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Commissioner of Income-tax Vs. Hindusthan Housing and Land Development Trust Ltd. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata High Court
Decided On
Case NumberIncome-tax Reference No. 5 of 1967
Judge
Reported in[1977]108ITR380(Cal)
ActsRequisition of Land (Continuance of Powers) Act, 1947 - Section 5
AppellantCommissioner of Income-tax
RespondentHindusthan Housing and Land Development Trust Ltd.
Appellant AdvocateSuhas Sen, Adv.
Respondent AdvocateR. Murarka, Adv.
Cases ReferredIndermani Jatia v. Commissioner of Income
Excerpt:
- a.n. sen, j. 1. in this reference under section 66 of the indian income-tax act, 1922, the following question of law has been referred to this court:'whether, on the facts and in the circumstances of the case, the extra amount of compensation amounting to rs. 7,24,914 was income arising or accruing to the assessee during the previous year relevant to the assessment year 1956-57?'2. the facts material for the purpose of this reference have been fully set out in the statement of the case and may be briefly noticed. the assessee is a limited company dealing in land. certain plots of land measuring more or less 19.17 acres, equivalent to about 57 bighas 19 cott., in the village kankulia, p. s. tollygunge, district 24-parganas, which belonged to the assessee were requisitioned by the.....
Judgment:

A.N. Sen, J.

1. In this reference under Section 66 of the Indian Income-tax Act, 1922, the following question of law has been referred to this court:

'Whether, on the facts and in the circumstances of the case, the extra amount of compensation amounting to Rs. 7,24,914 was income arising or accruing to the assessee during the previous year relevant to the assessment year 1956-57?'

2. The facts material for the purpose of this reference have been fully set out in the statement of the case and may be briefly noticed. The assessee is a limited company dealing in land. Certain plots of land measuring more or less 19.17 acres, equivalent to about 57 bighas 19 cott., in the village Kankulia, P. S. Tollygunge, District 24-Parganas, which belonged to the assessee were requisitioned by the Government of West Bengal by an order dated 21st June, 1967 (sic) under the provisions of Rule 75A(1) of the Defence of India Rules read with Section 19 of the Defence of India Act. Thereafter, the State Government acquired the land permanently in exercise of the powers conferred on it by Section 5 of the Requisition of Land (Continuance of Powers) Act, 1947. The notice of acquisition dated the 27th December, 1952, was published in the Calcutta Gazette dated 8th of January, 1953, and a sum of Rs. 24,97,249 was awarded as compensation by the Land Acquisition Collector to the assessee. The assessee being dissatisfied with the amount of the compensation paid to it preferred an appeal to the Court of Arbitrator, 24-Parganas, Calcutta. In that case, numbered as Land Acquisition Case No. 17 of 1955, the arbitrator gave an award in favour of the assessee on 29th July, 1955, and by his award the said arbitrator fixed the amount of the compensation at Rs. 30,10,873 for permanent acquisition of the land in place of Rs. 24,97,249 assessed by the Land Acquisition Collector. The amount of compensation for the acquisition of land was thus enhanced by the sum of Rs. 5,13,624on which interest was to run at 5% per annum from the date of acquisition, that is, January 8, 1953, till the date of payment. The arbitrator also directed that further recurring compensation at Rs. 6,272-10-4 per mensem would be paid to the assessee from the date of the requisition, that is, June 29, 1946, till the date of the acquisition, that is, January 1, 1953. Against the order of the arbitrator the State Government preferred an appeal to the High Court which was initially numbered as Appeal From Original Decree No. 159 of 1955. During the pendency of that appeal on April 25, 1956, the StateGovernment deposited a sum of Rs. 7,36,691 which the assessee was permitted to withdraw, on furnishing the security bond on May 9, 1966, which was executed by the assessee and on the basis of which the assessee was allowed to withdraw the money deposited by the State Government The said security bond executed by the assessee came to be considered by the Tribunal and one of the clauses of the said security bond noted by the Tribunal reads as follows:

'Now the condition of this security bond is that if the High Court by its decision in the said appeals preferred by the Government will reduce the amount of award of this court, the excess amount received by the Hindus-than Housing and Land Development Trust Ltd. shall be duly paid back both to the Arbitrator of 24-Parganas, Calcutta, or its successor-in-office, then and in such case or if the High Court by its decision will not in any way reduce the amount of the said award, this bond shall be void and of no effect otherwise it shall remain in full force and effect.'

