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NitIn Raojibhai (Huf) Vs. Income-tax Officer - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Ahmedabad
Decided On
Judge
Reported in(1986)15ITD122(Ahd.)
AppellantNitIn Raojibhai (Huf)
Respondentincome-tax Officer
Excerpt:
.....in a nutshell is: (i) that the interest received is compensation; (ii) this compensation is a capital receipt; and (iii) that where two views are possible, one in favour of the assessee should be adopted. we shall now state this argument a little more elaborately in steps, the reply of the learned departmental representative and the rejoinder of the assessees' advocate.6. in support of the proposition (i) that the interest is compensation, it was pointed out that the deposit was compulsory and a reference was made to the preamble of the 1974 act and the press note. section 6 of the 1974 act was relied upon to show that the assessee could be compelled to make deposit and that mere penalty was not the only tool in the hands of the authorities. it was further argued that although the.....
Judgment:
1. All these appeals involve one and only one question, namely, the liability to income-tax of the interest paid on the deposits made under the Compulsory Deposit Scheme (Income-tax Payers) Act, 1974 ('the 1974 Act'). The facts are stated for the sake of completeness.

2. The assessees had claimed the amounts of interest on the deposits made under the 1974 Act. The ITO rejected that claim on the ground that exemption is given under Section 80L(1)(W) of the Income-tax Act, 1961 ('the Act') and it is irrelevant that the deposits had been made voluntarily or under statutory compulsion.

3. The Commissioner (Appeals) has confirmed those orders on the ground that Section 7(3) of the 1974 Act would be redundant if the said interest was not to be considered as income of the assessees as argued by their advocate.

4. This matter has been argued at length before the Pune Bench of this Tribunal and at the time of hearing we have had the benefit of the decision of that Bench. However, the assessees' advocate tried to point out the errors in that decision and also re-emphasized the points argued before that Bench.

5. The argument on behalf of the assessees in a nutshell is: (i) that the interest received is compensation; (ii) this compensation is a capital receipt; and (iii) that where two views are possible, one in favour of the assessee should be adopted. We shall now state this argument a little more elaborately in steps, the reply of the learned departmental representative and the rejoinder of the assessees' advocate.

6. In support of the proposition (i) that the interest is compensation, it was pointed out that the deposit was compulsory and a reference was made to the preamble of the 1974 Act and the press note. Section 6 of the 1974 Act was relied upon to show that the assessee could be compelled to make deposit and that mere penalty was not the only tool in the hands of the authorities. It was further argued that although the 1974 Act may call the payment as interest, that name is not conclusive and it is the true nature of the receipt which must be seen.

Reliance was placed for this purpose on the Supreme Court decision in the case of National Cement Mines Industries Ltd. v. CIT [1961] 42 ITR 69. It was further argued that under Article 31(2) of the Constitution of India the payment of compensation was necessary and it was in compliance with that provision that this payment was provided for in the 1974 Act and that, therefore, the payment was compensation. Lastly, the English decision in the case of Simpson (H.M. Inspector of Taxes) v. Executors of Bonner Maurice as Executor of Edward Kay 14 TC 580 was heavily relied upon.

7. In support of the proposition (ii) that the compensation is a capital receipt, the following authorities were relied upon--Senairam Doongarmall v. CIT [1961] 42 ITR 392 (SC), Bombay Burmah Trading Corpn.

Ltd. v. CIT [1971] 81 ITR 777 (Bom.) and CIT v. New India Assurance Co.

Ltd. [1980] 122 ITR 633 (Bom.).

8. In support of the proposition (iii) that reliance was placed on the decision in the case of CIT v. Madho Pd. Jatia [1976] 105 ITR 179 (SC).

