TMI Blog1976 (3) TMI 9X X X X Extracts X X X X X X X X Extracts X X X X ..... tober 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 said two pieces of land. The assessee, being dissatisfied with the offer made, sought a reference under section 18 of the Land Acquisition Act which was accordingly made to the court of the District Judge, Jamnagar. This reference application, it appears, was transferred to the court of the Civil Judge (S.D.), Jamnagar, who by his judgment and award determined the amount of compensation for the lands in question at Rs. 5,04,824. The learned civil judge (S.D.) also directed the Government to pay the interest at the rate of 4% for the period from August 15, 1960, to August 31, 1963, which worked out at Rs. 61,416.90. The State Government, being aggrieved with this judgment and award of the civil judge, carried the matter in appeal to the High Court of Gujarat. The assessee filed his cross-objections against the said award. The High Court set aside the judgment and award of the civil judge (S.D.) which allowed an additional compensation to the assessee, with the result that the State Government became entitled to the return ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... carried the matter in appeal to the Tribunal which by its order dated July 30, 1973, held that the assessee had received the aforesaid amount during the year of account relevant to the assessment year under reference. However, since the assessment for the assessment year 1963-64 had been already set aside by the Appellate Assistant Commissioner for determination of the question as to whether the assessee could either be treated as dealer in lands or could be considered to have realised capital assets and as the said question was pending before the Income-tax Officer, the Tribunal confirmed the orders of the Appellate Assistant Commissioner. At the instance of the assessee, the question, as stated above, has been referred to us. At the outset, it should be noted that the award of the civil judge (S.D.) enhancing the compensation was set aside by the High Court of Gujarat, in the appeal preferred by the State Government and that as the question involved in the appeal was more than Rs. 20,000 a certificate was granted by the Gujarat High Court to the assessee to carry the matter in appeal to the Supreme Court. It should also be noted that the High Court of Gujarat while setting asi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8 ITR 472 (SC), where this passage from the judgment of Mukherji J. in Rogers Pyatt Shellac Co. v. Secretary of State for India [1925] 1 ITC 365, 372 (Cal) [FB], is approved and adopted. 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 presenti, solvendum in futuro : See W. S. Try Ltd. v. Johnson (Inspector of Taxes) [1946] 1 All ER 532, 539 ; 27 TC 167 (CA) and Webb v. Stenton [1883] 11 QBD 518, 522, 527 (CA). 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 receive the income or that income has accrued to him. " It is, therefore, a settled legal position that 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 receive the income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Inland Revenue accepted an offer of pound 10,000 made by the respondent-company's accountants in settlement of their earlier liability. That company contended that the sum was a debt due from the respondent to the Inland Revenue as from January 1, 1935. As the offer was not accepted, it was held that the sum was not a debt. It was argued that even if there was a liability on January 1, 1935, that liability did not become a debt within the meaning of the Finance (No. 2) Act, 1939. Macnaghten J., in connection with this contention, observed as under-- See [1966] 59 ITR 767,777 (SC) : " It is true that the word ' debt ' may, in certain connections, be used so as to cover a mere liability, but I think that in this Act it is used in the proper sense of an ascertained sum and that the contention of the Attorney-General is well founded. " The majority court in Kesoram's case [1966] 59 ITR 767, 777 (SC) observed, after setting out the above observation of Macnaghten J., as under : " This decision, while holding that in the context of the Finance Act of 1939, there was no debt until the liability was quantified, conceded that the expression ' debt '. was wide enough to take in a li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thus : " A liability for mesne profits under a preliminary decree therefor, though not a contingent liability, does not become a ' debt ' till the amount recoverable, if any, is ascertained and a final decree for a specified sum is passed. " The Supreme Court observed in connection with this judgment thus : " That conclusion was arrived at on the basis of the principle that a claim for damages does not become a debt till the judgment is actually delivered. " The majority court thereafter set out the principle which it had culled out from various decisions referred to therein including the four which we have referred hereinabove. The principle is stated at page 780 in Kesoram's cam [1966] 59 ITR 767 (SC). It reads as under : " We have briefly noticed the judgments cited at the Bar. There is no conflict on the definition of the word ' debt '. All the decisions agree that the meaning of the expression ' debt ' may take colour from the provisions of the concerned Act : it may have different shades of meaning. But the following definition is unanimously accepted : 'A debt is a sum of money which is now payable or will become payable in future by reason of a present obligati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r from the date of its communication or its knowledge actual or constructive by the claimant party. Gajendragadkar J., speaking for the court, observed in paragraph 5 of the judgment of the court at page 1503, as under : " In dealing with this question it is relevant to bear in mind the legal character of the award made by the Collector under section 12. In a sense it is a decision of the Collector reached by him after holding an enquiry as prescribed by the Act. It is a decision, inter alia, in respect of the amount of compensation which should be paid to the person interested in the property acquired ; but legally the award cannot be treated as a decision ; it is in law an offer or tender of the compensation determined by the Collector to the owner of the property under acquisition. If the owner accepts the offer no further proceeding is required