Charanjit Talwar, J.
(1) The Income Tax Appellate Tribunal (Delhi, Bench 'B') has referred the following question for our decision; 'Whether on the facts and in the circumstances of the case, the Tribunal was justified in holding that only a sum of Rs. 29,820.00 out of the interest amount of Rs.83,867.00 was assessable in the assessment year under consideration?'
(2) To appreciate the rival contentions, facts relevant for the decision may be noted.
(3) The assessed firm M/s. Deoki Nandan and Sons owned a garden in Delhi known as Budha Mata Garden. That garden was acquired by the Government of India under the Land Acquisition Act, 1894 (herein called 'the Act'). A notice under section 4 of the Act was published on 4th August, 1955; declaration under Section 6 of the Act was made on 26th July, 1957, and its possession was taken over by the Government on 4th May, 1958. On a reference made under section 18 of the Act to the Additional District Judge, Delhi, the compensation was enhanced from Rs. 3.50 per square yard to Rs. 8.50 per square yard vide order dated 27th January, 1961. At that rate, the compensation payable to the assessed came to Rs. 8,24,5511.00 . The Additional District Judge also directed payment of interest on the enhanced compensation under section 28 of the Act to the assessed from the date of taking over of the possession of the land till the date of payment. This order was upheld in appeal by the Punjab High Court. The compensation amount awarded by the Collector was paid to the assessed on 13th May, 1958. The enhanced amount of compensation together with interest awarded by the Additional District Judge was paid to the assessed on 6th June, 1962, 13th December, 1962 and 6th May, 1963, in three Installments. A sum of Rs. 1,10,376 represented payment of interest awarded under section 28 of the Act by the Additional District Judge.
(4) It is the common case of the parties that if the interest payable to the assessed is taken to have accrued from day to day, from the date of the taking over of the possession of the land, i.e., 5th May, 1958, the interest amount would have accrued during the period relevant to the assessment year 1959-60 to 1962-63 as follows : Assessment year Amount. 1959-60 Rs.26.027.00 1960-61 Rs.28,920.00 . 1961-62 Rs.28,920.00 1962-63 Rs.26,500.00 . Rs.1,10,376.00
(5) However, the payments were made in 1962. The first three of the above items totalling Rs. 83,867 were paid in June and December, 1962 and were treated as revenue receipts relevant to the assessment year 1961-62 by the Income Tax Officer, on the ground that under the mercantile system of accounting the receipts accrued on the date of the Additional District Judge's order, i.e., 27th February, 1961. Thus according to him the said amount of interest Rs. 83,867.00 for the period 4th May, 1958, the date of taking over of possession of the land, to 31st March, 1961, accrued in the previous year 1st April, 1960, to 31st March, 1961, relevant to assessment year 1961-62. The contention of the assessed that only a sum of Rs. 28,9201.00 (as per the above table) could be assessed for the assessment year 1961-62 was rejected by the Income Tax Officer. Accordingly, the entire sum of Rs. 83,8671.00 was brought to tax in the said year.
(6) The appeal preferred by the assessed to the Appellate Assistant Commissioner was dismissed. Relying on two decisions of the Supreme Court in the cases of Dr. Sham Lal Narula : 53ITR151(SC) and Chettiar's case : 63ITR458(SC) it was held that interest paid in respect of the compensation due to the assessed was taxable as a revenue receipt. The alternative contention of the assessed that only a portion of the interest on the enhanced compensation, namely Rs. 28920.00 which had accrued to it for the relevant accounting year could be assessed in that year, was rejected. For this finding the Assistans Appellate Commissioner relied upon a judgment of the Supreme Court in case of Swadeshi Cotton and Flour Mills Pvt. Ltd. : 53ITR134(SC)
(7) The assessed preferred a further appeal to the Tribunal. The contention of the assessed that income was in the nature of capital receipt was rejected by the Tribunal in view of the decision of the Supreme Court in Dr. Sham Lal Narula's case (supra) while deciding the alternative contention raised on behalf of the assessed there was difference of opinion between the learned Judicial Member and the learned Accountant Member. The Judicial Member, Mr. M. R. A. Ansari (as he then was), relied on adecision of the Mysore High Court in C. I. T. v. Sampangiramaiah (1968) 69 Itr 150 and held that the addition under the head 'interest' in the assessment for the assessment year 1961-62 should be restricted to Rs. 28,920.00 only. The learned Accountant Member differed with that finding. He was of the opinion that irrespective of the fact that the assessed was following the mercantile system of accounting it had at no time in the past given any indication about this interest in the account books or for that matter in the return of income-tax. He found that because interest income was a source different from the business which had been accounted for in the account books of the business it did not follow that the assessed had also opted to account for the interest amount also on the mercantile basis. He was, thereforee, of the view that such interest amount had to be taxed on receipt basis. However, there being no receipt in the year under consideration i.e., 1961-62, it was held by him that no part of the interest amount was assessable in that year. He left it open to the department to assess the assessed on receipt basis as and when the interest was received.
