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Topandas Kundanmal Vs. Commissioner of Income-tax, Gujarat - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtGujarat High Court
Decided On
Case NumberIncome-tax Reference No. 148 of 1974
Judge
Reported in[1978]114ITR237(Guj)
ActsIncome Tax Act, 1961 - Sections 5; ;Wealth Tax Act, 1957 - Sections 2
AppellantTopandas Kundanmal
RespondentCommissioner of Income-tax, Gujarat
Appellant Advocate K.C. Patel, Adv.
Respondent Advocate K.H. Kaji, Adv.
Cases ReferredJoyanarayan Panigrahi v. Commissioner of Income
Excerpt:
direct taxation - assessment - section 5 of income tax act, 1961 and section 2 of wealth tax act, 1957 - whether tribunal right in holding that amount received by assessee during year relevant to assessment year 1964-65 taxable in said assessment year - income tax authorities to determine nature of receipt and when interest received on compensation was to be taxed - held, tribunal not justified in holding that amount received by assessee during year relevant to assessment year 1964-65 taxable in said assessment year. - - on behalf of the revenue before us, strong reliance was placed on the majority judgment of the supreme court in that case where subba rao j. we do not think that this contention of the revenue is well founded in view of what the supreme court has said in other parts.....b.k. mehta, j.1. the following question has been referred to us for opinion : 'whether, on the facts and in the circumstances of the case, the tribunal was right in holding that the amounts in question were received by the assessee during the year of account relevant to the assessment year 1964-65 and were taxable in the said assessment year ?' 2. a few facts may be stated in order to understand the rival contentions of the parties. 3. the assessee had purchased land of survey nos. 225/2 and 225/4 admeasuring 5 acres 24 gunthas and 5 acres and 18 gunthas, respectively, situated within the municipal limits of the city of jamnagar for rs. 1,000 in december, 1956. it appears that out of the said two pieces of land, the government sought to acquire the entire survey no. 225/4 and a piece of 3.....
Judgment:

B.K. Mehta, J.

1. The following question has been referred to us for opinion :

'Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the amounts in question were received by the assessee during the year of account relevant to the assessment year 1964-65 and were taxable in the said assessment year ?'

