TMI Blog1964 (4) TMI 10X X X X Extracts X X X X X X X X Extracts X X X X ..... 503 OF 1963 - - - Dated:- 9-4-1964 - Judge(s) : K. SUBBA RAO., J. C. SHAH., S. M. SIKRI JUDGMENT The judgment of the court was delivered by SUBBA RAO J.--This appeal by certificate granted by the High Court of Punjab raises the question whether interest paid under section 34 of the Land Acquisition Act, 1894, hereinafter called the Act, is of the nature of a capital receipt or of a revenue receipt. The relevant facts are not in dispute and they may be briefly stated. The appellant, Dr. Shamalal Narula, is the manager of a Hindu undivded family, which owned, inter alia, 40 bighas and 11 biswas of land in the town of Patiala. The Patiala State Government initiated land acquisition proceedings for acquiring the said land under Regulations then prevailing in the Patiala State. It is common case that the State Regulations are in pari materia with the provisions of the Act. The State of Patiala first merged into the Union of Pepsu and later the Union of Pepsu merged into the State of Punjab. It is also common case that there was a Land Acquisition Act in the Union of Pepsu containing provisions similar to those obtaining in the Act. On October 6, 1953, the Act was ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the order of the High Court is sought to be sustained for the reasons stated therein. The question raised turns upon the true meaning of the provisions of section 34 of the Act. It reads : " When the amount of such compensation is not paid or deposited on or before taking possession of the land, the Collector shall pay the amount awarded with interest thereon at the rate of six per centum per annum from the time of so taking possession until it shall have been so paid or deposited." The section itself makes 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. To appreciate the scope of the section it is necessary to notice briefly the scope of an award and the manner in which possession is taken under the Act. After the statutory notifications are issued and the requisite notice is given to the persons interested in the land so acquired, the Collector, after holding the necessary enquiry, makes an award, inter alia, determining the amount of compensation payable for the land so acquired ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... session in one case after the making of the award and in the other, even before the making of the award. In either case, some time may lapse between the taking of possession of the acquired land by the Collector and the payment or deposit of the compensation to the person interested in the land acquired. As the land acquired vests absolutely in the Government only after the Collector has taken possession of it, no interest therein will be outstanding in the claimant after the taking of such possession : he is divested of his title to the land and his right to possession thereof, and both of them vest thereafter in the Government. Thereafter he will be entitled only to be paid compensation that has been or will be awarded to him. He will be entitled to compensation, though the ascertainment thereof may be postponed, from the date his title to the land and the right to possession thereof have been divested and vested in the Government. It is as it were that from that date the Government withheld the compensation amount which the claimant would be entitled to under the provisions of the Act. Therefore, a statutory liability has been imposed upon the Collector to pay interest on the am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... age 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. We shall now proceed to consider the case law cited at the Bar. Where a tribunal directed the Improvement Trust, under the provisions of section 28 of the Land Acquisition Act, to pay interest to the assessee from the date of taking possession of the property to the date of payment, a Division Bench of the Allahabad High Court held, in Beha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -tax v. Narayanan Chettiar." The Kerala High Court in P. V. Kurien v. Commissioner of Income-tax held that interest paid on the enhanced amount of compensation directed to be paid by an appellate court in an appeal against an award of compensation for compulsory acquisition of land under the Land Acquisition Act represented capital and was not income liable to be taxed under the Indian Income-tax Act. It was argued there, as is argued before us, that the interest awarded was a capital sum estimated in terms of interest. In coming to the conclusion which they did, the learned judges relied upon the decision of the Judicial Committee in Inglewood Pulp and Paper Co. Ltd. v. New Brunswick Electric Power Commission and that of the Madras High Court in Revenue Divisional Officer, Trichinopoly v. Venkatarama Ayyar. In the former, the Judicial Committee directed the purchaser who had taken delivery and possession of the property he had purchased before the sale to pay interest to the vendor on the purchase money from the date he had taken possession on the ground that " the right to receive interest takes the place of the right to retain possession and is within the rule " ; and in the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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