3. On receipt of the amount on the basis of the aforesaid bond executed by the assessee, the assessee credited the said amount in its suspense account on that date, namely, May 9, 1956. The Income-tax Officer proceeded to assess the said amount as income of the assessee which had accrued to the assessee in the relevant year. Against the decision of the Income-tax Officer the assessee preferred an appeal to the Appellate Assistant Commissioner. The Appellate Assistant Commissioner, however, affirmed the order of the Income-tax Officer and dismissed the appeal, as the Appellate Assistant Commissioner was of the opinion that the said income had accrued in the relevant year to the assessee which maintains its accounts on a mercantile basis. The assessee then appealed to the Tribunal. Two contentions were raised on behalf of the assessee before the Tribunal. The first contention was that the amount of the compensation received by the assessee is not a receipt of a revenue nature and it could not, therefore, be included in the assessee's total income. The second contention was that, in any event, the amount did not accrue to the assessee during the relevant previous year ended on the 31st March, 1956. The Tribunal did not accept the first contention raised on behalf of the assessee and in the instant reference, we are not concerned with that aspect of the matter. The Tribunal, however, accepted the second contention of the assessee that the further sum of Rs. 7,24,914 was not taxable in the relevant assessment year 1956-57. The Tribunal noted that the amount of compensation for the acquisition was enhanced by the sum of Rs. 5,13,624 on which interest was to run at 5 per cent. per annum from the date of acquisition, i.e., January 8, 1953, till the date of payment and a further recurring compensation of Rs. 6,272 per mensem was also to be paid to the assessee from the date of the requisition, i.e., June 29, 1946, till the date of the acquisition, i.e., January 7, 1953. TheTribunal allowed the appeal of the assessee and the Tribunal held that the said sum of Rs. 7,24,914 could not be said to have accrued to the assessee in the relevant previous year. The Tribunal noted that there is an appeal preferred by the State Government against the amount ordered pending before the High Court challenging the validity of the enhanced amount and the said appeal was filed by the Government within the relevant year of account and the position, therefore, was at the end of the relevant year the claim of the assessee to receive the additional amount was sub judice. The Tribunal also considered that the assessee had to execute security bond before it was permitted to withdraw the said amount deposited by the State Government in court and the Tribunal considered the terms and conditions of the said bond and the effect of the said bond and in its order the Tribunal has referred to one of the conditions of the bond which we have already set out. The Tribunal was of the view that under the circumstances the assessee had no absolute right to receive extra amount of compensation until the decision of the appeal by the High Court. The Tribunal referred to the decision of the Punjab High Court in the case of Commissioner of Income-tax v. Jai Parkash Om Parkash Co. Ltd. and relied on the following observations of the court in the said decision :

'The scheme of the Act would show that only those sums are taxable which accrue as income, i.e., they must actually accrue or arise. No amount can be said to accrue unless it is actually due. Claim to an amount is not tantamount to the amount being due or in other words that the amount has accrued. In the instant case, the very foundation of the claim is in jeopardy. If the appeal goes against the assessee, then nothing would be due. It is only if it goes in his favour that the amount will accrue.'

4. As in the view of the Tribunal the entire amount was held not to have accrued during the relevant previous year, the Tribunal, it appears, did not consider it necessary to go into the question as to whether the amount of interest and monthly compensation included in the said amount should be considered separately to have accrued during the relevant previous year. On the above facts, the Tribunal has referred to this court the question which we have already set out.

