9911796707
TMI Blog1980 (9) TMI 8X X X X Extracts X X X X X X X X Extracts X X X X ..... bunal where she also claimed compensation for damage suffered due to delay in making the award under s. 48A of the said Act. Following an unreported decision of this court in Appeal from Original Decree No. 173 of 1953 entitled Kedarnath Jute Manufacturing Co. Ltd. v. State of West Bengal, the Calcutta Improvement Tribunal by its judgment and order dated the 22nd February, 1960, awarded a further compensation to the assessee as follows : Rs. (a) Compensation for damage 26,982.71 (b) Interest at 6 per cent on the above amount 3,507.75 (c) Cost 624.07 --------- 31,114.53 --------- In her assessment for the assessment year 1963-64 for which the relevant previous year ended on the 27th October, 1962, the assessee claimed that the said sum of Its. 31.114.53 was additional compensation for acquisition of her said land. The ITO, following an order of assessment in an earlier year in respect of the said initial compensation awarded to the assessee, held that Rs. 26,983 was taxable as capital gains and that the balance of Rs. 4,132 was taxable as income from other sources and levied tax accordingly. In her appeal to the AAC the assessee contended that Rs. 26,983 was no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en challenged by the Revenue by raising an appropriate question and the same is not in issue in this reference. Mr. Subas Sen, learned counsel for the Revenue, did not dispute such contention on behalf of the assessee. Mr. Sen, however, contended that the observations of the Tribunal that s. 12B(1) of the 1922 Act did not cover compulsory acquisition and hence the said sum was not taxable as capital gains were erroneous. In this connection he cited Mangalore Electric Supply Co. Ltd. v. CIT [1978] 113 ITR 655, where the Supreme Court held that the word " transfer " in s. 12B(1) of the 1922 Act included compulsory acquisition of property. Section 48A of the L.A. Act, 1894, as it stood before its amendment by the Calcutta Improvement (Amendment) Act, 1955, may be referred to all this stage : " 48A. Compensation to be awarded when land not acquired within two years.-(1) If within a period of two years from the date of the issue of the public notice under sub-s. (1) of s. 9, in respect of any land, the Collector has not made an award under s. 11 with respect to such land, the owner of the land shall, unless he has been to a material extent responsible for the delay, be entitled to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A. In support of his contention Mr. Sen cited the following decisions i 1. An unreported decision of a Division Bench of this court in Appeal from Original Decree No. 182 of 1953, entitled Mirza Nasir Ali v. State of West Bengal. This was an appeal from a decision of the Calcutta Improvement Tribunal awarding compensation. The appellants contended that they were entitled to compensation under s. 48A of the L.A. Act for loss suffered by them for delay in making the award as the early receipt of the said compensation under the award could have been invested and would have earned interest. The respondents contended, on the other hand, that interest was specifically provided for in s. 34 of the said Act and not under s. 48A, which provided for damage suffered otherwise than by loss of interest. This court observed as follows : " It is true that s. 34 of the L.A. Act provided that the interest will be paid from the time of taking possession until the amount of compensation awarded is deposited or paid. Bat the said section relates to period which follows the making of an award. Section 48A, on the other hand, relates to a period which is prior to the making of an award. What is la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ved from the property in the meantime. This deduction will be by way of mitigation of damages and the trust or the State is entitled to debit it under the law against damages claimed and in some cases it may even exceed the loss of interest and thus wipe off entirely the claim for damages under that head ...... On the owner's right to payment immediately on the making of the award, three sections are important, namely, s. II, s. 12 and s. 31. Section II speaks of the making of the award. Section 12 enjoins that it should be filed and immediate notice thereof should be given to the persons interested. Under s. 31 it is the duty of the Collector to tender payment of the compensation to the persons interested, entitled thereto according to the award, and to pay it to them. It is clear, therefore, that the owner is entitled to the compensation money immediately on the making of the award which, on proper reading of the three sections, ss. 11, 12 and 31, would mean its filing under s. 12(1), the award being really complete only on such filing. This view is also supported by the statutory rule 10 prescribed under s. 55 of the Act and the form of notice (Form No. 15) prescribed thereunder ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claimed compensation for the said requisition on various counts including for compulsory vacation of the premises, disturbance and loss of business and received Rs. 57,435 as compensation. The question arose whether the said sum was a capital receipt or a revenue receipt. The Supreme Court rejected the contention of the assessee that the said amount included compensation for loss of goodwill and held that it was compensation for loss of profits and thus a revenue receipt. 