2. A few facts may be stated in order to understand the rival contentions of the parties.

3. The assessee had purchased land of survey Nos. 225/2 and 225/4 admeasuring 5 acres 24 gunthas and 5 acres and 18 gunthas, respectively, situated within the municipal limits of the city of Jamnagar for Rs. 1,000 in December, 1956. It appears that out of the said two pieces of land, the Government sought to acquire the entire survey No. 225/4 and a piece of 3 acres out of survey No. 225/2. The relevant notification under section 4 of the Land Acquisition Act was issued on October 15, 1959. The Special Land Acquisition Officer made an award on July 18, 1962, offering an amount of Rs. 24,293 by way of compensation for acquisition of the said two pieces of land. The assessee, being dissatisfied with the offer made, sought a reference under section 18 of the Land Acquisition Act which was accordingly made to the court of the District Judge, Jamnagar. This reference application, it appears, was transferred to the court of the Civil Judge (S.D.), Jamnagar, who by his judgment and award determined the amount of compensation for lands in question at Rs. 5,04,824. The learned civil judge (S.D.) also directed the Government to pay the interest at the rate of 4% for the period from August 15, 1960, to August 31, 1963, which worked out at Rs. 61,416.90. The State Government, being aggrieved with this judgment and award of the civil judge, carried the matter in appeal to the High Court of Gujarat. The assessee filed his cross-objections against the said award. The High Court set aside the judgment and award of the civil judge (S.D.) which allowed an additional compensation to the assessee, with the result that the State Government became entitled to the return of the amount withdrawn by the assessee. It should be noted here that when the appeal was preferred by the State Government to the High Court of Gujarat, it appears from the order of the Appeallate Assistant Commissioner that the execution of the award of the civil judge (S.D.) was stayed on condition that the State Government may make a deposit of the amount of compensation awarded by the civil judge (S.D.) and that the assessee was at liberty to withdraw the amount of Rs. 50,000 on furnishing solvent security. The appeal of the State Government was allowed by the High Court and as a result the Government was entitled to the return of the amount withdrawn by the assessee with interest at the rate of 4% per annum from the date of withdrawal till the date of repayment. The assessee was, however, granted certificate to go in appeal to the Supreme Court under article 133(1)(a) of the Constitution of India as was in force then against the judgment and decree of the High Court Gujarat. Mean-while, in the course of assessment proceedings for the assessment year under reference, namely, 1964-65, it was contended by the assessee that no income or capital gains could be said to have accured to him during the year of account ending on March 31, 1964, relevant to the assessment year 1964-65, and, in any case, since the land in question were agricultural lands no question of capital gains could have been said to have accrued. These contentions, however, did not impress the Income-tax Officer, who found that the lands in question were not agricultural lands and that the profit received by the assessee was not capital gains but business profit. He, therefore, brought to tax the profit of Rs. 4,80,531 and interest of Rs. 61,417. The assessee being aggrieved with this order of the Income-tax Officer carried the matter in appeal before the Appellate Assistant Commissioner at Rajkot, who was of opinion that since the said amounts had actually not been received by the assessee during the year of account relevant to the assessment under reference, the said amounts were not taxable in the said assessment year. The Appellate Assistant Commissioner, however, aside said the assessment made by the Income-tax Officer without determining the other questions which were canvassed before him on behalf of the assessee in connection with the nature of receipt. Both the parties, therefore carried the matter in appeal to the Tribunal which by its order dated July 30, 1973, held that the assessee had received the aforesaid amount during the year of account relevant to the assessment year under reference. However, since the assessment for the assessment year 1963-64 had been already set aside by the Appellate Assistant Commissioner for determination of the question as to whether the assessee could either be treated as dealer in lands or could be considered to have realised capital assets and as the said question was pending before the Income-tax Officer, the Tribunal confirmed the orders of the Appellate Assistant Commissioner. At the instance of the assessee, the question, as stated above, has been referred to us.

4. At the outset, it should be noted that the award of the civil judge (S.D.) enhancing the compensation was set aside by the High Court of Gujarat, in the appeal preferred by the State Government and that as the question involved in the appeal was more than Rs. 20,000 a certificate was granted by the Gujarat High Court to the assessee to carry the matter in appeal to the Supreme Court. it should also be noted that the High Court appeal to the Supreme Court. It should also be noted that the High Court of Gujarat while setting aside the order of enhanced compensation made by the civil judge (S.D.) restored the order of the Special Land Acquisition Officer offering the amount of compensation to the assessee. Though these facts were brought to the notice of the Tribunal at the time when the appeals were heard before it, the Tribunal was of opinion that the question was not free from doubt and as simple as was sought to be made out on behalf of the assessee. In the opinion of the Tribunal, the moment the decree was passed in favour of the assessee, the assessee got a valuable right of enforcing the decree against the State and having regard to the fact that the State was obliged to make deposit of Rs. 5,72,892.77 in the court of the Civil Judge (S.D.) out of which the assessee had actually withdrawn the amount Rs. 50,000 on furnishing solvent security, it must be held that the right to receive the amount had accrued in the accounting year 1963, relevant to the assessment year under reference, namely, 1964-65. It is this opinion of the Tribunal which has been seriously assailed by the learned advocate appearing on behalf of the assessee before us.

5. The first question to which we have to address ourselves is whether it can be said that the right to receive the enhanced compensation accrued or arose to the assessee when he sought the reference under section 18 of the Land Acquisition Act or when the award was made by the civil judge (S.D.) though an appeal was pending against the said judgment and award. In E.D. Sassoon & Co. Ltd. v. Commissioner of Income-tax : [1954]26ITR27(SC) a question arose before the Supreme Court whether the assignee's rights and benefits under the managing agency agreement was liable to tax on the accrual basis on the whole of the commission or whether there should be proper apportionment between the assignor and assignee in respect of the said income. In that context, the majority court observe as under (page 51), after referring to certain observations of Fry L.J. in Colquhoun v. Brooks [1888] 21 QBD 52 , quoted by Mukherji J. in Rogers Pyatt Shellac & Co. v. Secretary of State for India [1925] 1 ITC 363 (Cal) as under :

