TMI Blog1981 (5) TMI 2X X X X Extracts X X X X X X X X Extracts X X X X ..... h effect from April 5, 1950, under the Land Acquisition Act. A sum of Rs. 1,33,933 was paid to the assessee towards the compensation amount. Further, a sum of Rs. 86,208 was paid on April 26, 1961, towards the interest under Ss 34 of the Land Acquisition Act. Before the ITO, the assessee claimed that the whole of the interest on the compensation amount received by the assessee was not taxable during this year as the same related to the earlier years also. The assessee's claim was not accepted by the ITO. He held that the assessee kept his accounts on cash basis and as such the full amount of interest received by the assessee during this year amounting to Rs. 86,208 was taxable in this year. The assessee came up in appeal before the AAC. It was urged before him that possession of the land was taken in 1950 and the assessee was entitled to receive interest since then and as such the proportionate interest referable to each successive year was assessable in that respective year. Accordingly, only the proportionate interest referable to the assessment year 1962-63 could be assessed in this year and the entire interest which was actually paid could not be assessed in this year alone. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... did not relate to this year only. A part of it related to this year and the rest related to the earlier years and the ITO could tax only the interest which had accrued in this year. In the opinion of the Tribunal, the decision in the case of CIT v. Sampangiramaiah [1968] 69 ITR 159 (Mys) completely covered the instant case. Thus, it held that the proportionate interest which had accrued in this year alone would be taxed in this year. In the above facts and circumstances, it is argued by Mr. Bagchi, learned advocate for the Revenue, that the decision of the Tribunal is incorrect. According to him, the entire amount received as interest in the year under assessment was taxable. Before the right to receive the amount of interest as income accrues, no charge can be levied under s. 5(1)(b) of the I.T. Act, 1961, on that amount in any year prior to the one in which it is receivable. As to the meaning of the word " arising " or "accruing ", reference is made to the decision of the Supreme Court in the case of E. D. Sassoon Co. Ltd. v. CIT [1951] 26 ITR 27 (SC). At page 51 of the report, it is stated that the words " arising or accruing " are general words descriptive of a right to r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uted by his legal heirs, that under s. 34 of the Land Acquisition Act, the right to recover interest arises as soon as the owner is deprived of the property due to an acquisition by the Collector. The owner, due to such acquisition, is deprived of the income of the property. Interest is payable only when an owner is deprived of his property and the payment of compensation is deferred. According to him, the interest, therefore, accrues each year and is payable as such. The whole interest paid for the period of acquisition till payment of compensation cannot be assessed to income-tax in the year of payment. Mr. Bagchi, in support of his arguments, mainly relies upon the decision of the Andhra Pradesh High Court in the case of Khan Bahadur Ahmed Alladin Sons v. CIT [1969] 74 ITR 651. It is held therein : When land is taken over by the Government under the Land Acquisition Act, 1894, the right of the owner to compensation is an inchoate right till the compensation is actually determined and becomes payable. When once it becomes payable, the determination of the question whether it is actually received or is deemed to have been received may depend upon the method of accounting adopt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar. In the case of Dr. Shamlal Narula v. CIT [1964] 53 ITR 151, the Supreme Court had occasion to distinguish between compensation for acquisition of land and interest paid on such compensation. In this case, it was held as follows: "Under the scheme of the Land Acquisition Act, 1894, land acquired compulsorily vests absolutely in the Government after the Collector has taken possession of the land, whether before or after making his award determining the compensation. A statutory liability has been imposed upon the Collector to pay interest on the compensation awarded from the time of his taking possession until it is paid or deposited. This amount is not compensation for the land acquired or for depriving the claimant of his right to possession but is paid to the claimant for the use of his money by the State. The statutory interest paid under section 34 of the Land Acquisition Act, 1894, on the amount of compensation awarded for the period from the date the Collector has taken possession of land compulsorily acquired is interest paid for the delayed payment of the compensation and is, therefore, a revenue receipt liable to tax under the Income-tax Act." Mr. Bagchi also re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion Act, 1894 (1 of 1894), was already vested in the assessee and the interest was payable though the actual disbursement could not have been made until final quantification of compensation by the arbitrator." Mr. Bagchi also placed reliance on the decision of the Bombay High Court in the case of Akola Electric Supply Co. Pvt. Ltd. v. CIT [1978] 113 ITR 265. This was a case in which the dispute was under the provisions of the Electricity Act. It was held therein that the moneys payable became due only when they were ascertained. The fact that interest was payable from the date of possession under the amended s. 7 of the Electricity Act did not change the position. This decision also has least application to the facts of the present case, as a specific provision as to payment of interest has been made under s. 34 of the Land Acquisition Act. Moreover, in the case before the Bombay High Court, the amount was ascertained only in March, 1962, even though the possession of the undertaking together with the assets was taken in December, 1959. Since it was ascertained in March, 1962, the amount of balancing charge, as contemplated by s. 41(2) of the I.T. Act, 1961, became chargeable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 34 of the Land Acquisition Act, the right to recover interest arises the moment the owner is deprived of his property under the Act. The rate at which he is entitled to interest is also specified. The interest on the compensation amount compensates him for the loss of income which would have accrued to him if possession had been taken after making the award under section 16 and after payment of compensation. Therefore, the benefit which he was to acquire from the property or land was benefit accruing every year which is compensated by way of interest under section 34. The interest accrues each year and is payable as such after possession is taken from the owner." It should be noted that there is a distinction between the amount awarded as compensation and the interest payable on such compensation. The distinction is apparent from s. 34 of the Land Acquisition Act itself. The interest is payable for the period beginning from the date of possession on acquisition to the date of payment of compensation. The interest is not an integral part of the compensation but it is distinct and separate. The compensation is paid for the dispossession of the rightful owner of the property on ac ..... X X X X Extracts X X X X X X X X Extracts X X X X
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