TMI Blog1979 (2) TMI 96X X X X Extracts X X X X X X X X Extracts X X X X ..... late Tribunal was justified in law, in including the entire amount of Rs. 10,322 interest for the period from 1962 to 1969, in the total income of the assessee, for the assessment year 1970-71 ? " The assessee, an " individual " was the owner of certain lands in Ernakulam, the extent and the location of which do not appear from the record. The lands were acquired in 1962 by the State Government for the purpose of the Cochin Ship Building Yard. Compensation was awarded by the Land Acquisition Officer. The assessee disputed the adequacy of compensation and had the matter referred to the Sub-Judge, Ernakulam. By a decree dated May 29, 1969, the sub-judge awarded additional compensation of Rs. 25,806 with interest at the rate of 6% from the date of dispossession which was on May 11, 1962. In the course of the accounting year 1969-70 (assessment year 1970-71) the assessee received a sum of Rs. 10,322 as interest on the additional compensation awarded. These are the facts in I.T.R. No. 29 of 1977 which was treated as the main case. The facts are similar in I.T.R. No. 28 of 1977 which relates to a different assessee for the same assessment year 1970-71. Enhanced compensation of Rs. 41 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shall pay the amount awarded with interest at the rate of 6% per annum from the time of taking possession, till date of payment or deposit. Under s. 18 of the Land Acquisition Act, a person who has not accepted the award has a right to require the Collector to refer the matter for the determination of the court. The court, in the light of the principles indicated in ss. 23, 24 and 25, is to make an award showing the amount of compensation determined by it and the other particulars specified in s. 26. Under s. 28 of the Act, the court is empowered to award interest on the excess amount of compensation at 6% from the date of dispossession till the date of payment of the excess amount in the court. The question involved in these references is with respect to the interest awarded by the court under s. 28 of the Land Acquisition Act (s. 30 of the Kerala Act). It will be noted that while under s. 34, the liability to pay interest is obligatory, the same is only discretionary under s. 28 of the Act. Also, it is only if the claimant invokes a reference to the court, and the court is satisfied about the conditions mentioned in s. 28, that it is given the discretion of awarding interest on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... v. Brooks [1889] 14 App Cas 493]) that both the words are used in contradistinction to the word ' receive ' and indicate a right to receive. They represent a state anterior to the point of time when the income becomes receivable and connote a character of the income which is more or less inchoate." Having extracted the above quotation, the Supreme Court pointed out that to the same effect were the observations of Justice Satyanarayana Rao in CIT v. Anamallais Timber Trust Ltd. [1950] 18 ITR 333 at 342 (Mad) and of Mukherjea. J. in CIT v. Ahmedbhai Umarbhai Co. [1950] 18 ITR 472 (SC). In the light of the above discussion, the Supreme Court summarised the position thus : " 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 praesenti, solvendum in futuro : See W. S. Try Ltd. v. Johnson (Inspecto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 3,67,666 with interest at 6% per annum from 24th May, 1949 (the date of the notification for acquisition). Against the award of the arbitrator, the assessee filed an appeal to the High Court. It resulted in the further enhancement of compensation to Rs. 5,00,000. On this basis, a total sum of Rs. 6,28,716 was paid to the assessee, of which Rs. 2,54,885 was paid in the accounting year ended 13th April, 1955, and the balance of Rs. 3,73,831 was paid during the year ended 12th April, 1956. In the assessment of the firm for the years 1955-56 and 1956-57, the ITO took the view that Rs. 1,28,716, included in the total compensation, represented the interest, and as such had to be treated as income. This was apportioned in the two years in proportion to the total receipts, as Rs. 50,592 for 1955-56 and Rs. 78,124 for the year 1956-57. The assessee's contention was that the entire amount represented compensation, and, as such, was a capital receipt and no part of it was liable for assessment as income. Alternatively, it was contended that the amount had to be apportioned and assessed in the respective years to the extent to which interest was relatable. The AAC rejected the main content ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the liability to pay either the compensation or the interest thereon arose only on the date of such fixation. " The decision seems to take the view that the right to interest arises, and income by way of interest accrues, on the date of the notification for acquisition. The decision of the Mysore High Court in CIT v. Sampangiramaiah [1968] 69 ITR 159 was referred to and followed. The court ultimately concluded that the entire amount of interest cannot be taxed as income in the two assessment years on the basis of receipt and that the income had to be spread over the respective years to the extent to which they should be deemed to have accrued in those years. The Mysore case referred to by the Madras High Court is CIT v. Sampangiramaiah [1968] 69 ITR 159. The land of 20,000 square yards was acquired under a notification on June 13, 1948 ; the award at Rs. 2 a square yard was on June 2, 1949. Rs. 46,000 (inclusive of solatium) was paid to the assessee on December 31, 1949; the District Judge enhanced the compensation under s. 18 to Rs. 5 a square yard the High Court further enhanced it to Rs. 7 a square yard, which the Supreme Court sustained by a decree dated March 7, 1961. Rs. 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 commenced to operate. The attribution of the whole of that interest to the year of receipt is manifestly impossible." (The passages above quoted are from the Tribunal's judgment, with which the High Court recorded its agreement). (underlining is ours) The question was answered in favour of the assessee. It is to be noted that in the passage that we have underlined the High Court treats the interest on excess compensation as having accrued only under the executable decree dated February 28, 1951, and not on the date of notification for acquisition or date of dispossession. In CIT v. Dr. Sham Lal Narula [1972] 84 ITR 625 (Punj), the notification for acquisition was on June 21, 1960. On October 11, 1953, a withdrawal notification was issued, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted by way of interest under section 34. If this is kept in view there is no difficulty in understanding the decision of the Mysore High Court. The interest is definitely accruing each year and is payable as such after the possession is taken from the owner." This judgment again does not regard the right to interest as arising on the date of s. 4 notification. Perhaps such was its effect, as only the judgment of the High Court dated February 14, 1955, stabilised the s. 4 notification, which was till then in jeopardy. In Khan Bahadur Ahmed Alladin Sons v. CIT [1969] 74 ITR 651, Chief Justice Jaganmohan Reddy, speaking for the Division Bench of the Andhra Pradesh High Court, had occasion to examine when the right to receive excess compensation decreed by the court can be said to arise. The assessee in that case had purchased an estate from the Government of India, a portion of which was subsequently acquired under the Land Acquisition Act on June 23, 1954. By an award dated 10th December, 1954, the Collector fixed the compensation at Rs. 1,24,131. This was paid an March 22, 1956. On a reference, the civil court enhanced the compensation by Rs. 99,245 by judgment dated 12th July, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h an interpretation cannot be placed. The interpretation given by us does not affect the interests of the revenue. At the same time, it safeguards the assessee and prevents harassment. To hold otherwise would be contrary to the provisions of law." The principle of this decision was applied in regard to interest by the Andhra Pradesh High Court in CIT v. Smt. Sankari Manickyamma [1976] 105 ITR 172. The logic underlying the extension appears tempting enough. We have given the matter our careful attention. The arguments appear so nicely and evenly balanced, that a choice is not altogether easy. On the one side is the view that acquisition proceedings start the trial which may blow up in stages, of dispossession, award, payment, reference to court, excess compensation and interest, and so on ; and once the spark had been lighted at one end, the avenue is open till the end, although it may not travel to the bitter end. This, however, according to this view, would not prevent the right " arising " or " accruing ". On the other view, the mere prospect of making a reference and earning excess compensation and interest, cannot be regarded as a right or income " arising " or " accruing", ..... X X X X Extracts X X X X X X X X Extracts X X X X
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