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Jagdambika Pratap NaraIn Singh Vs. Commissioner of Income-tax, U.P., and Others. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtAllahabad High Court
Decided On
Case NumberCivil Miscellaneous Writ No. 2299 of 1958
Reported in[1963]50ITR678(All)
AppellantJagdambika Pratap NaraIn Singh
RespondentCommissioner of Income-tax, U.P., and Others.
Excerpt:
- - section 28 of the act clearly provides that compensation for acquisition of estates shall be due from the date of vesting subject to determination of the amount thereof, and sub-section (2) of that section provides that in case the amount is paid in cash interest at the rate of 2 1/2 per cent. it is obvious that in view of the peculiar provisions of the act it would not be possible to get a direct authority on the point raised before us and neither any decided case nor any well known principle of the law of eminent domain or relating to the determination of compensation can help us. 97,640. the improvement trust having failed in its appeal to the high court paid to behari lal bhargava and his brothers (ramji das bhargava having died meanwhile) not only the sum of rs. nor can it.....jagdish sahai j. (v. bhargava and b. upadhya jj. concurring).the petitioner, raja jagdambika pratap narain singh, was the proprietor of what was known as the ayodhya raj before the abolition of zamindari in this state. he held large properties in the districts of faizabad, gonda, sultanpur and barabanki. as a consequence of the abolition of zamindari in this state his properties vested in the state of u.p. and the petitioner received by way of compensation for the acquisition of his rights in those properties compensation bonds during the period 1954 to 1958.the bonds are of a self-liquidating nature and the payment under them is spread over a period of forty years. they carry interest at 2 1/2 per cent. per annum on the principal amount, and are payable in forty equal instalments. the.....
Judgment:

JAGDISH SAHAI J. (V. Bhargava and B. Upadhya JJ. concurring).

The petitioner, Raja Jagdambika Pratap Narain Singh, was the proprietor of what was known as the Ayodhya Raj before the abolition of zamindari in this State. He held large properties in the districts of Faizabad, Gonda, Sultanpur and Barabanki. As a consequence of the abolition of zamindari in this State his properties vested in the State of U.P. and the petitioner received by way of compensation for the acquisition of his rights in those properties compensation bonds during the period 1954 to 1958.

The bonds are of a self-liquidating nature and the payment under them is spread over a period of forty years. They carry interest at 2 1/2 per cent. per annum on the principal amount, and are payable in forty equal instalments. The scheme of payment is that the interest for the whole year plus a part of the principal is paid every year. As the interest goes on decreasing due to the part payment of the principal every year, the amount of principal included in the instalment goes on increasing.

The petitioner, as required by the rules, presented his bonds for realization of instalments before the Treasury Officer, Faizabad. The latter under the directions of the income-tax authorities deducted large sums by way of income-tax from the amount of interest which was included in the instalment due to be paid to the petitioner. The petitioner objected to the realization of this amount, and made an application to the Income-tax Officer stating therein that the deduction made was illegal. The Income-tax Officer on 23rd of July, 1958, passed the following order on that application :

'Treasury Officers have general instructions on the subject direct from the Central Government and I regret I cannot issue a certificate as desired.

Sd. M. P. Srivastava.

I.T.O., Faizabad.'

According to the petitioner the Income-tax Officer, Faizabad, had made an assessment order on the petitioner on 30th October, 1957. The petitioner filed a revision application under section 33A(2) of the Income-tax Act before the Commissioner of Income-tax, Uttar Pradesh, against the order of assessment, inter alia, on the ground that the income from interest on the zamindari bonds could not be assessed under the provisions of the Indian Income-tax Act. That application is admittedly still pending.

The petitioner moved this court under article 226 of the Constitution of India on 18th of August, 1958. By that time a sum of Rs. 36,916 had already been deducted and paid over to the income-tax authorities out of the equated instalments which had been paid to the petitioner under the compensation bonds issued to him. The petitioner has alleged that he apprehends that another sum of Rs. 36,916 will be deducted from the next instalment of compensation which was due for payment on the 1st of July, 1958.

He has consequently prayed for the issue of a writ, order or direction in the nature of mandamus commanding the commanding the Commissioner of Income-tax, U.P., Lucknow, the Income-tax Officer, Faizabad, and the Treasury Officer, Faizabad (respondents Nos. 1, 2 and 3 respectively) not to levy or realise any income-tax on or from any amount payable to the petitioner in respect of the compensation bonds issued to him.