5. Senairam Doongarmall v. CIT [1961] 42 ITR 392 (SC). In this case the factories and other buildings of a tea estate were requisitioned under the Defence of India Rules while the tea garden remained in the possession of the owner. The owner received compensation under the Defence of India Rules calculated on the basis of the out-turn of tea which could have been manufactured. The dispute was whether the amount of such compensation was a revenue receipt or not. The Supreme Court found that by the requisition, the business of the assessee had ceased and observed that it was the quality of the payment that was decisive of its character and not the method or measure of such payment. The Supreme Court concluded as f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the acquisition. The Gujarat High Court held that the said sum was a solatium by way of compensation for something other than property acquired which went to augment the compensation for the property acquired and formed part of the compensation received for the compulsory acquisition of the property and had to be taken into account in computing capital gains arising from such compulsory acquisition. 9. Mangalore Electric Supply Co. Ltd. v. CIT [1978] 113 ITR 655 (SC). Here the Supreme Court held that the expression " transfer" was comprehensive and included both voluntary and involuntary transfers and there was no reason for limiting the operation of the said word to voluntary acts of transfer only and to exclude compulsory acquisition of property. Mr. R. N. Bajoria, on the other hand, contended on behalf of the assessee that compensation under s. 48A of the L.A. Act for delay in making the award was a compensation for dereliction of duty by the Collector under the L.A. Act, a quasi-judicial authority, in determining the compensation and making the award within the statutory period. He referred to various sections of the L.A. Act, 1894, to show the scheme of the Act and the natu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 953). Mr. Bajoria further submitted that, in the above two unreported decisions, this court was concerned with what should be the measure of such damages and bow the same was to be determined and although the court adopted the measure of loss of interest on the amount of compensation for acquisition as the basis for determination of such compensation still what was granted by the court was compensation for damages. The court had no occasion to and did not consider the nature or character of the said compensation or of the receipt thereunder in the hands of the owner for the purposes of taxation. Mr. Bajoria further contended that possession of the said property was taken by the Collector on 19th Jan., 1960, and, therefore, transfer of the said property took place on that date. Under s. 12B of the Indian I.T. Act, 1922, capital gains, if any, resulting from the transfer including the said compensation for damages was taxable in the assessment year 1960-61 when the transfer was effected and not in the instant assessment year. He further contended that the compensation under s. 48A of the said Act was not dependent upon either acquisition of the property or on making of any award ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the use of another sum of money, called the principal. Interest is calculated at a rate proportionate to the amount of the principal and to the time during which non-payment continues : Interest is of two kinds, namely, that which is agreed to be paid on a loan, and that payable as damages for the non-payment of a debt or other sum of money on the proper day. In equity, interest seems to have been allowed as damages in all cases where there was a wrongful detention of money which ought to have been paid (Hyde v. Price [1837] Coop Pr. Cas 193). In support of his contentions, Mr. Bajoria cited the following decisions : 1. Glenboig Union Fireclay Co. Ltd. v. IRC [1922] 12 TC 427 (HL). In this case the Glenboing Union Fireclay Company Ltd., the appellant, had rights for mining fireclay in certain properties, over a part of which lines of a railway company were laid, the latter having a right over the surface of the land. Litigations ensued between the appellant and the railway company whereunder the railway company paid a certain sum as damages to the appellant for preventing the latter from working the fireclay under the railway lines. In its income-tax assessment the appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pital, dividend and interest paid by the banks to the custodian of enemy property in Germany together with compensation for damage or injury to property, right of interest, etc. The taxing authorities in England sought to tax the said receipts as income. One of the questions was as to what was the nature of the compensation received by the estate. Lord Hanworth M.R. observed as follows (p. 602) : " 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. It remains compensation ...... .." and Lawrence L.J. observed as follows (p. 605): " It seems clear to me that such money was paid, in the words of the Peace Treaty, as 'compensation in respect of damage or injury inflicted upon' the property of Mr. Kay and of the respondents, which property was restored to the respondents under paragraph (a) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds and the beneficial use of it at the proper time, and it was owing, not to any fraud, as the case has proceeded on the part of the defendants, but owing to their negligence and improper accounting, that he was deprived of that money for all that time, and he was entitled, according to the ordinary law, either to the profits or to interest and I see no reason at all why the appropriate sums payable under the admissions embodied in the consent order of Romer J. should not be treated as interest here in the ordinary sense. " 5. London & Thames Haven Oil Wharves Ltd. v. Attwooll (H. M. inspector of Taxes) [1966] 43 TC 491, 493; [1968] 70 ITR 460 (CA): Here the assessee owned a jetty which was damaged by the negligent navigation of a tanker. The jetty was repaired at a cost of pounds 83,168. The assessee also lost the use thereof for 380 days which was quantified at i 32,450. The owners of the tanker admitted liability but paid only pounds 77,876. The jetty was insured against physical damage and the assessee entered into an agreement with the underwriters to the effect