1. At the instance of the Commissioner of Income-tax, the Income-tax Appellate Tribunal referred under Section 256(1) of the Income-tax Act, 1961 (referred to hereinafter merely as 'the Act'), the following question for our decision :
'Whether, on the facts and circumstances of the case, the entire interest amounting to Rs. 31,659 received on the 1st of March, 1964, or only a sum of Rs. 1,260, the interest attributable to the year ending 31st of March, 1964, was assessable as income for the assessment year 1964-65 ?'
2. The assessment year, in the instant case, is 1964-65 for which the department adopted the relevant accounting year as the year ending with March 31, 1964.
3. The assessee is an individual and she has had her agricultural land situated at Rayaghada, acquired by the State Government of Orissa under the Land Acquisition Act some time in the year 1933, and as the amount awarded towards the compensation was found to be inadequate, the matter was taken before a court of law and the matter ultimately culminated in a compromise decree being passed by the Orissa High Court on May 9, 1963. As per the terms of that compromise the assessee was entitled to receive an extra compensation of Rs. 22,904 towards the value of the land and a further sum of Rs. 31,659 as interest at the rate of 6% per annum for the period during which the said extra compensation amount remained duo to the assessee. The assessee received the extra compensation amount as well as the said sum of Rs. 31,659 on March 1, 1964. Both the date on which the compromise decree was passed as well as the date on which the assessee received the said amounts fell during the relevant previous year. The assessee disclosed an income of Rs. 1,260 being the interest accrued for the relevant assessment year. She, however, declared as the total amount of interest received, namely, the sum of Rs. 31,659, claiming that the entire amount of interest received during the relevant year was not chargeable to tax for that year.
4. The Income-tax Officer held that the entire amount of interest, namely, Rs. 31,659, is liable to be taxed for the assessment year in question.
5. On appeal, the Appellate Assistant Commissioner confirmed the decision of the Income-tax Officer, observing that the award of interest, under Section 28 of the Land Acquisition Act, 1894, is discretionary and that the interest has to be calculated on the extra amount of compensation awarded by the court, and that the said amount of compensation was not determined till the court delivered the judgment, and the interest received by the appellant accrued to him only on the date of the judgment. According to the Appellate Assistant Commissioner, even if this interest is to he calculated with reference to the period of 26 years, that cannot be said to have accrued to the assessee before the date of the judgment of the court. In further appeal before the Tribunal, the Tribunal upheld the claim of the assessee and allowed the appeal holding that since the land was acquired in the year 1933, and the assessee's right to receive the correct value of her land accrued to her immediately when the land was acquired, the amount which was legally taxable as income from interest for the relevant year was Rs. 31,659 divided by 26, i.e., Rs. 1,260.
6. It is under these circumstances the question was referred for our decision. The point that arises then for determination is whether the interest for 26 years amounting to Rs. 31,659 or only a proportionate interest amounting to Rs. 1,260 and attributable to the relevant accounting year that was assessable for income-tax for the assessment year 1964-65.
7. The assessee has had her lands acquired under the Land Acquisition Act in the year 1933. The High Court, ultimately, as per the terms of the compromise decree, dated May 9, 1963, enhanced the compensation and awarded a sum of Rs. 31,659 as interest at the rate of 6% per annum for the period during which the said extra compensation amount remained unpaid to the assessee. That amount was received by the assessee on March 1, 1964. The date on which the decree was passed by the High Court as well as the date on which the assessee received the interest fell during the relevant previous year.
8. The scheme of the Land Acquisition Act, 1894, in so far as it is material for the present purpose, is that it provides for the acquisition of land needed for a public purpose and for determining the amount of compensation to be made on account of such acquisition, and it also provides for the payment of interest. Under Section 11 of the Act, the Collector is required to make an award, among other things, fixing the compensation which, in his opinion, should be allowed for the land. Under Section 18 of that Act, the matter can be got referred, at the instance of any person interested, by the Collector for the determination of the court, where an objection was taken, among other things, with respect to the amount of compensation also.
