1. By this reference under Section 256(1) of the Income-tax Act, 1961 (hereinafter referred to as ' the Act '), the Income-tax AppellateTribunal, Indore Bench, Indore, has referred the following question of law for the opinion of this court :
' Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the entire interest amount of Rs. 43,431 was not assessable in the assessment year 1970-71, and that only a sum of Rs. 4,815 of interest relevant to the assessment year 1970-71, was assessable in that year '
2. The material facts giving rise to this reference as set out in the statement of the case are as follows :
The assessee, His Highness Maharaja Yashwant Rao Pawar of Dewas (junior), an individual, derived income, among others, from agricultural land belonging to him. Some agricultural land measuring 73.39 acres belonging to the assessee was acquired by the State Government on March 23, 1965. The possession of the land acquired was taken over by the Government on March 30, 1965. The Land Acquisition Officer offered an amount of Rs. 3,57,251 as compensation to the assessee for the land acquired. On a reference made at the instance of the assessee by the Land Acquisition Officer the court enhanced the amount of compensation by Rs. 2,07,000 by its decree dated February 7, 1970. This enhanced amount of compensation included an interest of Rs. 43,431 for the period from April 1, 1965, to March 31, 1968, under the provisions of Section 28 of the Land Acquisition Act. The enhanced amount of compensation including the interest was received by the assessee in the previous year relevant to the assessment year 1970-71. Before the ITO it was contended on behalf of the assessee that the income-tax was chargeable on the amount of interest in question by spreading over the same in the years to which the interest related. The ITO took the view that the right to receive the interest accrued to the assessee on the date when the enhanced compensation was awarded to him, i.e., on February 7, 1970, and that as such the entire amount of interest was assessable to tax in the assessment year 1970-71. In the appeal preferred by the assessee, the AAC affirmed the order of the ITO. On further appeal by the assessee, the Income-tax Appellate Tribunal held that the assessee has been assessed on due basis even in respect of the earlier assessment year 1966-67, the interest income will have to be spread over in the various years. The appeal was, therefore, partly allowed and the ITO was directed to include the proportionate interest which accrued in the accounting year relevant to the assessment year in appeal. At the instance of the revenue, the Tribunal has referred the aforesaid question of law for the opinion of this court.
3. The learned counsel for the revenue submitted that the Tribunal committed an error of law in holding that the income from interest on theamount of enhanced compensation accrued in the respective years for which it was made payable by the decree of the court and it was only quantified by the decree of the court. According to him, the income from interest in the present case accrued only when it was adjudicated by the court and the entire amount of interest was taxable in the assessment year in question. He placed reliance upon the decisions in CIT v. Hindusthan Housing and Land Development Trust Ltd. : 108ITR380(Cal) and M.Jairam v. CIT. : 117ITR638(Ker) .
4. The learned counsel for the assessee contended that the income from interest on the enhanced amount accrued or arose when the possession of the land acquired was taken from the assessee and had only become quantified by the decree of the court and, therefore, the amount of interest received by the assessee in pursuance of the decree of the court has to be spread over in the years to which it related and the entire amount of interest was not liable to be taxed in the year in which it was decreed or received. He placed reliance upon the decisions in Addl. CIT v. Virendra Singh : 118ITR923(All) , CIT v. V. Sampangiramaiah : 69ITR159(KAR) , CIT v. Dr. Sham Lal Narula and Joyanarayan Panigrahi v. CIT : 93ITR102(Orissa) . Reliance was placed by both the parties on the decision of the Supreme Court in E. D. Sassoon and Co. Ltd. v. CIT : 26ITR27(SC) .
5. We have considered the rival contentions of the learned counsel for the parties and have also carefully gone through the decisions relied upon by the parties.
6. When any land is acquired under the provisions of the Land Acquisition Act (hereinafter referred to as ' the L.A. Act '), the Collector is required to make an award of compensation which in his opinion can be allowed for the land under Section 11 of the L. A. Act. Section 16 of the L.A. Act empowers the Collector to take possession of the land when he has made an award under Section 11 thereof and thereupon the land absolutely vests in the Government free from all incumbrances. In case of emergency the possession of the land can also be taken before the award is made under Section 17 of the L.A. Act.