It is also prayed that a writ, order or direction in the nature of mandamus be issued commanding the respondents to refund the sum of Rs. 36,916 already deducted as income-tax from the petitioners compensation. There is also a prayer for the issue of a writ of certiorari quashing the assessment order dated 30th October, 1957. In the end there is the usual prayer for the issue of any other writ, order or direction as this court may in the circumstances of the case deem fit and proper to issue.

On behalf of the respondents a counter-affidavit has been filed which is sworn by Sri Mukta Prasad Srivastava, Income-tax Officer, Faizabad, and a rejoinder affidavit has been filed on behalf of the petitioner sworn by Sri Lal Narayan Singh, the Muktaram of the petitioner. It is really not necessary to narrate all the allegations made in the petition, the affidavit, the counter-affidavit and the rejoinder affidavit because the question requiring decisions is a short one and is primarily a question of law.

The petitioners case is that though called by the name of interest, the additional amount that is being paid to him over the compensation amount is really not interest or income but is additional compensation. The case of the respondents, on the other hand, is that is income from securities or from 'other sources' and as such a revenue receipt which is liable to be taxed. In order to understand the exact nature of the payment over which there is controversy between the parties, it is necessary to consider some of the provisions of the U.P. Zamindari Abolition and Land Reforms Act (hereinafter referred to as the Act). Section 27 of the Act reads as follows :

'Every intermediary whose rights, title or interest in any estate are acquired under the provisions of this Act shall be entitled to receive and be paid compensation as hereinafter provided.'

The substance of this section is that every landlord who has been called by the name of intermediary in the Act would be entitled to receive compensation for the acquisition of his estate. Section 28 of the Act clearly provides that compensation for acquisition of estates shall be due from the date of vesting subject to determination of the amount thereof, and sub-section (2) of that section provides that in case the amount is paid in cash interest at the rate of 2 1/2 per cent. per annum shall be paid from the date of vesting to the date of determination and in case of payment through bonds the same amount of interest shall be paid from the date of determination till the date of redemption of the bonds. The said section reads as follows :

'28. (1) Compensation for acquisition of estates under this Act shall be due as from the date of vesting subject to determination of the amount thereof; (2) there shall be paid by the State Government on the amount so determined interest at the rate of two and a half per cent. per annum from the date of vesting to the date of -

(i) in the case of the amount to be paid in cash, determination,

(ii) in the case of amount to be given in bonds, the redemption of the bonds.'

Section 29 of the Act provides that Government may direct payment of interim compensation, and section 30 is to the effect that if any interim compensation is paid under section 29 the same shall be deemed to be a part of the compensation payable under the Act and shall be deducted from and adjusted against it. The Act by means of several sections provides for the manner in which compensation shall be determined. It is not necessary for our purposes to consider all those sections and we may notice only the most important ones. Sections 31 to 39 provide the manner in which the record shall be prepared and gross assets of a mahal determined.

Section 40 provides that a draft compensation assessment roll shall be prepared, and section 41 requires that the same shall be signed by the compensation officer. Section 42 provides the manner in which the gross assets of an intermediary are to be determined, and section 44 deals with the manner in which the net assets of an intermediary shall be fixed. Section 46 requires that the draft compensation assessment roll shall be published in the manner provided therein.

Section 47 provides that a date shall be fixed for hearing of objections against the draft compensation roll, and section 48 provides for the manner in which the objection shall be heard. Sections 49, 50 and 51 deal with the order to be passed on the objections and with appeals that may be filed against the order before the District Judge and the High Court. Section 53 requires that the compensation officer shall deliver free of charge a copy of the compensation assessment roll to the intermediary concerned and shall cause a copy thereof to be fixed on the notice board of the office of the Assistant Collector in charge of the sub-division. Section 54 provides that the compensation shall be eight times the net assets of an intermediary, and reads as follows :

'54. The amount payable as compensation to an intermediary in respect of his interest in the mahals to which the compensation assessment roll relates shall, except where the interest of the intermediary therein is held by a thekedar, be eight times the net assets mentioned in the roll.'