5. Mr. Suhas Sen, learned counsel appearing on behalf of the revenue, has contended that the decision of the Tribunal must be held to be erroneous and wrong, as the decision of the Punjab High Court on which the Tribunal relied has been subsequently set aside by the Supreme Court. He has drawn our attention to the decision of the Supreme Court in the case of Commissioner of Income-tax v. Jai Parkash Om Parkash Co. Ltd. : [1964]52ITR23(SC) . Mr. Sen contends that the mere fact that an appeal has been preferred is of no consequence in the matter of considering whether theincome has accrued or not in a case where the assessee maintains the accounts on the basis of mercantile system. It is the contention of Mr. Sen that as soon as the award was made, a legal enforceable claim arose in so far as the assessee is concerned, to get payment of the said amount of enhanced compensation and the said enhanced amount must, therefore, be considered to have accrued to the assessee as and when the said award enhancing the compensation was made. Mr. Sen argues that though the question of receipt of the money is of no importance in a case where accounts are maintained on the basis of a mercantile system, in the instant case the assessee has further in fact received the money. It is the argument of Mr. Sen that there cannot be any question of getting the payment unless the claim had accrued earlier and that the question of payment can only arise when there is a valid claim. Mr. Sen contends that merely seeking to raise a dispute with regard to the amount does not prevent the claim from accruing or from being taxed in the relevant previous year. In support of his submission Mr. Sen has referred to a large number of authorities. In substance and in essence Mr. Sen's contention is that the claim has accrued with the making of the award by the arbitrator enhancing the amount of compensation and the mere filing of an appeal does not prevent the claim from arising or accruing in the relevant year. Mr. Sen has referred to the following decisions:

Commissioner of Income-tax v. Hira Lal Mittal and Sons : [1972]86ITR463(All) , Khan Bahadur Ahmed Alladin & Sons v. Commissioner of Income-tax : [1969]74ITR651(AP) , Commissioner of Income-tax v. Jai Parkash Om Parkash Company Ltd. : [1964]52ITR23(SC) , E.D. Sassoon & Company Ltd. v. Commissioner of Income-tax : [1954]26ITR27(SC) , Pope The King Match Factory v. Commissioner of Income-tax : [1963]50ITR495(Mad) , Commissioner of Income-tax v. V. Sampangiramaiah : [1968]69ITR159(KAR) , Kedarnath Jute Mfg. Co. Ltd. v. Commissioner of Income-tax : [1971]82ITR363(SC) , Commissioner of Income-tax v. Dr. Sham Lal Narula , Commissioner of Income-tax v. K. R. M. T. T. Thiagaraja Chetty & Co. : [1953]24ITR525(SC) , Keshav Mills Ltd. v. Commissioner of Income-tax : [1953]23ITR230(SC) , Indermani Jatia v. Commissioner of Income-tax : [1959]35ITR298(SC) and Commissioner of Income-tax v. A. Krishnaswami Mudaliar : [1964]53ITR122(SC) .

6. Mr. Sen has submitted that if the appeal preferred by the Government ultimately succeeds and the amount which has been awarded to the assessee is either reduced or wiped off, the assessee will be entitled to get necessary deduction in the relevant year when such order is made and in support of this submission Mr. Sen has strongly relied on the decision of the Allahabad High Court in the case of Commissioner of Income-tax v. Hira Lal Mittal & Sons : [1972]86ITR463(All) . On behalf of the assessee it has been con-tended that the said amount cannot be said to have accrued as the right to receive the said enhanced amount in its entirety and the very foundation of the claim of the assessee to the said enhanced amount are in jeopardy. It is the contention of Mr, Murarka, the learned counsel for the assessee, that the enhancement was made by an order of the arbitrator in an appeal preferred against the order of the Collector. The said enhancement by the arbitrator is now pending further appeal. Unless the pending appeal is decided, it cannot be said that the assessee is entitled to receive the said enhanced amount or any portion thereof. The right and the claim of the assessee to the enhanced amount in its entirety are clearly in dispute and in jeopardy. According to Mr. Murarka, learned counsel for the assessee, at the present moment the claim to the enhanced amount is in the nature of assertion on the part of the assessee and unless the sum claimed is finally accepted by the court, it cannot be said that the assessee has any right or any claim to the enhanced amount or any portion thereof. Mr. Murarka has also contended that in the enhanced amount there were other amounts, namely, amount of interest and amount payable to the assessee on account of monthly compensation. Those amounts, in any event, argues the learned counsel, cannot be considered to be the income of the assessee only in the relevant previous year. It is the contention of the learned counsel for the assessee that as the claim of the assessee to any enhanced amount and the right of the assessee to any such enhanced amount is not yet known or established, it cannot be said that there is any determined amount or any amount payable to the assessee till the appeal determining such amount, if any, is finally disposed of. He has relied on the decision of the Andhra Pfadesh High Court in the case of Khan Bahadur Ahmed Alladin & Sons v. Commissioner of Income-tax : [1969]74ITR651(AP) and also on the decision of the Punjab High Court in the case of Commissioner of Income-tax v. Dr. Sham Lal Narula , He has contended that the decision of the Supreme Court in the case of Commissioner of Income-tax v. Jai Parkash Om Parkash Co. Ltd. : [1964]52ITR23(SC) does not really affect the merits or the validity of the pronouncement made by the Punjab High Court in the case of Commissioner of Income-tax v. Jai Parkash Om Parkash Co. Ltd. . He has argued that the Supreme Court reversed the decision of the Punjab High Court on the basis that the Punjab High Court had really sought to dispose of the reference in a rule application and it was not right or proper for the High Court to do so. He has pointed out that those observations of the Punjab High Court have been subsequently referred to by other High Courts in the other decisions. We now propose to consider in brief the decisions which have been cited before us.