9. The learned departmental representative on the other hand, argued that we should take the same decision as the decision of the Pune Bench for judicial discipline. He pointed out that there has been no High Court decision subsequent to that decision which is reasonable decision based on cogent reasoning. He also emphasized that the very same arguments were put forward before the Pune Bench and so there was no reason to depart from that view. He also argued that there was no hard and fast rule regarding the question of the revenue or capital receipt which was a further reason for agreeing with the view of the Pune Bench. He pointed out the following authorities where compensation was held to be a revenue receipt--Rai Bahadur H.P. Bannerji v. CIT [1951] 19 ITR 596 (Pat.), Gobardhandas Jagannath v. C/r[1955] 27 ITR 225 (Pat.), Raj Kishen Prem Chandra Jain v. CIT [1959] 35 ITR 590 (Punj.), CIT/EPT v. Shamsher Printing Press [1960] 39 ITR 90 (SC), Associated Oil Mills Ltd. v. CIT [1960] 40 ITR 118 (Mad.), Vadilal Soda Ice Factory v. CIT [1971] 80 ITR 711 (Guj.) observations at p. 720 and CIT v. Manna Ramji & Co. [1972] 86 ITR 29 (SC).

He relied upon Section 7(3) of the 1974 Act and argued that the amount paid is to be regarded as interest and that the exemption is limited as provided under Section 80L of the 1961 Act suggesting thereby that the balance of the amount would be taxable.

10. Shri Patel replied that the decision of the Supreme Court in the case of Senairam Doongarmall (supra) was a complete answer to all the decisions cited by the learned departmental representative that compensation was revenue receipt. He argued that the decision in the case of Manna Ramji & Co. (supra) was entirely on a different fact being compensation for loss of earnings. Regarding the Pune Bench decision he pointed out that Section 6 of the 1974 Act had not been considered therein. He also said that the said Bench had relied upon the decision in the case of Dr. Shamlal Narula v. CIT [1964] 53 ITR 151 (SC) but that case was concerned with the interest on compensation, not with compensation and so was not applicable here. Regarding the argument based on Section 7(3) he relied on the decisions in the cases of [1960] 40 ITR 42 (sic) and CIT v. Ajax Products Ltd. [1965] 55 ITR 741 (SC) that the fiction cannot be used to bring within the scope of taxability what is not taxable otherwise, by charging section.

11. We shall deal with all the arguments for and against, in the above order. Now, there is no doubt that making of deposit is compulsory under the 1974 Act. Failure to do so entails penalty. In that connection we would like to make it clear that there are no degrees of compulsion. Once a statute provides that a certain act must be performed that act is compulsory and that compulsion is enforced by the liability to penalty. It is unnecessary to refer to Section 6. The imposition of the duty by a mandatory expression is sufficient to make compulsion. The next question, therefore, is whether the payment of amount called interest under Section 7(1) is only compensation and not interest. In this connection the decision in the case of Simpson (H.M.Inspector of Taxes) (supra) has to be considered. In that case there was duty to pay compensation under the Peace Treaty and that in fact was paid. The manner of calculating the compensation was on the basis of interest and the Court laid down that this manner of calculation did not alter the original nature of the payment which was compensation.

This case, therefore, is not an authority for the proposition that whenever the use of anything is prevented by compulsion what is received in return is compensation. This case is only an authority for the proposition that the nature of receipt does not change by the label given to it or by the manner of calculating. Shri Patel has referred to a passage in the judgment which is as follows: For withholding this sum, for preventing Mr. Kay, or his executors, exercising the power of disposition over his property, the Germans have been compelled to pay compensation. (p. 602) This is a reference to the Peace Treaty which compelled the payment of compensation. This cannot be interpreted to mean that when a person is prevented from exercising his power of disposition over his property, what is paid is compensation.

12. It is true that under the Constitution of India no property could be compulsorily acquired or requisitioned without payment of compensation and a law which violated that provision would be ultra vires. However, from this it does not necessarily follow that the intention of the Legislature was payment of compensation. The 1974 Act is not a part of the Constitution nor does the Constitution direct the enactment of this Act. It is not in exercise of the constitutional provision with regard to the payment of compensation that this Act has been made. It is not as if the 1974 Act was declared ultra vires earlier for non-payment of compensation and later on this provision regarding payment of interest has been made. Why should it be assumed that the Legislature had the constitutional provision in mind and but for that constitutional provision the payment of interest would not have been provided for The Legislature has made this law and provided for the payment of interest. It is competent to make that provision. It is, therefore, what the Legislature calls it, namely, interest.

Therefore, the constitutional provision does not help the assessee's case.