'To the same effect are the observations of Satyanarayana Rao J. in Commissioner of Income-tax v. Anamallais Timber Ltd. : [1950]18ITR333(Mad) , and Mukherjea J. in Commissioner of Income-tax V. Ahmedbhai Umarbhai & Co. : [1950]18ITR472(SC) , where this passage from the judgment of Mukherji J. in Rogers Pyatt Shellac & Co. v. Secretary of State for India [1925] 1 ITC 365 (Cal) , is approved and adopted, It is clear, therefore, that income may accrue to an assessee without the actual receipt of the same. If the assessee acquires a right to receive the income, the income can be said to have accrued to him though it may be receive later on it being ascertained. The basic conception is that he must have acquired a right to receive the income. There must be a debt owed to him by somebody. There must be as is otherwise expressed debitum in presenti, solvendum in futuro : See W. S. Try Ltd. v. Johnson (Inspector of Taxes) [1946] 1 All ER 532; 27 TC 167 (CA) and Webb v. Stenton [1883] 11 QBD 518 . Unless and until there is created in favour of the assessee a debt due by somebody it cannot be said that he has acquired a right to receive the income or that income has accrued to him.'

6. It is, therefore, a settled legal position that unless and until there is created in favour of the assessee a debt due by somebody it cannot be said that he has acquired a right to receive the income or that income has accrued to him. Now, naturally, therefore, the next question which arises is when debt is made due by a person in favour of an assessee. In Kesoram Industries and Cotton Mills Ltd. v. Commissioner of Wealth-tax : [1966]59ITR767(SC) the Supreme Court was concerned with the question whether in computing the net wealth of the assessee, the amount of the provision for payment of income-tax and super-tax in respect of the year of account was a debt owed within the meaning of section 2(m) of the Wealth-tax Act, 1957, and as such deductible in computing the net wealth of the assessee. In that context the Supreme Court considered the meaning of the word 'debt owed' and referred to number of Indian and British decisions relevant on the point. On behalf of the revenue before us, strong reliance was placed on the majority judgment of the Supreme Court in that case where Subba Rao J., speaking for the majority, approved the following passage from Annual Practice, 1950, at page 808, as representing the full and accurate statement of law, which read as under :

'But the distinction must be borne in mind between the case where there is an existing debt, payment whereof is deferred, and a case where both the debt and its payment rest in the future. In the former case there is an attachable debt, in the latter case there is not. If, for instance, a sum of money is payable on the happening of a contingency, there is no debt owing or accruing. But the mere fact that the amount is not ascertained does not show that there is no debt.'

7. It has been urged on behalf of the revenue before us, relying on this passage, that merely because the amount of compensation was to be worked out by the Land Acquisition Officer or for that matter by the courts, it does not mean that there is no liability in presenti. We do not think that this contention of the revenue is well founded in view of what the Supreme Court has said in other parts of its decision in Kesoram Industries & Cotton Mills Ltd. : [1966]59ITR767(SC) . In order to understand the correct ratio of the Kesoram Industries' case : [1966]59ITR767(SC) , it would be profitable shortly to refer to four judgments which have been discussed in the said decision. The Supreme Court referred to the decision of Inland Revenue Commissioners v. Bagnall Ltd. [1944] 1 All ER 204 (KB). In that case, the Board of Inland Revenue accepted an offer of 10,000 made by the respondent-company's accountants in settlement of their earlier liability. That company contended that the sum was a debt due from the respondent to the Inland Revenue as from January 1, 1935. As the offer was not accepted, it was held that the sum was not a debt. It was argued that even if there was liability on January 1, 1935, that liability did not become a debt within the meaning of the Finance (No. 2) Act, 1939. Macnaghten J., in connection with this contention, observed as under See : [1966]59ITR767(SC) :

'It is true that the word 'debt' may, in certain connections, be used so as to cover a mere liability, but I think that in this Act it is used in the proper sense of an ascertained sum and that the contention of the Attorney-General is well founded.'