7. In the case of Commissioner of Income-tax v. Jai Parkash Om Parkash Co. Ltd. , an application was made under Section 66(2) of the Indian Income-tax Act, 1922, by the Commissioner of Income-tax, asking the court to issue a mandamus to the Income-tax Tribunal directing the Tribunal to state the following question of law for the decision of the court:

'Whether, on the facts and in the circumstances of the case, the sum of Rs. 94,253 or any part of it accrued or arose or could be deemed to accrue or arise or was received or could be deemed to be received by the assessee as income, profits and gains during the previous year ?'

8. While hearing the said application, Mahajan J. observed at page 722 :

'The scheme of the Act would show that only those sums are taxable which accrue as income, i.e., they must actually accrue or arise. No amount can be said to accrue unless it is actually due. Claim to an amount is not tantamount to the amount being due or in other words that the amount has accrued. In the instant case, the very foundation of the claim is in jeopardy If the appeal goes against the assessee, then nothing would be due. It is only if it goes in his favour that the amount will accrue.'

9. Khosla C. J., after referring to various authorities, at page 724, observed :

'In the case before us the profits, which the assessee is claiming, are entirely notional; he may get nothing at all, as the suit may go against him. That being so, it cannot be said that the failure of this suit has entailed actual loss to him, because it is deprivation of a notional profit--not an actual loss--which occurs on the date his suit ultimately fails in the High Court or the Supreme Court if an appeal is taken to it. In this view of the matter, it is quite clear to me that the income has not accrued and the amount was rightly excluded from the taxable income of the assessee.'

10. The court declined to issue a mandamus and dismissed the said application of the Commissioner under Section 66(2) of the Indian Income-tax Act, 1922.

11. As against the said order of the Punjab High Court, an appeal was preferred to the Supreme Court and the decision of the Supreme Court is Commissioner of Income-tax v. Jai Parkash Om Parkash Co. Ltd. : [1964]52ITR23(SC) . The Supreme Court reversed the decision of the Punjab High Court and allowed the said application of the Commissioner and directed the Tribunal to state a case. In allowing the appeal the Supreme Court observed (page 26):

'It seems to us clear that the question of law as framed by the Commissioner does arise on the judgment of the Tribunal. An application under Section 66(2) cannot be dealt with by answering that question. This is what the learned judges of the High Court did.'

12. The Supreme Court in its judgment referred to some of the observations of the learned judges of the Punjab High Court but the Supreme Courtmade no comments with regard to the said observations of the learned judges. It is quite clear from the judgment of the Supreme Court that the Supreme Court allowed the said appeal not on the ground that the decision of the Punjab High Court on the merits was wrong and erroneous but only on the ground that it was not for the court to decide the merits of a question of law sought to be raised in an application under Section 66(2) of the Indian Income-tax Act, 1922, and the merits of the case had to be decided in the reference. The Supreme Court was not concerned with the merits of the question and the answer to be given at the reference and did not consider the merits of the views expressed. This decision of the Supreme Court does not, in our opinion, lay down or indicate that the views expressed by the learned judges of the Punjab High Court on the merits were incorrect.