Section 60 provides that the amount determined under section 54 as compensation payable to an intermediary shall be declared by the compensation officer as the compensation payable to him in respect of his interest in the mahals to which the compensation assessment roll relates and the compensation officer shall record it in the roll in his own writing. Section 61 provides that except bona fide mistakes of a clerical or arithmetical nature the compensation assessment roll shall not be changed and shall become final. Section 65 of the Act reads as follows :

'65. There shall be paid to every intermediary as compensation in respect of the acquisition of his rights, title and interest in every estate the amount declared in that behalf under section 60.'

Section 68 provides that compensation may be paid either in cash or in bonds or partly in cash and partly in bonds. Under the provisions of section 64 of the Act rules have been framed by the State Government, and rule 62 provides that compensation shall be paid in negotiable bonds. Rule 63 is to the effect that the bonds shall be in the form of promissory notes and shall be issued in denominations of Rs. 50, Rs. 100, Rs. 200, Rs. 500, Rs. 1,000, Rs. 5,000 and Rs. 10,000 and that the same shall bear interest at 2 1/2 per cent. per annum on the principal calculated from the date of vesting and further that no interest shall be payable on any amount of principal beyond the date on which its payment fell due even though the sum is not realised by the holder of the bond.

Rule 64 provides that the interest together with the principal of a bond shall be paid in equated annual instalments except for the last, and sub-rule (a) of that rule provides that the instalments shall be paid on the completion of each period of twelve calendar months from the date of vesting. Rule 65 provides that instalments due on a bond shall be payable on presentation from and after the due date of payment of instalment next after the delivery of the bond to the intermediary.

There is a proviso to this rule which is to the effect that if one or more instalments have already fallen due before the delivery of the bond those instalments shall be payable immediately after the delivery of the bond. Rule 66 is to the effect that the instalment shall be payable at the treasury or the sub-treasury in U.P., at which the bond is enfaced for the payment of the instalment.

The learned Advocate-General who has appeared for the petitioner has submitted that the additional amounts which are paid over the principal amount of a bond cannot be considered to be revenue receipts and are not in the nature of interest though described by that name both in the Act as also in the rules. It has been contended that the scheme of the Act and the rules would show that compensation had sometimes been given another name, and our attention was invited to Chapter V of the Act which deals with Rehabilitation Grant.

This additional sum which is made payable under the provisions occurring in Chapter V has been described by the name of rehabilitation grant. The learned Advocate-General contends that even though those amounts have been described as rehabilitation grants, they are in fact nothing but compensation, and relied upon the Full Bench case of Suryapalsingh v. U.P. Government, where it has been held to be so.

The submission is that it is the pith and substance of a payment which matters, and not the nomenclature, and even though the additional sums which are made payable on a bond may have been described as interest, that description will not be conclusive of the matter and the court will have to carefully investigate their real nature in order to determine whether or not they can be treated to be interest on securities as is the case of the respondents.

It is true that a Full Bench of this court has in the case mentioned above held that rehabilitation grant is compensation. It is also true that not the name, but the pith and substance of a payment can alone be conclusive about its essential nature. We are, therefore, called upon to decide as to whether the amounts paid as interest are additional compensation or are interest on securities or income from other sources as is claimed by the respondents.

Section 6 of the Indian Income-tax Act reads as follows :

'Save as otherwise provided by this Act, the following heads of income, profits and gains, shall be chargeable to income-tax in the manner hereinafter appearing, namely :

(i) Salaries, (ii) Interest on securities, (iii) Income from property, (iv) Profits and gains of business, profession or vocation, (v) Income from other sources, (vi) Capital gains.'

The petitioner admittedly has been a resident in the taxable territories throughout his life and was so even during the year of assessment giving rise to this writ petition. Section 4 of the Income-tax Act so far as relevant for our purposes provides that subject to the provisions of that Act the total income of any previous year of any person includes all income, profits and gains from whatever source derived which are received or which are deemed to have been received in the taxable territories in such year by or on behalf of such person, or which, if such person is resident in the taxable territories during such year, accrue or arise or are deemed to accrue or arise to him in the taxable territories during such year. Section 2(6C) of the Income-tax Act so far as relevant for our purposes reads as follows :

'income includes - ...... (iv) any sum deemed to be profits under the second proviso to clause (vii) of sub-section (2) of section 10, and any sum deemed to be profits and gains under sub-section (2A) of that section or under sub-section (5) of section 12.'

The effect of the above provisions of the Income-tax Act is that if any interest is earned on securities or any income is made from 'other sources' during the year of assessment the same shall be liable to be charged to income-tax. Thus the dispute between the parties is confined only to the question as to whether the additional sums paid to the petitioner over the compensation amount and named as interest are interest on securities or income from other sources as alleged by the respondents, or are additional compensation as alleged by the petitioner.

