1. The questions referred to us for the assessment year 1968-69 are as follows :
'1. Whether, on the facts and in the circumstances of the case, the Tribunal was legally correct in holding that the interest awarded to the assessed was of the nature of interest on the enhanced compensation and not the initial interest
2. Whether, on the facts and in the circumstances of the case, the Tribunal was legally correct in holding that the entire interest of Rs. 7,288 was assessable during the assessment year under consideration ?'
2. These questions have been raised as a result of the acquisition of certain agricultural lands belonging to the assessed under the defense of Indian Act, 1939. It appears that part of the land was acquired under the Requisitioned Land (Continuance of Powers) Act, 1947, and part of the land was acquired under the Requisitioning and Acquisition of Immovable Property Act of 1952. Some compensation was offered to the assessed by the Land Acquisition Collector on December 16, 1957, but an agreement could not be reached. So, the matter was referred to arbitration of Shri G R Luthra (as his Lordship then was), the then Senior Sub-Judge, Delhi. The award was given on April 26, 1967, which also granted compensation and interest commencing from May 15, 1945. The total amount of interest granted for a period of about 22 years was only Rs. 7,288. The ITO wanted to include the entire sum as income related to the assessment year 1968-69. The assessment order shows that in case this is done, the income-tax payable comes to Rs. 940, but in case the interest is spread over the period of 22 years, then no tax is payable. The net result of the present reference, thereforee, is only regarding the taxability of this amount in the year in question and does not involve a large amount. But the material question is whether the amount is to be taxed as income accruing in 22 years or as a revenue receipt relating to the assessment year 1968-69. The Tribunal decided this question by finding a difference between s. 28 and s. 34 of the Land Acquisition Act. It was stated that if the interest was paid under s. 34, it would be spread over but if it was paid under s. 28 it had to be treated as a revenue receipt for that period.
3. As a result of the decision of the authorities, the assessed sought this reference and the case was stated to this court under s. 256(1) of the I.T. Act, 1961. It may be pointed out that both ss. 28 and 34 the Land Acquisition Act are not, strictly speaking, applicable to the facts of this case because the acquisition was not under the Land Acquisition Act, nor was the interest paid under that Act. However, there is considerable authority for the view that even otherwise interest can be paid under the relevant provisions of the defense of India Act and the Requisitioning and Acquisition of Immovable Property Act of 1952. Reference was made to Satinder Singh v. Umrao Singh, : 3SCR676 , which was the case of Cis Sutlej Jagris being acquired under the Punjab Requisitioning and Acquisition of Immovable Property Act, 1953. There also, when the land of the jagirdar was acquired, no interest was paid but the Supreme Court, reversing the judgment of the Punjab and Haryana High Court, held that the interest was nevertheless payable. The Supreme Court indicated that the in the east was payable in the same manner as under ss. 28 and 34 of the Land Acquisition Act. The court observed (p. 915) :
'If the Legislature has provided that only one part of s. 23 should be applied it would be reasonable to hold that the other part of s. 23 was not intended to be applied; but we do not see how it would be reasonable to hold that by the application of s. 23(1) the principles underlying the provisions of ss. 28 and 34 are also excluded.
4. thereforee, it is necessary to examine this question on general grounds and principles without assuming that the application of these general considerations is excluded by any of the provisions of the Act.' The court eventually concluded that the interest was payable on a general principle which was as follows (p. 916) :
'It would thus be noticed that the claim for interest proceeds on the assumption that when the owner of immovable property loses possession of it he is entitled to claim interest in place of right to retain possession.'
5. On a further analysis, they thought that the interest should be payable at the rate of 4% per annum. It may be noticed that the court did not say that the interest was payable either under s. 28 or s. 34 of the Land Acquisition Act. Indeed, it could not have been said so, because the Punjab Requisitioning and Acquisition of Immovable Property Act was a Punjab Act similar to the Requisition and Acquisition of Immovable Property Act of 1952, passed by Parliament. Neither of these two Acts contains a provisions relating to interest similar to ss. 28 and 34 of the Land Acquisition Act, but the interest is payable on general principles. What these principles are has been stated by the Supreme Court as follows (p. 915) :
'During this period they have been deprived of the income of the property and they have not been able to receive interest from the amount of compensation. Stated broadly, the act of taking possession of immovable property generally implies an agreement to pay interest on the value of the property and it is on this principle that a claim for interest is made against the State. This question has been considered on several occasions and the general principle on which the contention is raised by the claimants has been upheld.'
6. Then the court set out a number of decisions of various courts like the House of Lord and the Privy Council, and came to the conclusion that interest was payable.
7. Shortly, the court's view was that as long as the owner has the land, he enjoys the income there from but as soon as it is acquired, the owner is deprived of the land and also the compensation for the same, and during the interval the owner neither had the use of the compensation nor the income from the land, and accordingly, the interest was a replacement of the loss of income. If we view this case from this angle, it will be apparent that the interest paid for the period of 22 years is in lieu of the loss of income for these 22 years during which period the assessed did not have the land and did not have the compensation amount. If the compensation amount had been with the assessed he could have earned interest or income from the same. If the land had been with the assessed he could have derived income from utilising the land. But, for 22 years neither was with him. thereforee, this interest is to be treated as relating to the loss of income during these 22 years and has not to be treated as a revenue receipt for only one year.
8. Now, we proceed to answer the questions referred to us. The first question is as to whether the Tribunal was legally correct in holding that the interest awarded to the assessed was of the nature of interest on the enhanced compensation and not the initial interest. It has already been observed above that this interest is in lieu of the loss of income and is equivalent to the income for the period during which the amount of compensation was delayed. It, thereforee, corresponds to interest payable under s. 34 of the Land Acquisition Act, i.e., an equivalent statutory provision for payment of interest. Now, turning to the second question, which is as to whether the amount is taxable in a lump sum, we have answered this question in the negative, and hold that the interest has to be assessed as spread over the period 22 years.
9. The questions are answered accordingly. As this is an unusual case, no costs.