(8) The appeal was thus referred to a third Member of the Tribunal. The question formulated for his decision was
'WHETHERthe interest income of Rs. 28,920.00 is assessable in the assessment year 1961-62 or whether no interest income at all is assessable in this year?'
(9) The third Member disagreed with the finding of the Judicial Member. He found that the right to receive interest accrued to the assessed only on 27th February, 1961, the date on which the Additional District Judge awarded the enhanced compensation along with interest and not earlier. He also partly disagreed with the Accountant Member's finding that the assessed was liable to be assessed on receipt basis. The view of the third Member was that the assessed could not be expected to choose to method of accounting in respect of an item of receipt which according to the assessed was not in the nature of business income. As the assessed had been following the mercantile system of accounting in respect of his business, no other method of accounting could be indicated for other items. In his view the interest was taxable only on accrual basis. He held that the entire amount of interest of Rs. 83.867.00 had accrued in the year ending 31st March, 1961. But as the question, whether that amount was assessable or not in the vear under consideration, had not been referred to him, he could not give a finding whether the amount of Rs. 83,8671.00 was assessable for that year. In view of the restricted question deferred to him, the third Member answered the question by saying that interest-income amounting to Rs. 28920.00 was assessable in the assessment year 1961-62.
(10) Under these circumstances, at the instance of the Commissioner of Income Tax, the question quoted in the beginning has been posed by the Tribunal.
(11) The question whether interest on the enhanced compensation awarded to an assessed under section 28 of the Act accrued to him from the date of order of the District Judge or from the date of taking over of possession of the land acquired and further whether the amount so received by him was liable to be included in the total income of a particular year on the basis of receipt, have been considered by various High Courts. There is however, a conflict of opinion.
(12) One view is that interest awarded under section 28 of the Act when compensation is enhanced by the Court is not mandatory, and, thereforee, that income by way of interest awarded on excess compensation cannot be regarded as having accrued or 'to be deemed' to have accrued from the date of dispossession from the land. According to this view, the interest income becomes due only on the date when enhanced compensation was granted by the Court and not prior to it. thereforee, this interest income cannot be spread over the period prior to the date of the Court's order.
(13) The other view is that award of interest under section 28 of the Act is obligatory; it becomes due from the date of possession by the Government of the land in question, as such, the income accrues each year and not on quantification of the amount. Income accrues or arises when the right to receive the income becomes vested in the assessed. It, thereforee, should be spread over the years in which it accrued.
(14) While coming to their respective views on this question, the various High Courts have relied upon the decision of their Lordships of the Supreme Court in Dr. Sham Lal Narula's case (supra), where in the question as to the nature of interest paid under the Act and the question of its taxability was considered. It was held that the scheme of the Act and the express provisions thereof establish that the statutory interest payable under section 34 is not compensation paid to the owner for depriving him of his right to possession of the land acquired, but it was given to him for the deprivation of the use of the money representing the compensation for the land acquired.
(15) It may be noticed that while laying the above-rule the question whether the award of interest under section 28 of the Act was given to the owner by way of compensation or was payable by the State for keeping back the amount of compensation, was also considered by their Lordships. It was held that, 'As we have pointed out earlier, as soon as the Collector has taken possession of the land either before or after the award the title absolutely vests in the Government and thereafter the owner of the land so acquired ceases to have any title or right of possession to the land acquired. Under the award he gets compensation for both the rights. thereforee, the interest awarded under section 28 of the Act, just like under section 34 thereof; cannot be a compensation or damage for the loss of the right to retain possession but only compensation payable by the State for keeping back the amount payable to the owner', .
(16) It is clear, thereforee, that the amount of interest paid under section 28 of the Act is also paid for the delayed payment of the compensation amount. Thus it seems to us that the law laid down by their Lordships regarding the nature of interest paid under section 34 of the Act and its taxability applies with full forces to the interest awarded under section 28 of the Act.
(17) Following the law laid down in Dr. Sham Lal Narula's case it has to be held that the assessed acquired the right to receive the interest income under section 28 from the date when he was dispossessed, namely, 5th May, 1958. That income accrued to him through be received it later on its being ascertained.