In other words, what are the realities of the case or, to put it differently, what is the natural quality of the additional payment Is it interest or is it compensation estimated and measured in terms of interest We may mention that there is authority in support of the view that even though damages for withholding its capital from the company may have been described as 'interest' the same may be damages and not interest (see In re National Bank of Wales Ltd.).

Similarly compensation can be measured in terms of interest, and even though the word 'interest' may have been used, it may in substance be compensation (see Commissioner of Inland Revenue v. Ballantine and Simpson v. Maurices Executors). In order to find out the real pith and substance of the additional payments we have to look into the scheme of the Act. Under the provisions of section 28 of the Act compensation was due to the petitioner from the date of vesting.

Inasmuch as compensation could not be paid before the same was determined and the determination of the amount would necessarily have taken some time, section 28 of the Act further provided that interest shall be paid on the amount of compensation determined from the date of vesting to the date of payment in cash if it was paid in cash and to the date of redemption of the bonds if paid in bonds.

The legal position, therefore, is that the petitioner became entitled to compensation on the date of vesting, and inasmuch as he was not paid the amount of compensation interest is being paid to him over that amount till the redemption of the bonds. So far as the acquisition of his rights in the estate is concerned the compensation he is entitled to receive is the one provided for in section 65 of the Act, i.e., the amount declared as compensation under section 60 of the Act and no more.

We have already mentioned the various sections in the Act relating to compensation in an earlier part of this judgment and suffice it to say that the amount that is declared under section 60 is the principal amount (of compensation) and does not include any interest. Therefore, under the law the amount that the petitioner received for the acquisition of his rights, title and interest in his estate is only the one which has been declared under section 60 of the Act, i.e., the principal amount. The additional sums that are being paid to him are not directly connected with the acquisition of his rights, title and interest in his estate but are a return for the use the Government is making of his money (compensation amount) till the date of redemption.

It is clear that the compensation contemplated by the Act is not equal to the value of the property acquired. It is also true that so far as the Act is concerned a clear departure has been made from the accepted principles of payment of compensation. In the general law relating to compensation for acquisition of property in this country as also in America the full value of the property has got to be paid by the State to the person whose property is acquired.

The various provisions of the Act however reveal that the compensation that is paid under it has got no relation to the actual value of the property. It is based on the arbitrary rule that the compensation will be the amount arrived at by multiplying the net assets of an estate by eight times. Other considerations are completely excluded. The various factors which are normally taken into consideration in determining compensation may include damages also for the period beginning with the deprivation of possession of the owner and ending with the payment of compensation on the ground that that amount is being paid as compensation or damages for loss of the right of the owner to retain possession.

But because of the special nature of the provisions in the Act, neither this consideration nor the consideration that actual value of the property must be paid can govern the matter of compensation under the Act. Apart from it, the scheme of the act also warrants the conclusion that the rights of an intermediary in an estate after the vesting of the same in the Government are converted into a right to receive money on the date of vesting or as from the date of vesting, but inasmuch as the payment of money is not immediately made, but is temporarily withheld from him and the amounts are paid gradually, 2 1/2 per cent. interest is paid.

In other words the legal effect of the issuing of the bonds is that the zamindari rights are converted into compensation and compensation into a promise to pay (through bonds). Thus the scheme of the Act reveals that the payment of interest is not related to the acquisition of the property but to the promise to pay or to the temporary use of the money by the Government. It has got to be conceded that the position under the Act is not a normal one. Ordinarily compensation has got to be paid in cash and cases are extremely rare where the Government after determining the compensation converts itself by law into the position of a debtor, and relegates the intermediary to that of a creditor and thus uses the money which nationally and legally is that of the intermediary but over which he is not given actual possession or control.

It is true that such a position is unique to the Act but the legislature has created the position and the Act has been held to be valid. In that view of the matter it appears to us that the amounts paid under the name of 'interest' cannot partake of the nature of compensation or damages, but are in the nature of a return for the use that the Government makes of the money under the law deemed to be belonging to the intermediary.

It is obvious that in view of the peculiar provisions of the Act it would not be possible to get a direct authority on the point raised before us and neither any decided case nor any well known principle of the law of Eminent Domain or relating to the determination of compensation can help us. The case has got to be decided on the basis of its own provisions.