9. If, in the opinion of the court, the Collector ought to have awarded as compensation a sum which is in excess of the sum which the Collector awarded as compensation, the court has been given the power, under Section 28 of the said Act, to direct the Collector to pay interest on such excess at the rate of six per cent. per annum from the date on which he took possession of the land to the date of payment of such excess into court. It is not out of place to refer to Section 34 of the said Act, as per which, when the amount of such compensation is not paid or deposited on or before taking possession of the land, the Collector was required thereunder to pay the amount awarded with interest thereon at the rate of six per cent. per annum from the time of so taking possession until it shall have been so paid or deposited.
10. What is manifest from the foregoing is that both the acquisition of land for the public purpose as well as the compensation payable therefor are provided for under the Land Acquisition Act. The Collector was required to determine by his award compensation payable with respect to the land acquired. When that compensation was enhanced by the court, the court has been given power to direct the payment of interest on the enhanced compensation. In other words, from the time when the land was acquired from the assessee, though he is said to be entitled to claim compensation and under certain stated circumstances the payment of interest also, his right to receive the same accrues to him only when the court, as empowered under the Act, decides and directs the Collector to pay. Till then, the assessee, whose lands were acquired under the said Act, can be said to have had inhered in her only a right to claim. The distinction, under those circumstances, between being entitled to claim the amount on the one hand, and being entitled to receive the amount so claimed, is too vital to be ignored or to be lost sight of. The right on the part of the person whose lands were acquired to receive either the compensation or, for that matter, the interest thereupon, accrues to him only from the date when the statutorily designated authorities under the said Act determined the same. Till then, what was left with the person concerned is only a right to claim the amount, but not the right to receive the amount that may be determined by the court on the claim put forth by him. In the instant case, a compromise decree was passed by the High Court on May 9, 1963, wherein it was held that the assessee was entitled to receive an extra compensation of Rs. 22,904 towards value of the land and a further sum of Rs. 31,659 towards interest at the rate of 6% per annum for the period during which the said extra compensation amount remained due and unpaid to the assessee. This was received on March 1, 1964. The question then that arises for determination is whether this amount can be said to have been one accrued to the assessee in the relevant accounting year.
11. Income-tax, as per Section 4 and subject to the provisions of the Act, is rendered chargeable in respect of the total income of the previous year of every person, and the total income of any person for any previous year, under Section 5 of the Act, includes all income from whatever source derived which accrued to him during such year, and the expression 'income' is defined under Section 2(24) of the Act to include, among other things, profits and gains, any capital gains chargeable under Section 45, etc. What is manifest from the foregoing provision of law is that what is rendered chargeable for income-tax under the Act is only income as defined therein and that too only when it accrued, but not a claim to such an income. The difference, as has already been noticed, between being entitled to claim an amount and being entitled to receive the amount claimed, is too fundamental to be lost sight of while determining a question of this type in the context of Section 5 of the Act. Till the income accrued to the assessee, as per the compromise decree passed on May 9, 1963, the assessee could not have been entitled to enforce that payment against the authorities concerned, in the sense that it was not rendered till then statutorily payable. Section 5 of the Act only speaks about all income from whatever source derived which accrues to him during the previous year. When once it is to be considered that the interest as payable under the Land Acquisition Act accrues to the assessee only when the statutorily designated authorities determine the same, then the number of years for which the assessee would be entitled for the amount of interest is only intended to arrive at the amount payable to the assessee, but, in the context of Section 5, when once that amount accrued due to the assessee in the relevant accounting year, there is nothing in the language employed in Section 5 permitting the possibility of its being split up so as to have it spread over all the years for which it is calculated. For the number of years by which the annual interest is multiplied for arriving at the total amount is intended only with a view to have the liability on the part of the authorities under the Land Acquisition Act to be quantified, but not for the purpose of getting the same Split up for the purpose of Section 5 of the Act in order to secure the same to be spread over to all the years for which the amount of interest is calculated. At any rate, an interpretation of Section 5 of the Act does not lend any support to such a conclusion.