13. In the case of Khan Bahadur Ahmed Alladin & Sons v. Commissioner of Income-tax : [1969]74ITR651(AP) , two questions of law came up for consideration before the Andhra Pradesh High Court. The said two questions were:

'(1) Whether the purchase of the site and the buildings known as 'Brengun Estate' was in the course of a profit-making scheme or adventure in the nature of trade ?

(2) If the answer to question No. 1 is in the affirmative, whether the extra compensation of Rs. 99,245 awarded by the District Judge on 12th July, 1956, is assessable for the assessment year 1955-56 ?'

14. It is not necessary to set out the facts in any detail and the same will all appear from the judgment. On behalf of the department it was contended that the right to compensation accrued on the date when possession was taken and, therefore, the compensation awarded by the Collector or the subsequently enhanced compensation, must all be included in the year in which the compensation was awarded by the Collector as that was the year in which the assessee was entitled to receive the same. The court observed:

'On a consideration of the nature of acquisition proceedings, it appears to us that when lands are notified to be taken by the Government under the Land Acquisition Act, the owner of the land is entitled to payment of compensation at the market value on the date when possession was taken pursuant to a notification under Section 3 of the Hyderabad Land Acquisition Act. It may be stated that on the date when land is taken possession of by the Government, no compensation has in fact been determined, but it has become only payable. The right of the owner is, therefore, an inchoate right.'

15. The court considered various decisions of the Supreme Court and also the decision of the Supreme Court in the case of E.D. Sassoon & Company Ltd. v. Commissioner of Income-tax : [1954]26ITR27(SC) . On a review of the various authorities the court observed--See : [1969]74ITR651(AP) , 658 (AP):

'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 had 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 on the date when the original compensation became payable, for being 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 a 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.'

16. The Andhra Pradesh High Court considered the decision of the Punjab High Court in the case of Commissioner of Income-tax v. Jai Parkash Om Parkash Co. Ltd. and quoted the observations of Mahajan J. which we have earlier set out. It is quite clear that the Andhra Pradesh High Court agreed with the said observations of Mahajan J. made in the said case and also with the observations made by Khosla C.J. We may only note that this decision of the Andhra Pradesh High Court was in 1969, long after the decision of the Supreme Court in the appeal preferred against the decision of the Punjab High Court to which we have earlier referred.

17. The decision of the Supreme Court in the case of E.D. Sassoon & Co. Ltd. v. Commissioner of Income-tax : [1954]26ITR27(SC) need not detain us and this decision of the Supreme Court came to be considered by the Andhra Pradesh High Court in its judgment. This decision of the Supreme Court deals with the meaning of the terms 'accrue or arise'. So far asthis aspect as to the meaning of these expressions are concerned, there can now hardly be any dispute and controversy.

18. In the case of Pope the King Match Factory v. Commissioner of Income-tax : [1963]50ITR495(Mad) , the Madras High Court was concerned with the question of allowability as a deduction in respect of a demand made for excise duty on an assessee. On the basis that the said demand was a legal liability and an enforceable one, the Madras High Court came to the conclusion that the said amount should be allowed as a deduction, notwithstanding the fact that an appeal was pending against the imposition of the duty.

19. This decision, in our opinion, is not of any great assistance in the facts of the instant case. The only thing that is to be noted is this that though there is an appeal pending, the legal obligation of the assessee to pay did arise in the relevant year and the demand on the assessee was legally enforceable in the assessment year and in taking that fact into consideration, the assessee was allowed to claim that amount as a deduction in the matter of his assessment.

20. In the case of Commissioner of Income-tax v. V. Sampangiramaiah : [1968]69ITR159(KAR) , the Mysore High Court was concerned with the question of accrual of interest in respect of compensation money allowed to a party on the acquisition of his property. The question for determination was what should be considered to be a relevant year in the matter of assessment of interest on the compensation paid to the assessee for the purpose of his income-tax assessment.

21. The court observed at page 162 :

'The pendency of the appeals before the Supreme Court, it was said, introduced an element of uncertainty as to the compensation really claimable which denuded the High Court decrees of the attribute of finality, and the argument was constructed that the right to compensation and the interest thereon did not accrue until there was their quantification by the Land Acquisition Officer on the basis of the decisions in those appeals.