that the sum recovered from the owners of the tanker would be apportioned rateably as between the said physical da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ensation was paid for the failure of the trader to receive a sum of money, the second problem involved is to decide whether, if that sum of money had been received by the trader, it would have been credited to the amount of profits (if any) arising in any year from the trade carried on by him at the date of receipt, that is, would have been what I shall call for brevity an income receipt of that trade, The source of the legal right to the compensation is irrelevant to the second problem. The method by which compensation has been assessed in the particular case does not identify what it was paid for; it is no more than a factor which may assist in the solution of the problem of identification. " 6. Dr.Shamlal Narula v.CIT [1964] 53 ITR 151(SC):In this case lands in the town of Patiala owned by an HUF was acquired. The proceedings were initiated by the Patiala State which merged with the Union of Pepsu which ultimately merged in the State of Punjab. Under an award made by the Collector of Patiala under the L.A. Act, 1894, the assessee received Rs. 2,81,822 which included Rs. 48,660 as interest up to the date of the award. The ITO assessed the interest as income of the HUF rejecting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... possession has been taken. The legislature expressly used the word 'interest' with its well-known connotation under section 34 of the Act. It is, therefore, reasonable to give that expression the natural meaning it bears ...... 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. " 7. S. R. Y. Sivaram Prasad Bahadur v. CIT [1971] 82 ITR 527 (SC) Here certain estates of an HUF vested in the State under the Madras Estates (Abolition and Conversion into Ryotwari) Act, 1948, for which the family received compensation. In its income-tax assessment, the HUF contended that such compensation was capital receipt and not taxable. This claim was rejected by the ITO and such rejection was sustained by the Madras High Court. The Supreme Court, however, held that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on that amount does not affect the question. It is still compensation for deprivation of property. " Mr. Suhas Sea submitted in reply that in none of the English authorities cited by Mr. Bajoria compensation was given for loss of profit or interest but the measure of damages or compensation was determined on the basis of interest. Mr. Sea referred to a decision of the House of Lords in Riches v. Westminster Bank [1947] 15 ITR (Suppl) 86, where the decision in Executors of Bonner Maurice as Executors of Edward Kay [1929] 14 TC 580 (CA), was not followed and the Supreme Court in Dr. Shamlal Narula's case [1964] 53 ITR 151 cited with approval the said decision of the House of Lords in Westminster Batik Ltd.. Mr. Sea next referred to the decision of the Privy Council in Raja's Commercial College V. Gian Singh & Co. Ltd. [1976] 2 All ER 801, where the Privy Council observed that Bonner Maurice's case was of a very special and unusual nature and approved the dictum of Diplock L.J. in London & Thames Haven Oil Wharves Ltd. [1966] 43 TC 491; [1968] 70 ITR 460 (CA). The Privy Council further held that a lump sum damage estimated by reference to lost income was not necessarily or even usual ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xists on the date of publication of the declaration under s. 6 has to be read in the above context. What their Lordships meant was that when acquisition has been completed and possession has been taken by the Government divesting the persons interested of their right, title and interest in the property, the persons interested would be entitled to compensation for the property from the date of publication of the declaration under s. 6 and not from any anterior date. Their Lordships did not lay down that as soon as a declaration under s. 6 has been made irrespective of whether the land is subsequently acquired and possession is taken or not or the land is withdrawn from the acquisition and possession is never taken, the persons interested would in all cases be entitled to compensation for acquisition of the property from the date of publication of the declaration under s. 6. The several provisions of the Act as noted above clearly show that no right to compensation accrues to the persons interested in the property as soon as a declaration under s. 6 of the Act is published. The award is made under s. II of the Act and after an award has been made and possession of the land is taken b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1953) and Kedarnath Jute Manufacturing Co. Ltd. (Appeal from Original Decree No. 173 of 1953) in our opinion do not lay down that the compensation for damages under s. 48A of the Act was or could be loss of interest suffered by the owner for delay in making the award. In those cases claims for compensation for damages due to delay in making the award were made on the basis of loss of interest on the amount of compensation. Arguments were accordingly advanced on behalf of the claimant that the compensation, under s. 48A should be determined on the basis of loss of interest suffered by the claimant on the amount of compensation. The court, therefore, allowed compensation under s. 48A on that basis. In the said cases the court neither considered nor decided the nature or character of the compensation paid by the Government and received by the claimant nor was it called upon to do so. That the compensation payable under s. 48A could not be interest, also finds support from the section itself which provides that the principles contained in ss. 23 and 24 of the Act for determination of compensation should also be applied in determining compensation under s. 48A. The Supreme Court obser ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