12. While interpreting the provisions contained in Section 4(1)(b)(i) of the Indian Income-tax Act, 1922, which corresponds to Section 5 of the present Act, a Bench of this court in the case of Khan Bahadur Ahmed Alladin & Sons v. Commissioner of Income-tax : 74ITR651(AP) held, at page 658 of the report, thus:
'In our view, unless the amount of compensation actually becomes payable or enforceable, it cannot be said to accrue or deemed to accrue. On the date when the Collector awarded the compensation, it is only that amount which had accrued or deemed to accrue, whether in fact paid or not. But by no stretch of the words in Section 4(1)(b)(i), could it be said that the right to enhanced compensation, which has not yet been accepted by the proper forum, namely, the court, has also become payable on the date when the original compensation became payable, for being included in that year 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.'
13. The Bench of this court was called upon to deal with a case of compensation under the Land Acquisition Act in that case, but not with interest payable thereon, as is the case in the instant one. But the principle came to be laid down there by way of anological extension is equally applicable to the facts of the case, and applying that principle, we are of the view that the interest in this case is an income accrued to the assessee on the date on which the compromise decree was passed, namely, on May 9, 1963, when-from it was rendered payable or enforceable.
14. Our attention has been drawn to the case of Commissioner of Income-tax v. V. Sampangiramaiah : 69ITR159(KAR) . The assessee's property, there in that case, was acquired under the Land Acquisition Act and possession was taken on February 19, 1949. The Land Acquisition Officer's award was enhanced by the district judge as per the decree passed by him on February 28, 1951, and the same was further enhanced by the High Court and a sum of Rs. 1,15,000 representing the value of the land and an amount of Rs. 87,265 representing interest on that sum from that date was paid to the assessee on October 21, 1961. The assessee was assessed on the entire sum of Rs. 87,265 in the assessment year 1962-63. The Mysore High Court held that the entire interest amount of Rs. 87,265 was not assessable in the assessment year 1562-63, and that only the proportionate interest referable to the assessment year 1962-63 was assessable in that year. No doubt, the decision appears to be in favour of the assessee in this case. But at page 162 of the report the following passage occurs :
'When the Land Acquisition Officer made his award and possession was taken, he became liable under Section 34 of the Land Acquisition Act to pay interest on the amount awarded if it was not paid when possession was taken. Similarly, when the compensation was enhanced by the district judge and again by the High Court and there were directions for payment of interest under Section 28, such interest became payable when those directions were made.'
15. So, even according to the Mysore High Court, interest under Section 28 becomes payable only when the direction to that effect was given by the court. That observation is quite consistent with the one given by our High Court in the case referred to supra.
16. The assessee then relied upon the case of Commissioner of Income-tax v. Dr. Sham Lal Narula . That is a case arising under the Land Acquisition Act, wherein the decision of the Mysore High Court was approved and that of our court, referred to heretofore, was distinguished. The decision of bur court was distinguished mainly on the ground that it has no application to the facts of the case there. No doubt a distinction was sought to be drawn between the right to compensation, on the one hand, and the right to interest that may be allowed on the enhanced compensation. We are of the opinion that that distinction on the basis of which the decision of our court is so distinguished is hardly tenable. We find, on a reading of the aforesaid two decisions, that the principle which came to be propounded by the Division Bench of our High Court is practically approved, namely, that the income is said to be accrued only when it is rendered statutorily enforceable or legally payable, but not before then.
17. We are, therefore, of the opinion that the entire amount of interest, that is, Rs. 31,659, accrued to the assessee on May 9, 1963, when the High Court passed a decree and, as such, it is an income accrued to the assessee only on that date, and, therefore, that amount is assessable as income for the assessment year 1964-65, We answer the former part of the question referred to for our decision in the affirmative, against the assessee and in favour of the department, and in view of that, the latter part of it need not have to be answered. Advocate's fee, Rs. 250.