8. The majority court in Kesoram's case : [1966]59ITR767(SC) observed, after setting out the above observation of Macnaghten J., as under :

'This decision, while holding that in the context of the Finance Act of 1939, there was no debt until the liability was quantified conceded that the expression 'debt' was wide enough to take in a liability...'

9. The Supreme Court thereafter referred to the decision of a Special Bench of the Madras High Court in Sabju Sahib v. Noordin Sahib ILR [1899] Mad 139 , which held that the claim for an unliquidated sum of money was not a dent within the meaning of the Succession Certificate Act, 1889, section 4(1)(a). In that case the claim of the plaintiff was to have an account taken of the partnership business that was carried on between the deceased and others and to have the share of the deceased paid over to him as the representative of the deceased. Shephard, Officiating C.J., said-See : [1966]59ITR767(SC) :

'It is quite clear that this is not a debt, for there was at the time of the death no present obligation to pay a liquidated sum of money. The claim is one about which there is no certainty; it may turn out that there is nothing due to the plaintiff.'

10. Subramania Ayyar J., who was the member of that Special Bench, also concurred as in his view an obligation of a partner to account to the other partners could not be held to be a debt because the liability was in respect of an unliquidated sum and an obligation to account does not give rise to a debt, for the liability to pay will arise only after the accounts were taken and the liability was ascertained. The Supreme Court in Kesoram's case : [1966]59ITR767(SC) observed as under in connection with this decision of the Madras High Court :

'In the context of the Succession Certificate Act, such an obligation was rightly held not to be a debt.'

11. The Supreme Court thereafter referred to the Full Bench decision of the Madras High Court in Doraisami Padayachi v. Vaithilinga Padayachi ILR [1917] Mad 31, where the Full Bench ruled thus (page 779) :

'A promise to pay the amount which may be found due by an arbitrator on taking accounts between the parties is not a promise to pay a 'debt' within the meaning of section 25 of the Indian Contract Act, 1872, the amount not being a liquidated sum.'

12. The Supreme Court observed in connection with this case thus (page 779) :

'This was because the liability to pay the amount arose only after the arbitrator decided that a particular amount was due to one or other of the parties.'

13. The Supreme Court also referred to a decision of the Calcutta High Court in Jabed Sheikh v. Taher Mallik [1941] 45 CWN 519, where the High Court held thus (page 780) :

'A liability for mesne profits under a preliminary decree therefore, though not a contingent liability, does not become a 'debt' till the amount recoverable, if any, is ascertained and a final decree for a specified sum is passed.'

14. The Supreme Court observed in connection with this judgment thus (page 780) :

'That conclusion was arrived at on the basis of the principle that a claim for damages does not become a debt till the judgment is actually delivered.'

15. The majority court thereafter set out the principle which it had culled out from various decisions referred to therein including the four which we have referred hereinabove. The principle is stated at page 780 in Kesoram's case : [1966]59ITR767(SC) . It reads as under :

'We have briefly noticed the judgments cited at the Bar. There is no conflict on the definition of the word 'debt'. All the decisions agree that the meaning of the expression 'debt' may take colour from the provisions of the concerned Act : it may have different shades of meaning. But the following definition is unanimously accepted :

'A debt is a sum of money which now payable or will become payable in future by reason of a present obligation debitum in presenti, solvendum in futuro.' The said decision also accept the legal position that liability depending upon a contingency is not a debt in presenti or in futuro till the contingency happened. But if there is a debt the fact that the amount is to be ascertained does not make it any the less a dent if the liability is certain an what remains is only the quantification of the amount. In short, a dent owed within the meaning of section 2(m) of the Wealth-tax Act can be defined as a liability to pay in presenti or in futuro an ascertainable sum of money.'

16. After setting out the correct principle the court proceeded to look at the provisions of the Income-tax Act and the decisions bearing on them to ascertain whether a liability to pay income-tax and super-tax on the income of the accounting year is a debt within the meaning of section 2(m) of the Wealth-tax Act.

17. We do not think that the contention of the revenue as set out above is supported by the ratio of the decision in Kesoram's case : [1966]59ITR767(SC) which is to the effect that whether there is a debt in favour of the assessee or not is to be answered having regard to the provisions of the concerned Act since the word 'debt' may have different shades of meaning.