A large number of English as also some Indian cases have been cited before us. So far as the English cases are concerned we have to keep in mind the warning given by the Privy Council in the case of Commissioner of Income-tax v. Shaw Wallace & Co. that it is the Indian statute and not the English decisions which can help in interpreting the former. However, having looked into those decisions, it appears to us that there are three main groups in which these cases can be divided.

The first group consists of cases arising out of a claim by or against a trustee who has been negligent in the discharge of his trust and has been ordered to repay the amount with interest or who, if found to have committed a fraudulent breach of trust, has been ordered to pay damages. In the former class of cases the portion of the amount received or paid as interest has been held to be assessable to income-tax but in cases where damages were awarded income-tax was held not to be exigible.

The second group of cases deals with that class of cases where damages are awarded either on calculations based on interest or otherwise but where interest as such was neither payable under any law nor demandable by virtue of any contractual obligation incurred by the parties. In these cases income-tax is not payable on the amounts paid even though called by the name of interest. The third group consists of cases which deal with the receipt of damages or compensation in the course of business or trade carried on by a trader. Such amounts have been held to be liable to be assessed to income-tax. As we have already said above the provisions of our Act (Zamindary Abolition Act) are peculiar and it is not possible to find any close parallel in any of the decided cases.

Learned counsel for the petitioner has placed reliance upon the case of Behari Lal Bhargava v. Commissioner of Income-tax. In that case what happened was that two houses belonging to Ramji Das Bhargava, father of Behari Lal Bhargava, were acquired by the Improvement Trust under the Land Acquisition Act and possession was taken over of the same on 11th of November, 1927.

The amount awarded by the Land Acquisition Officer was Rs. 13,225 which Ramji Das Bhargava did not accept as adequate, and referred his claim to the Tribunal who increased the amount of compensation to Rs. 97,640. The Tribunal also directed the Improvement Trust under section 28 of the Land Acquisition Act to pay interest a 6 per cent. per annum from the date of taking possession of the property to the date of payment of Rs. 97,640.

The Improvement Trust having failed in its appeal to the High Court paid to Behari Lal Bhargava and his brothers (Ramji Das Bhargava having died meanwhile) not only the sum of Rs. 97,640 but also a further sum of Rs. 49,660 as interest. The share of Behari Lal Bhargava in the interest amount was Rs. 12,415 and the question that arose in this court was whether that sum could be treated as income and made assessable.

The submission that was made on behalf of Behari Lal Bhargava was that the sum of Rs. 12,415 was compensation on account of his having been deprived of his property from 11th of November, 1927, to 6th of April, 1931, without receiving its monetary value, and the granting of interest under section 28 of the Land Acquisition Act was merely a convenient way of assessing such compensation. This court accepted that submission.

The main ground on which the case of Behari Lal Bhargava is, in our opinion, distinguishable is that whereas compensation to be awarded under the Land Acquisition Act is the natural compensation being equivalent to the market value of the rights and the property acquired and has to conform to all the principles relevant for determining the amount of compensation. The compensation under the Act is a fixed one and cannot exceed, for whatever cause, the amount arrived at by multiplying the net assets of an estate by eight times.

In other words, whereas it was possible for the learned judges in Behari Lal Bhargavas case, to have taken into consideration a number of circumstances in order to determine the exact compensation, it is not possible to do so in the present case considering the express language of our own statute. The considerations which prevailed with the learned judges of this court in Behari Lal Bhargavas case, to conclude that the amount given as interest was not interest as such but compensation are, to quote their own words, as follows :

'But the assessee had lost both possession and title on the 11th November, 1927, and so it is difficult to see how this money can be treated as profits when the assessee neither owned nor possessed what was - on this view of the matter - the only possible source of such profits. Nor can it very well be said that the money in question represents the interest which the assessee might have received by investing the principal sum, and this for two reasons. In the first place the principal sum which was ultimately found due as at 11th November, 1927, as compensation for the acquisition was not determined and so did not exist until the 6th April, 1931, the date of the Tribunals order; and in the second place, as we have already said the interest awarded is compensation for the loss of the late owners right to retain the property. If the interest awarded under section 28 of the Land Acquisition Act is income, it must have a source. It seems to us that there are only two possible sources, either the property or its equivalent in money, and as we have already said, we do not think that this interest can be said to have arisen from either of these. It is not the fruit of a tree - to borrow the simile used in Shaw Wallaces case - but was compensation or damages for loss of the right to retain possession; and it seems to us that section 28 was designed as a convenient method of measuring such damages in terms of interest. Under section 28 the awarding of interest is not mandatory, but is discretionary with the court; and so the claimant is not entitled to it as of right under any rule of law.'

