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Moti Lal Chaddami Lal JaIn Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtAllahabad High Court
Decided On
Case NumberIncome-tax Reference No. 168 of 1979
Judge
Reported in[1980]122ITR949(All)
ActsLand Acquisition Act, 1948 - Sections 4 and 6
AppellantMoti Lal Chaddami Lal Jain
RespondentCommissioner of Income-tax
Appellant AdvocateV.K. Verma, Adv.
Respondent AdvocateR.K. Gulati and ;A. Gupta, Advs.
Excerpt:
- - it was clearly a revenue receipt......stood on a different footing. according to the tribunal, the interest accrued to the assessee from year to year and, hence, the ito was directed to assess that amount of interest which related to this year only.6. in our opinion, it is settled that interest is taxable only as and when it accrues. the assessee admittedly follows the mercantile system of accounting and that being so, interest which accrued for this year alone could be taxed as income of the year. the case of the assessee that this amount was not taxable since it was received for acquisition of its capital asset and was hence of capital nature, was without substance. the amount of compensation received for the property acquired was certainly of capital nature, but the amount of interest received for delay in payment of.....
Judgment:

R.R. Rastogi, J.

1. The Income-tax Appellate Tribunal, Delhi Bench 'E', New Delhi, has referred the following questions for the opinion of this court:

'1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that out of the interest of Rs. 1,09,492 interest pertaining to this year alone was liable to be included in the assessment ?

2. Whether, on the facts and in the circumstances of the case, income of Rs. 6,329 from properties purported to have been transferred to the trust was not assessable in the hands of the assessee-family ?

3. Whether, on a proper construction of the lease deeds dated May 3, 1960, and May 5, 1962, and the accompanying facts and circumstances of the case, the sum of Rs. 10,000 is the income of the assessee and not that of Chhadami Lal Jain Degree College?'

2. So far as questions Nos. 2 and 3 are concerned, we need not set out the facts relating thereto because they stand covered by a decision of this court inter parties in the case of Moti Lal Chhadami Lal Jain v. CIT : [1977]106ITR909(All) . Following that decision, the answer to these questions is to be given against the assessee.

3. Coming to question No. 1, the facts briefly stated are that the assessee, a HUF, owned a, factory styled as M/s. Bimal Glass Works near Firozabad railway station. A portion of the land possessed by the assessees was notified for acquisition under Section 4 of the Land Acquisition Act on December 11, 1948. Notification under Section 6 was issued on January 11, 1949, and that was in respect of 2 bighas 5 biswas land. The possession of that land was taken on June 23, 1949. The Land Acquisition Officer gave his award by which a compensation of Rs. 2,887 for the land, Rs. 388 by way of solatium and interest at six per cent, from the date of taking over, possession up to the date of the award was to be paid to the assessee. Being aggrieved the assessee took up the matter in reference before the District Judge, Agra. The Additional District Judge, Agra, modified the award by order dated May 31, 1971, enhancing the amount of compensation by Rs. 91,850 and further allowed the assessee an amount of Rs. 1,09,492 by way of interest at the rate of six per cent. The assessee thus received a total sum of Rs. 2,08,641 and that amount was put in fixed deposit with the State Bank of India. For the period from November 18, 1971, to May 18, 1972, relevant to the assessment year 1973-74, the assessee earned interest amounting to Rs. 7,299 on that fixed deposit.

4. An appeal was preferred before this court against the order of the Additional District Judge, and that appeal was pending at the relevant time. For the year under consideration, i.e., 1973-74, during the assessment proceedings, the assessee claimed that neither the compensation nor the amount of interest was taxable inasmuch as those receipts were capital in nature. An alternative claim was made in regard to interest, and it was that it should be spread over the period for which it had been received, and the entire amount of interest should not be taxed in this year. The ITO did not accept those submissions and brought to tax the amount of compensation as also the total amount of interest received during this year.

5. The assessee appealed. The AAC accepted the assessee's contention in regard to the amount of compensation treating it as a capital receipt. However, as regards the amount of interest received on the fixed deposit, the AAC agreed with the ITO and confirmed the addition of the entire amount of interest received this year. On further appeal, both by the department and by the assessee, the Tribunal agreed with the AAC that the amount of compensation being a capital receipt was not taxable. The inclusion of the amount of interest of Rs. 7,299 was also upheld, but as regards the amount of Rs. 1,09,492 the view taken was that it stood on a different footing. According to the Tribunal, the interest accrued to the assessee from year to year and, hence, the ITO was directed to assess that amount of interest which related to this year only.

6. In our opinion, it is settled that interest is taxable only as and when it accrues. The assessee admittedly follows the mercantile system of accounting and that being so, interest which accrued for this year alone could be taxed as income of the year. The case of the assessee that this amount was not taxable since it was received for acquisition of its capital asset and was hence of capital nature, was without substance. The amount of compensation received for the property acquired was certainly of capital nature, but the amount of interest received for delay in payment of compensation did not partake of the same character. It was clearly a revenue receipt. The Tribunal was, thus, right in holding that the interest was chargeable to tax, and further that the amount of interest which related to the year under consideration alone was taxable in this year.

7. We, therefore, answer all the three questions in the affirmative, against the assessee and in favour of the department. The CIT is entitled to his costs, which we assess at Rs. 200. The counsel's fee is also assessed at the same figure.


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