18. It is no doubt true that the term 'debt' in certain connection includes and takes within its sweep a mere liability but in the ultimate analysis it depends upon the scheme and the provisions of the Act. The pertinent question, therefore, which we have to answer is whether there is any indication in the Land Acquisition Act, to suggest and satisfy that the liability under the said Act is to pay a certain sum or a minimum sum by way of liquidated damages. In other words, is there any liability in presenti to pay the compensation as claimed by the claimant whose land is sought to be acquired It would be profitable, therefore, to examine what is exactly the nature of the award made by the Land Acquisition Officer and what are the rights of the claimants when an award is made offering the compensation for the lands sought to be acquired. In Raja Harish Chandra Raj Singh v. Deputy Land Acquisition Officer : [1962]1SCR676 , a question arose about what is the period of limitation to make an application for reference under section 18, and whether the period of limitation would begin to run from the date of the award or from the date of its communication or its knowledge actual or constructive by the claimant party. Gajendragadkar J., speaking for the court, observed in paragraph 5 of the judgment of the court at page 1503, as under :

'In dealing with this question it is relevant to bear in mind the legal character of the award made by the Collector under section 12. In a sense it is a decision of the Collector reached by him after holding an enquiry as prescribed by the Act. It is a decision, inter alia, in respect of the amount of compensation which should be paid to the person interested in the property acquired; but legally the award cannot be treated as a decision; it is in law an offer or tender of the compensation determined by the Collector to the owner of the property under acquisition. If the owner accepts the offer no further proceeding is required to be taken; the amount is paid and compensation proceedings are concluded. If, however, the owner does not accept the offer section 18 gives him the statutory right of having the question determined by court, and it is the amount of compensation which the court may determine that would bind both the owner and the Collector. In that case it is on the amount thus determined judicially that the acquisition proceedings would be concluded.

It is because of this nature of the award that the award can be appropriately described as a tender or offer made by the Collector on behalf of the Government to the owner of the property for his acceptance. In Ezra v. Secretary of State ILR [1902] Cal 36, it has been held that the meaning to be attached to the word 'award' under section 11 and its nature and effect must be arrived at not from the mere use of the same expression in both instances but from the examination of the provisions of the law relating to the Collector's proceedings culminating in the award. The consideration to which we have referred satisfy us that the Collector acts in the matter of the enquiry and the valuation of the land only as an agent of the Government and not as a judicial officer; and that consequently, although the Government is bound by his proceedings, the persons interested are not concluded by his finding regarding the value of the land or the compensation to be awarded.

Then the High court has added that such tender once made is binding on the Government and the Government cannot require that the value fixed by its own officer acting on its behalf should be open to question at its own instance before the Civil Court. The said case was taken before the Privy Council in Ezra v. Secretary of State ILR [1905] Cal 605 and their Lordships have expressly approved of the observations made by the High Court to which we have just referred. Therefore, if the award made by the Collector is in law no more than an offer made on behalf of the Government to the owner of the property then the making of the award as properly understood must involve the communication of the offer to the party concerned. That is the normal requirement under the contract law and its applicability to cases of award made under the Act cannot be reasonably excluded.'