to be taken ; the amount is paid and compensation proceedings are concluded. If, however, the owner does not accept the offer section 18 gives him the statutory right of having the question determined by court, and it is the amount of compensation which the court may determine that would bind both the owner and the Collector. In that c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion which the court may determine that would bind both the owner and the Collector. In other words, as said by the Supreme Court in Harish Chandra's case, AIR 1961 SC 1500, that it is on the amount thus determined judicially that the acquisition Proceedings would be concluded. If the real nature of the award and the right of the party who is not satisfied with the offer made in the award is, as pointed out in Harish Chandra's case, AIR 1961 SC 1500, how can it be said--much less urged successfully--that the said offer creates enforceable right to the enhanced compensation because in the ultimate analysis it is this right of the claimant to the additional compensation that is to be judicially determined and with which we are concerned in this case. In other words, the legal position which emerges is that there is no liability in presenti to pay an enhanced compensation till it is judicially determined by the final court since the entire question, namely, whether the offer made by the Land Acquisition Officer is inadequate and the claimant is entitled to an additional compensation and if yes, at what rate is in flux till the question is set at rest finally, we do not think that any e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear of assessment. The enhanced compensation accrues only when it becomes payable, i.e., when the court accepts. the claim. As has been stated earlier, a mere claim by the assessee, after taking of possession of the land, at a particular rate or for a certain sum is not compensation. It must not be forgotten that, even if a court has awarded enhanced compensation, there is a right of appeal by the Government to the High Court, and the High Court may either disallow that claim or reduce the compensation. As against that judgment, there is a further right of appeal to the Supreme Court. The assessee also can appeal against the insufficiency of the enhanced compensation. Can it be said that the final determination by the highest court of the compensation would entitle the Income-tax Officer, notwithstanding the period of limitation fixed under the Income-tax Act, to reopen the assessment in which he had included the initial compensation awarded by the Collector and recompute the entire income on the basis of the final compensation ? We do not think there can be any justification for such a proposition. On a proper construction of the terms ' accrue ' or ' arise ', we are of the view t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ind ourselves unable to agree with their view. It was thereafter urged on behalf of the assessee that the Tribunal was not justified in not deciding what is the nature of the receipt whether it was a business income or capital gains as contended by the assessee and also in failing to decide as to how and when the amount which the assessee has received by way of interest on the amounts withdrawn from the amount of compensation deposited by the Government or the amount of interest which the assessee may earn on the amount of compensation that may be finally adjudicated by the court was to be taxed. We think that the grievance made on behalf of the assessee is justified. The Tribunal ought to have determined the nature of the receipt--whether it was a business income or capital gains--and it ought to have determined as to how and when the amount of interest which the assessee might receive on the amount of compensation was to be taxed. Incidentally, therefore, the question was debated as to when the right to interest accrues or arises on the amount of compensation awarded to an assessee for the acquisition of his property under the Land Acquisition Act. On behalf of the revenue, it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a sum of Rs. 1,15,000 representing the value of the land and Rs. 87,265 representing interest on that sum from the date on which the possession was taken over was paid to the assessee on October 21, 1961. The department assessed income-tax on the entire sum of Rs. 87,265 in the assessment year 1962-63. The Tribunal held that the interest that was payable to the assessee in each successive year accrued in that year and was liable to be assessed in that year itself and assessment of that interest cannot be postponed till the date on which the interest became ascertained or when the interest was actually paid to the assessee. On a reference, the Mysore High Court held that the Appellate Tribunal was right in holding that the entire interest amount of Rs. 87,265 was not assessable in the assessment year 1962-63 and that only the proportionate interest referable to the assessment year 1962-63 was assessable in that year. The basis of this decision is that since there was a complete acquisition of the land, 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 an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... annot be urged successfully that his right to interest has accrued or arisen irrespective of the claim of the additional compensation being finally adjudicated upon by the courts. An incidental question agitated before us is whether the Income-tax Officer should hold up assessment proceedings till the question is finally determined which may in some cases result in the proceedings being time-barred. We do not think that such a question can justifiably arise in the view which we are taking of the matter, since, in our opinion, the right to the income of compensation or interest arises or accrues when the question is finally determined by the designated authorities under the Land Acquisition Act. It was pointed out on behalf of the revenue that in the present reference a question may justifiably arise as to when the right to the principal amount of compensation would accrue if the nature of receipt is determined ultimately by the Income-tax Officer to be in the nature of capital gains. It was submitted on behalf of the revenue that if the nature of the receipt of the principal amount of compensation is found by the income-tax authority to be in the nature of capital gains, the right ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