In our case the interest is receivable by an intermediary as of right under the statute. Apart form it, the source of the interest is the amount of compensation. It is, therefore, in the nature of a fruit from a tree, the interest being the fruit, and the compensation being the tree. In our case, unlike that of Behari Lal Bhargava, where the right to receive compensation accrued only on its being tendered under section 31 of the Land Acquisition Act, the right to receive compensation to an intermediary accrued on the date of vesting.

It is true that actually he did not receive compensation on that date but under the law he is entitled to receive it with effect from that date and by a legal fiction he will be deemed to have received compensation on that date, but inasmuch as he is not allowed to have dominion or control over the amount of compensation interest is paid to him. Lastly, the consideration that the principal compensation amount (the value of the property) should be increased by an additional sum paid as damages to a person for the loss of his right to retain the property during the period after acquisition and before determination and payment of compensation, cannot be applied to our case considering the language of the Act.

In our case, whatever be the circumstances, whatever be the reason, the compensation cannot exceed the amount arrived at by multiplying the net assets by 8 times. We have already said above that the provisions of our Act are unique. It may also be said that from a particular point of view they may not be considered to be fair, but this court is not the judge either of the necessity of the legislation or about its fairness so long as it can withstand the onslaught on the constitutional competence of the U.P. Legislature to enact it.

In the case of Behari Lal Bhargava, the amount called interest came into existence by virtue of the compensation award as amended by the Tribunal and could for that reason be treated as part of the compensation; in our case the identity of the compensation and the interest is throughout kept apart and the interest which is not provided for by the compensation roll never merges in the compensation amount. In the Land Acquisition Act there is no provision similar to section 28 of the Act.

In a case under the Land Acquisition Act the right to receive compensation does not date back to the date of dispossession but accrues only after the compensation has been determined and the award made. Thus, in those cases whatever amount is payable till the date of award, be it named as interest or compensation amount, may be considered as compensation. For the reasons mentioned above it appears to us that the case of Behari Lal Bhargava is distinguishable.

We may also state that the Madras High Court in the case of Commissioner of Income-tax v. Narayanan Chettiar, the Nagpur High Court in the case of Gopaldas v. Commissioner of Income-tax and the Patna High Court in the case of Commissioner of Income-tax v. Kameshwar Singh, did not accept the decision in Behari Lal Bhargavas case, as correct. In view of the fact that we consider that case to be distinguishable it is really not necessary for us to consider whether that case has been correctly decided. It may however be said that the learned judges who decided it were not also very sure about their conclusions as is apparent from the following words in their judgment :

'It was not without considerable doubt and hesitation that we have arrived at this decision, for there is much to be said on the other side; but upon the whole matter we think that this is the correct view to take and we also bear in mind that where the interpretation of a fiscal enactment is open to doubt, it should be construed favourably to the subject.'

The next case on which reliance is placed is Commissioner of Income-tax v. Kameshwar Singh. This case is cited in order to support the contention that even though bonds have been issued, until the last bond is redeemed and payments fully made, it cannot be said that the compensation has been paid to the petitioner by the delivery of the bonds or by the determination of the compensation amount and therefore the amounts paid as interest are compensation and not interest as such. That was a case of a promissory note and not a negotiable bond in that case there was no section similar to section 28 of the Act. That case, therefore, is clearly distinguishable as the following observations of the Privy Council would show :

'Now here the first six items, amounting to Rs. 20,74,973, may perhaps reasonably enough never be regarded as the equivalent of cash, but the seventh item of Rs. 17,34,596, consisting of the debtors own promissory notes, was clearly not the equivalent of cash. A debtor who gives his creditor a promissory note for the sum he owes can in no sense be said to pay his creditor; he merely gives him a document or voucher of debt possessing certain legal attributes. So far then as this item of Rs. 17,34,596 is concerned the assessee did not receive payment of any taxable income from his debtor or indeed any payment at all.'

In the case of bond which is negotiable the mere delivery of the bond amounts to payment.