19. It is, therefore, clear having regard to the provisions of the Land Acquisition Act that the compensation awarded by the Land Acquisition Officer is nothing more than an offer to the person whose land is sought to be acquired and if that offer is not accepted, the acquisition proceedings are not concluded and the owner has the statutory right off having the question determined by the court and it is the amount of compensation which the court may determine that would bind both the owner and the Collector. In other words, as said by the Supreme Court in Harish Chandra's case : [1962]1SCR676 , that it is on the amount thus determined judicially that the acquisition proceedings would be concluded. If the real nature of the award and the right of the part who is not satisfied with the offer made in the award is, as pointed out in Harish Chandra's case : [1962]1SCR676 , how can it be said-much less urged successfully-that the said offer creates enforceable right to the enhanced compensation because in the ultimate analysis it is this right of the claimant to the additional compensation that is to be judicially determined and with which we are concerned in this case. In other words, the legal position which emerges is that there is no liability in presenti to pay an enhanced compensation till it is judicially determined by the Land Acquisition Officer is inadequate and the claimant is entitled to an additional compensation and it yes, at what rate is in flux till the question is set at rest finally, we do not think that any enforceable right to a particular amount of compensation arises. The offer made by the Land Acquisition Officer, by his award if not accepted by a claimant would not result automatically in a liability to pay additional compensation as claimed by a party aggrieved. There is no doubt a liability to pay a compensation as offered by the Land Acquisition Officer. But that is far from saying that that liability is a liability to pay additional compensation or enhanced compensation as claimed by a party aggrieved. If there is an existing liability, the mere fact that the payment is postponed to future would not detract that liability from becoming a debt but the liability to pay unliquidated damages or additional compensation which are inchoate or contingent would not create a debt. We are, therefore, of opinion that if an aggrieved party whose land is acquired does not accept the offer made by the Land Acquisition Officer in his award, he has a right to seek reference under section 18 for getting the question of the compensation determined by the court and it is on the amount thus determined judicially that the owner would be entitled to enforce that right for a particular sum. It is on the final determination, in our opinion, of the amount of compensation that the right to that income in the nature of compensation would rise or accrue and till then there is no liability in presenti in respect of the additional amount of compensation claimed by the owner of the land sought to be acquired.

20. Our attention has been invited by the learned advocate for the assessee to the decision of the Andhra Pradesh High Court in Khan Bahadur Ahmed Alladin & Sons v. Commissioner of Income-tax : [1969]74ITR651(AP) , where P. Jaganmohan Reddy C.J., as he then was, speaking for the court observed as under :

'In our view, unless the amount of compensation actually becomes payable or enforceable, it cannot be said to accrue or deemed to accrue. On the date when the Collector awarded the compensation, it is only that amount which has accrued or deemed to accrue, whether in fact paid or not. But by no stretch of the words in section 4(1)(b)(i), could it be said that the right to enhanced compensation, which has not yet been accepted by the proper forum, namely, the court, has also become payable included in that year of assessment. The enhanced compensation accrues only when it becomes payable, i.e., when the court accepts the claim. As has been stated earlier, a mere claim by the assessee, after taking of possession of the land, at a particular rate or for a certain sum is not compensation. It must not be forgotten that, even if a court has awarded enhanced compensation, there is a right of appeal by the Government to the High Court, and the High Court may either disallow that claim or reduce the compensation. As against that judgment, there is further right of appeal to the Supreme Court. The assessee also can appeal against the insufficiency of the enhanced compensation. Can it be said that the final determination by the highest court of the compensation would entitle the Income-tax Officer, notwithstanding the period of limitation fixed under the Income-tax Act, to reopen the assessment in which he had included the initial compensation awarded by the Collector and recompute the entire income on the basis of the final compensation We do not think there can be any justification for such a proposition. On a proper construction of the terms 'accrue' or 'arise', we are of the view that such an interpretation cannot be placed. The interpretation given by us does not affect the interests of the revenue. At the same time, it safeguards the assessee and prevents harassment. To hold otherwise would be contrary to the provisions of law.'

21. We are in respectful agreement with these observations of the Andhra Pradesh High Court as it supports the view which we have taken in this matter.