13. We have now to consider the series of cases which have been cited on the question of the revenue or capital receipt. In our view, the ratio of all the cases is that it is "the kind of the original asset which has been acquired or requisitioned which decides the nature of the receipt in respect thereof. In the case of Senairam Doongarmall (supra) the assessee's business was stopped and so it was held that the payment did not bear the character of profits of business. The assessee was prevented from manufacturing tea and selling it which was its business and compensation was paid for that. The Court has gone on to state that: ... It was a case of compulsory requisition, but the requisition did not involve the buying of tea either as raw material or even as a finished product. If that had been the case, it might have been possible to say that since business was done, though compulsorily, profits had resulted.... (p. 408) This shows that the receipt would have been regarded as a revenue receipt if the assessee's business would have been continued.

14. In the case of Bombay Burmah Trading Corpn. Ltd. (supra) the Court's decision is based on the fact that the rights under the forest leases were acquired and that they were capital assets. That is why the compensation paid in respect thereof could not be held to be revenue receipt.

15. In the case of New India Assurance Co. Ltd. (supra) the assessee had been deprived of the right of management of the company and that right was held to be a capital asset and so the compensation paid in respect thereof was held as not liable to be included in the business profits.

16. The learned departmental representative has cited many cases but we are considering the case of Manna Ramji & Co. (supra) because it is the latest among those which he cited and also because it is a Supreme Court decision. In that case the assessee was carrying on business in timber and its office and six sheds for storing timber taken on long lease, were requisitioned. However, the assessee was permitted to remain in possession of the office premises. On a claim for compensation the learned Civil Judge awarded in addition to rent for the premises a lump sum amount for loss of earnings. The Supreme Court held that this was a revenue receipt and that this was not a case where the assessee was permanently deprived of a source of income. Therefore, all the above cases show that it can neither be said that in all the cases the compensation is a capital receipt or that it is a revenue receipt. Everything depends upon the nature of the asset which the assessee has been deprived of. If he has been deprived of a capital asset, then the compensation would be a capital receipt and if he has been deprived of the revenue, then the compensation would be a revenue receipt. In this connection the distinction sought to be drawn by the assessees' counsel that in Manna Ramji & Co.'s case (supra) the Supreme Court was concerned with the loss of earnings, does not affect this conclusion derived by us from all the cases. The assessees' advocate has referred to the following sentence in the case of Bombay Burmah Trading Corpn. Ltd. (supra): Compensation received for immobilisation, sterilisation, destruction or loss, total or partial, of a capital asset would be capital receipt.... (p. 777) He argued that since the money has been immobilised in this case, the compensation must be considered to be a capital receipt. We do not agree. In that case, immobilisation was part of the entire act of acquisition and it was acquisition with which the Court was concerned.

Therefore, immobilisation cannot be separated out and this word cannot be considered in isolation. The main conclusion or the test derived from the above cases remains unaffected.

17. Therefore, applying these tests to the case before us, we have to find out the nature of the right which the assessees have been deprived of. The assessees have been deprived of the right to the use of the money. They have not been deprived of the money itself. That right translated in terms of money would yield the revenue to the assessees.

Interest is price for the use of the money. If the assessees would have invested that amount somewhere else, they would have earned the interest. Therefore, the payment received by the assessees is a revenue receipt.

18. That brings us to the applicability of Section 7(3). If the interest on the compulsory deposit was to be considered as not taxable at all, that section would be made otiose. It is true that the amount should be independently chargeable. However, the imposition of the tax and the availability of a deduction are statutory. The statutes may be different but that is not relevant. Moreover, Section 7(3) of the 1974 Act makes a direct reference to Section 80L of the 1961 Act. If the amount was not chargeable to income-tax at all, there was no need to provide for deduction under Section 80L. Therefore, what is not allowable as deduction must be considered to be chargeable to tax by the statute. We have already held that the amount is interest and is, therefore, chargeable. Shri Patel has argued that where two views are possible, one in favour of the assessee should be taken. However, in this case the only reasonable view is that the interest paid in respect of compulsory deposit is taxable. Therefore, the orders of the Commissioner (Appeals) are confirmed.


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