It is next contended that it is not possible to hold that the compensation is paid by the mere delivery of the bonds because that would amount to requisitioning the amount of compensation which is not possible because money cannot be requisitioned. In this connection reliance has been placed upon certain passages from the book, Constitutional Limitation, by Cooly as also from the book Eminent Domain by Nichols which were considered by their Lordships of the Supreme Court in the case of State of Bihar v. Kameshwar Singh.

Those passages only indicate that acquisition of money can only amount to compulsory loan and generally such compulsory loans are not resorted to by a State except in emergencies like war. The law contained in those passages relates to the general law as applied in America and other countries and has nothing to do with the interpretation of the provisions of our Act. Even those passages clearly indicate that compulsory loans are levied or can be levied in cases of emergency. Therefore notions of compulsory loans are not unknown to the civilized world.

In our Act in substance by issuing compensation bonds the State raises a compulsory loan and its validity has got to be decided on the basis of our own Constitution and not with reference to the statement of law contained in the book of either Cooly or Nichols. The Supreme Court in Kameshwar Singhs case has already held that the payment of compensation by means of bonds is not unconstitutional. For these reasons we are of the opinion that the sums which are paid as interest on the compensation bonds are not compensation.

We may however state that we have arrived at this conclusion with a certain amount of reluctance. The compensation that was paid to the petitioner was far less than the value of his property. The payment of the compensation has also been spread over a period of forty years and if out of the interest which is paid on the principal amount large sums are to be taken away by the income-tax authorities it must be adjudged to be a case of extreme hardship but we have to administer this law as it is and considerations of hardship cannot prevail over the express language of the statute.

The next question to consider is whether these amounts can be considered as interest on securities or income from other sources. We will first go into the question whether they can be treated as interest on Government securities. Section 2(a) of the Indian Securities Act, 1920 (No. X of 1920), reads as follows :

'In this Act, unless there is anything repugnant in the subject or context, - (a) Government security means promissory notes (including treasury bills), stock-certificates, bearer bonds and all other securities issued by the Central Government at any time or by the Government of any Part A State before November 1, 1956, or by a State Government on or after that date in respect of any loan contracted either before or after the passing of this Act, but does not include a currency note.'

Thus in order to be a Government security, a promissory note, or a stock-certificate, or a bearer bond has got to be in respect of 'any loan'. In the present case no loan as such was raised by the Government, though in a sense it may said that by issuing bonds Government has compulsorily taken the compensation amount on loan. However, it is not in that sense that the word 'loan' has been used in the Indian Securities Act. Consequently, in our judgment, the compensation bonds cannot be held to be Government security within the meaning of the Indian Securities Act.

It may next be considered whether the compensation bonds can be considered to be a security within the meaning of that word occurring in the Public Debt Act (No. 18 of 1944). Section 2(2) of that Act reads as follows :

'2. In this Act, unless there is anything repugnant in the subject or context, - ....

(2) Government security means -

(a) a security, created and issued by the Government for the purpose of raising a public loan, and having one of the following forms, namely :

(i)

stock transferable by registration in the books of the bank; or

(ii)

a promissory note payable to order, or

(iii)

bearer bond payable to bearer; or

(iv)

a form prescribed in this behalf;

(b) any other security created and issued by the Government in such form and for such of the purpose of this Act as may be prescribed.'

In our opinion the present bonds which are in the form of promissory notes are fully covered by the definition given in sub-section (2) of section 2 of the Public Debt Act. It is not necessary to go into this question in great detail because the argument on behalf of the petitioner has proceeded on the assumption that the sums paid by way of interest on the compensation bonds if not held to be additional compensation would be liable to income-tax.

Even if there was some difficulty (though we do not see any) in holding that the interest on compensation bonds issued to the petitioner is not interest on securities it would yet be taxable as it would be an 'income' from some other source. For the reasons mentioned above it appears to us that the sums of interest on the compensation bonds are liable to be charged to income-tax.

A preliminary objection was taken by Mr. Gopal Behari on behalf of the income-tax department which was to the effect that a writ of certiorari can only be issued if the mistake of law is self-evident and no long-drawn arguments are required to make it manifest. Reliance was placed upon the case of Satyanarayan v. Mallikarjun. Inasmuch as we have already heard the parties on the merits, it is not necessary to decide the preliminary objection.

For the reasons mentioned above we are of the opinion that the petition should be dismissed but the parties should bear their own costs, and we order accordingly.


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