22. On behalf of the revenue, our attention is invited to the decision of the Kerala High Court in Shah Vrajlal Madhavji v. Commissioner of Income-tax : [1974]95ITR614(Ker) , where the court was concerned with the question of the liabilities of the compensation amount to be subjected to income-tax on acquisition of the land of the assessee. The Land Acquisition Officer awarded compensation and on a reference the subordinate judge increased the amount of compensation to Rs. 1,30,216. The Income-tax Officer deducted Rs. 39,349, the book value of the property, from the acquisition price and determined the capital gains to be Rs. 90,867 and passed a fresh order of assessment accordingly. On appeal, the assessee contended that the decision of the subordinate judge had been appealed against by the State before the High Court contenting the quantum of compensation to extent Rs. 38,525 and, therefore, the said sum was a contingent liability and should be deducted in the computation of the capital gains for the assessment year in question. This contention did not find favour either with the Appellate Assistant Commissioner or with the Tribunal. On a reference, the Kerala High Court held that the authorities were justified in taking the quantum as determined by the subordinate judge and imposing tax on that basis. Because of the possibility of the quantum determined by the subordinate judge being varied in appeal by the High Court or in further appeal by the Supreme Court, where such an appeal would lie, it was not necessary for the income-tax authorities either not to assess the income at all which had arisen during the year or keep the assessment open till the matter is finally decided by the High Court or the Supreme Court, and if in further appeal before the courts, owner of the property acquired succeeds he was not without remedy if the amount of compensation was reduced subsequently. With respect to the learned judges and for the reasons we have stated above, we find ourselves unable to agree with their view.

23. It was thereafter urged on behalf of the assessee that the Tribunal was not justified in not deciding what is the nature of the receipt whether it was business income or capital gains as contended by the assessee and also in failing to decide as to how and when the amount which the assessee has received by way of interest on the amounts withdrawn from the amount of compensation deposited by the Government or the amount of interest which the assessee may earn on the amount of compensation that may be finally adjudicated by the court was to be taxed. We thing that the grievance made on behalf of the assessee is justified. The Tribunal ought to have determined the nature of the receipt-whether it was a business income or capital gains-and it ought to have determined as to how and when the mount of interest which the assessee might receive on the amount of compensation was to be taxed. Incidentally, therefore, the question was debated as to when the right to interest accrues or arises on the amount of compensation awarded to an assessee for the acquisition of his property under the Land Acquisition Act. On behalf of the revenue, it was urged that there are a number of decisions of the different High Courts where the view has been taken that the amount of interest to which an assessee is entitled on the amount of compensation for his property acquired accrues or arises to him in the respective years during which the amount of compensation is not paid to the assessee till the question of compensation is finally adjudicated upon between the parties and that the amount of interest is to be spread over the number of years during which the amount of compensation remain unpaid.

24. On behalf of the assessee, it was pointed out that the Andhra Pradesh High Court has taken a contrary view and held that right to amount of interest accrues or arises when the question of compensation is finally adjudicated upon.