(18) In the view that we have taken, it may not have been necessary for us to go into the question whether the award of interest by the District Judge under section 28 of the Act is obligatory or discretionary, but as considerable time was devoted by the learned counsel for the revenue on this question during arguments, in fairness to him we may now advert to the same.
(19) The predominant view is that the interest has to be allowed under section 28 of the Act while enhancing the compensation as a matter of course.
(20) A Full Bench of J & K High Court in Collector v. Habib-Ullah-Din and others Air 1967 Jammu and Kashmir 44(5), has held that payment of interest is mandatory by the Courts if the compensation is enhanced. After reviewing the case law on the point S. Murtaza Fazl Ali J. (as he then was) speaking for the Bench, held
'FURTHERMORE,the right to interest on the amount of compensation which is kept back by the Collector is an inherent common law right of an owner and has been clearly recognised by section 35 of the Act (J & K Land Acquisition Act) itself and thereforee, the Legislature could not have intended that this right should be curtailed by the Court by conferring on him only a discretion to grant interest. In these circumstances, thereforee, we are clearly of the opinion that the word 'may' used in Section 28 does not invest a mere discretion in the Court but imposes a duty on it to pay interest at the rate mentioned in the Section and must, thereforee, be held to have a mandatory force'.
We may mention here that section 28 of the J & K Act which was under consideration in the above-cited decision, is pan materia with section 28 of the Act. We are, thereforee, of the opinion that where the Court enhances the amount of compensation as awarded by the Collector, the claimant is also entitled to interest on the enhanced compensation at the rate of 6 per cent per annum from the date of taking over possession by the Government. On a reference made to the Court under section 18 of the Act, the price of the land found by it is the price which the Collector ought to have determined. The Collector was bound to pay 6 per cent interest to the claimant from the date of taking over of possession of the land to the date of payment of the compensation. The payment of interest on the enhanced compensation, the rate of which is determined by the ligslature stems to us to be an obligation imposed upon the Courts. In that view of the matter, with respect we disagree with the opinion of the Andhra pradesh High Court expressed in Commissioner of Income Tax, A. P. v. Smt. Sankari Manickyamma, (1976) 106 Itr 172, to the effect that awarding of interest on enhanced compensation by the Court under section 28 of the Act is discretionary.
(21) From the above discussion it follows that the assessed's right to receive the interest under section 28 accrued to him day to day throughout the years from the date of taking over possession by the Collector till the payment of compensation. The Government was obliged to pay the same; the assessed acquired a right to receive it. It was a debt owed by the Government; its liability to pay was certain although the amount was yet to be quantified.
(22) We are fortified in this view by the decision of the Allahabad High Court in Addl. Commissioner of Income-tax v. Virendra Singh : 118ITR923(All) . In that case the Allahabad High Court after noticing the divergence of opinion on this question between different High Courts has observed thus:
'IT is thus clear that the requirement of paying interest creates a debt. It is as if the assessed had lent the amount of compensation to the State Government and became entitled to receive interest for the time taken in its repayment. The right to interest under s. 34 accrued on the date on which the Collector took possession. It was a right in presaenti. It recurred from day to day throughout the years in between the two events, namely, dispossession and actual payment. It continued to accrue in each of the succeeding years. In the premises, only that amount of interest income could be taxed in a particular assessment year which accrued in that year'.
The Allahabad High Court in the above-cited decision agreed with the decisions of the Mysore High Court in Commissioner of Income Tax v. Sampangiramaiah : 69ITR159(KAR) , the Punjab High Court in Commissioner of Income Tax v. Dr. Sham Lal Narula , the Madras High Court in T. N. K. Govindrajulu Chetty v. Commissioner of Income Tax (1973) 87 Itr 22(10) and of the Orissa High Court in Joyanarayan Panigrahi v. Commissioner of Income Tax : 93ITR102(Orissa) , and disagreed with the decision of the Andhra Pradesh High Court in Khan Bahadur Ahmad Alladin & Sons v. Commissioner of Income Tax : 74ITR651(AP) .
(23) The interest income, thereforee, has to be spread over all the years when it accrued in the present case. For the assessment year 1961-62 only a sum of Rs. 28920 was assessable.
(24) In the result the question of law referred to us is answered in the affirmative. However, no orders as to costs.
(25) Before parting with this judgment it may observed that the question whether the accounts are maintained on mercantile or cash basis has no bearing on the question of assessability of interest income under section 28 of the Act. We agree with the similar view expressed by the Allahabad High Court and Mysore High Court in Virendra Singh's case (supra) and Sampangiramaiah's case (supra) respectively.