7. Section 34 of the L. A. Act enjoins the Collector to pay interest on the amount of compensation @ 6% p.a. if the amount of compensation is not paid or deposited on or before taking possession of the land, from the time of so taking possession until it shall have been so paid or deposited. Thus, interest payable under Section 34 of the L.A. Act is a determinate amount and is not dependent upon any order of the Collector or any other authority. If the possession of the land is taken without payment or deposit of the amount of compensation the person whose land is acquired has a right to receive interest on the amount of compensation awarded and the rate ofinterest also is fixed by the law. Therefore, interest payable under Section 34 of the L.A. Act accrues or arises from the time the possession of the land is taken and the amount of compensation is not paid or deposited and it accrues from year to year until the amount of compensation is so paid or deposited. The person whose land is acquired has a right to receive such interest under the provisions of the law.
8. The nature of the interest awardable under Section 28 of the L. A. Act is, however, quite different. If the person whose land is acquired is not satisfied by the award of compensation by the Collector, a reference is made at his instance to the court which determines the amount of compensation. If the court enhances the amount of compensation it has the discretion to award interest on the enhanced amount under Section 28 of the L. A. Act. The income of interest on the enhanced amount of compensation is dependent on two contingencies. Firstly, that the amount of compensation is enhanced by the court and, secondly, the court in its discretion directs payment of interest. Even if the court enhances the amount of compensation awarded by the Collector it has the discretion to award interest on such amount. It may be possible that in a given case the court may not award interest on the enhanced amount. Therefore, it cannot be said that the income from interest on the enhanced amount accrues or arises when possession of the land is taken from the person whose land is acquired. Such a person has no right to receive interest on the amount of enhanced compensation. The right to receive such interest accrues or arises only when the court while enhancing the amount of compensation also directs payment of interest thereon. We, therefore, respectfully disagree with the decisions relied upon by the learned counsel for the assessee referred to above and agree with the decisions relied upon by the learned counsel for the revenue. We are of the opinion that in the instant case the right to receive interest was acquired by the assessee only when such interest was awarded by the court on the enhanced amount, and he had no such right before the passing of the decree. In the circumstances, the income from interest on the enhanced amount of compensation accrued or arose only when the decree of the court was passed. In the present case, the amount was received by the assessee also in the same assessment year. In the view, therefore, which we have taken it does not make any difference whether the assessee was assessed on due basis or had adopted the mercantile system of accounts. We are, therefore, of the opinion that the entire income from interest on the enhanced compensation was assessable in the assessment year in question and the Tribunal was not justified in holding that the said amount has to be spread over the different years.
9. In reaching the above conclusion, we have derived support from the decision of the Supreme Court in Sassoon's case : 26ITR27(SC) . In thatcase though the managing agency was assigned in the midst of the previous year and some work was done by the original managing agents, yet the Supreme Court upheld the assessment of the assignee for the entire income derived in the previous year because, according to the terms of the agreement, the commission accrued to the managing agents only at the end of the year. Thus, although the original managing agents had transacted some business it was held that the right to receive commission did not accrue to them and the entire income accrued at the end of the year and was assessable in the hands of the assignee. The contention of the assignee that part of the income accrued to the original agents and it was liable to be assessed in their hands was negatived. Similarly, in the present case, though the occasion for the award of interest was taking over possession of the land acquired, the right to receive the same arose only when the court in its discretion awarded interest on the enhanced compensation under Section 28 of the L. A. Act and was assessable only in the year of assessment and could not be spread over in the previous years because the right to receive interest did not arise prior to the passing of the decree by the court.
10. As a result of the discussion aforesaid our answer to the question referred to us is in the negative and against the assessee. In the circumstances of the case, there shall be no order as to costs of this reference.