25. In Commissioner of Income-tax v. Smt. Sankari Manickyamma : [1976]105ITR172(AP) , a Division Bench of the Andhra pradesh High Court held that the entire amount of interest on the compensation awarded by the land acquistion authorities, though relatable to more than one year, would be deemed to have accrued in the year in which it is awarded and taxable as such. It further held that the right of a person whose property is acquired accrues to him only from the date when the statutorily designated authorities under the Land Acquisition Act determined the same and till that happens, what the person concerned has is only a right to claim the amount and not the right to receive the amount that may be determined by the court on the claim put forth by him. On the other hand her Mysore High Court in Commissioner of Income-tax v. V. Sampangiramaiah : [1968]69ITR159(KAR) , the Punjab High Court in Commissioner of income-tax v. Dr. Sham Lal Narula , the Madras High Court in Govindarajulu Chetty v. Commissioner of Income-tax : [1973]87ITR22(Mad) and the Orissa High Court in Joyanarayan Panigrahi v. Commissioner of Income-tax : [1974]93ITR102(Orissa) have taken a contrary view. The decision first in point of time is of the Mysore High Court which in Commissioner of Income-tax v. V. Sampangiramaiah : [1968]69ITR159(KAR) was concerned with the case of acquisition of an assessee's property, the possession of which was taken over on February 19, 1949. The Land Acquisition Officer's award was enhanced by the district judge by a decree passed on February 28, 1951, and was further enhanced by the High Court and a sum of Rs. 1,15,000 representing the value of the land and Rs. 87,265 representing interest on that sum from the date on which the possession was taken over was paid to the assessee on October 21, 1961. The department assessed income-tax on the entire sum of Rs. 87,265 in the assessment year 1962-63. The Tribunal held that the interest that was payable to the assessee in each successive year accrued in that year and was liable to be assessed in that year itself and assessment of that interest cannot be postponed till the date on which the interest became ascertained or when the interest was actually paid to the assessee. On a reference, the Mysore High Court held that the Appellate Tribunal was right in holding that the entire interest amount of Rs. 87,265 was not assessable in the assessment year 1962-63 and that only the proportionate interest referable to the assessment year 1962-63 was assessable in that year. The basis of this decision is that since there was a complete acquisition of the land, the accumulated interest on the amount awarded by the Land Acquisition Officer when possession was taken, and on the enhancement, when the appropriate decree made such enhancement and the subsequent interest so long as it ran but was not paid, was income which accrued in the year in which it became so recoverable, within the meaning of section 4(1)(b)(i) of the Indian Income-tax Act, 1922, and the attribution of the whole of that interest to the year of receipt was manifestly wrong. The other High Courts have more or less adopted this reasoning of the Mysore High Court and rules accordingly. We are afraid we must respectfully differ from the reasoning of the Mysore High Court which has been adopted by different High Courts which has taken the same view as that of the Mysore High Court. If an assessee has got an inchoate right and has not acquired any vested right to enhanced or additional compensation over and above what has been offered to him by the Land Acquisition Officer by his award, how can it be urged successfully that he has a vested and complete right as to the interest on the said amount It is only when the amount of compensation is adjudicated upon by the court, and it is only when the court awards interest on such enhanced amount of compensation that the assessee has an enforceable right to the principal amount of compensation as well as to the interest. It is, as has been said by the Division Bench of the Andhra Pradesh High Court in Commissioner of Income-tax v. Smt. Sankari Manickyamma [1976] 150 ITR 172 , that there is a difference and distinction between the right to claim an amount on the one hand, and being entitled to receive the amount so claimed, which is too vital to be ignored or to be lost sight of. The contention urged on behalf of the assessee is well founded in view of what the Supreme Court has said in Kesoram Industries' case : [1966]59ITR767(SC) , viz., can it be said having regard to the provisions and the scheme of the Land Acquisition Act that the owner of a property whose property is acquired has a vested and complete right to receive the interest on the amount of compensation It is no doubt true that he has a right to be awarded interest on the amount of compensation from the date of possession till the date of payment. None the less the vested and enforceable rights to receive such interest would accrue or arise only if the designated authorities under the Land Acquisition Act ultimately determine that the assessee is entitled to enhanced or additional amount of compensation. Till then it cannot be urged successfully that his right to interest has accrued or arisen irrespective of the claim of the additional compensation being finally adjudicated upon by the courts. An incidental question agitated before us is whether the Income-tax Officer should hold up assessment proceedings till the question is finally determined which may in so cases result in the proceedings being time-barred. We do not think that such a question can justifiably arise in the view which we are taking of the matter, since, in our opinion, the right to the income compensation or interest arises or accrues when the question is finally determined by the designated authorities under the Land Acquisition Act. It was pointed out on behalf of the revenue that in the present reference a question may justifiably arise as to when the right to the principal amount of compensation would accrue if the nature of receipt is determined ultimately by the Income-tax officer to be in the nature of capital gains. It was submitted on behalf of the revenue that if the nature of the receipt of the principal amount of compensation is found by the income-tax authority to be in the nature of capital gains, the right to such income under the express term of section 45 of the Income-tax Act, 1961, would be in the year in which the transfer is effected. We are of the opinion that this submission made on behalf of the revenue is well founded and the year of accrual or arisal of the right to the principal amount of compensation if the receipt was in the nature of capital gains would be in the year in which the transfer was effected. However, that position is not available so far as the question of receipt of the interest on such compensation is concerned since the accepted legal position that the nature of the receipt of interest on capital gains would be a revenue receipt and, therefore, the question has got to be answered as to when the right to such interest has accrued or arisen. As indicated above by us, that right to interest would accrue or arise on the main question of the principal amount of compensation and interest thereon being finally adjudicated upon by the courts. In that view of the matter, we answer the question referred to us in the negative, that is, in favour of the assessee and against the revenue. The income-tax authorities shall determine the question as to the nature of the receipt, having regard to the relevant facts and circumstances before them. The Commissioner shall pay the costs to the assessee.


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