right to receive the extra amount of compensation till the decision of the appeal to the High Court and, therefore, it could not have accrued during the relevant year. On a reference, this court considered the judgments of Ahmed Alladin (Khan Bahadur) Sons [1969] 74 ITR 651 (AP), Sampangiramaiah [1968] 69 ITR 159 (Mys) and Sham Lal Narula [1972] 84 ITR 625 (Punj) and several other decisions. This court held (p. 393): " On a consideration of these authorities, we are of the opinion that a compensation amount can only be considered to have accrued or arisen when the said amount has become determinate and payable. The authorities which we have discussed so far, in our opinion, support us in this view. Whether the amount of compensation is determinate and payable or not will necessarily depend on the facts of each particular case. In the facts of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herefore, of the opinion that the Tribunal in the instant case was right in coming to the conclusion that the said extra amount of compensation amounting to Rs. 7,24,914 was not income which accrued or arose during the previous year relevant to the assessment year 1956-57. " This court was of the view that the amount awarded by the Collector is a determinate amount and is payable. Therefore, the amount must be determinate as well as payable but so long as the award is not passed, the amount cannot be said to be determinate although some compensation is payable. That apart, so far as the claim for enhanced compensation is concerned, it does not become determinate unless the issue is adjudicated upon and decided. The amount of such compensation does not become payable unless settled by the court and accordingly the income does not accrue or arise. In our view, the legal position which emerges is that unless the actual amount of compensation has been fixed, no income can be said to accrue to an assessee. It is the amount of compensation judicially determined by the final court which accrues to him. There is no enforceable right to a particular amount of compensation and consequent ..... X X X X Extracts X X X X X X X X Extracts X X X X
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