The proposition that the accrual of that right stood so postponed cannot be sound.'

22. The court observed at page 163 :

'It is difficult to understand how the pendency of the appeal before the Supreme Court could arrest the accrual of that income. It did not. It is admitted that during the pendency of the appeals before the Supreme Court, there was no stay of execution. Even if there was, its impact on accrual is debatable.

So, the premise that the right to no part of the interest was born until the Land Acquisition Officer made his arithmetic after the Supreme Court disposed of the appeals, cannot have the support of reason.'

23. It is to be borne in mind that these observations were made while considering the question at what point of time the income payable by way of interest to an assessee on the amount of compensation payable to him accrues or is deemed to accrue. The interest is payable in respect of a particular year. In the present reference, this aspect of the matter is not really relevant.

24. In the case of Kedarnath Jute Mfg. Co. Ltd. v. Commissioner of Income-tax : [1971]82ITR363(SC) the Supreme Court was concerned with the question of allowability as a deduction of a liability for payment of sales tax by a dealer. The dealer had disputed his liability to pay his sales tax and had preferred an appeal. Pending, however, the disposal of the appeal the dealer had claimed deduction of the amount which the dealer was liable to pay as sales tax on the basis of the assessment. Dealing with the question, the Supreme Court observed at page 366 :

'Now under all sales tax laws including the statute with which we are concerned, the moment a dealer makes either purchases or sales which are subject to taxation, the obligation to pay the tax arises and taxability is attracted. Although that liability cannot be enforced till the quantification is effected by assessment proceedings, the liability for payment of tax is independent of the assessment. It is significant that, in the present case, the liability had even been quantified and a demand had been created in the sum of Rs. 1,49,776 by means of the notice dated 21st November, 1957, during the pendency of the assessment proceedings before the Income-tax Officer and before the finalisation of the assessment. It is not possible to comprehend how the liability would cease to be one because the assessee had taken proceedings before higher authorities for getting it reduced or wiped out so long as the contention of the assessee did not prevail with regard to the quantum of liability, etc. An assessee who follows the mercantile system of accounting is entitled to deduct from the profits and gains of the business such liability which had accrued during the period for which the profits and gains were being computed. It can again not be disputed that the liability to payment of sales tax had accrued during the year of assessment even though it had to be discharged at a future date.'

25. In this case the Supreme Court was considering the question of liability of a dealer for payment of sales tax, a statutory liability which the dealer incurs as soon as the dealer makes any sale or any purchase. As the dealer incurs the liability with the making of purchase or sale, the dealer is held to be entitled to a deduction of the amount or liability which the dealer had incurred even though there was an appeal against the amount of liability determined. This decision of the Supreme Court, in our view, is not of assistance in the instant case and it does not lay down that a claimnecessarily accrues on the basis of a mercantile system of accounting even though the claim is not determined and payable. The contention of the learned counsel relying on this decision is that the claim must accrue or in any event must be deemed to have accrued on the making of the award and, in our view, the same cannot be accepted as sound, as on the basis of this contention the claim should be construed to have accrued on the acquisition of the property.

26. In the case of Commissioner of Income-tax v. Dr. Sham Lal Narula , the Punjab High Court was concerned with the question of the time of accrual of interest payable in respect of compensation for land acquired. The assessee's land was acquired by the State Government under the provisions of the Land Acquisition Act and the assessee was deprived of possession of the land on October 15, 1951. Interest, on the amount of compensation, amounting to Rs. 48,660 was paid to the assessee in the previous year relevant to the assessment year 1956-57. The assessee's contention that the entire amount could not be assessed in 1956-57 did not find favour with the Income-tax Officer or the Appellate Assistant Commissioner. But the Appellate Tribunal held that interest to the tune of Rs. 42,577 being interest due for the accounting years 1951-52 to 1954-55, accrued in the previous year ending March 31, 1955, could not be included in the assessment for 1956-57 and only Rs. 6,082 pertaining to the period after 1st April, 1955, could be included in the assessment for 1956-57. On a reference to the High Court, the High Court affirmed the decision of the Tribunal. The Punjab High Court held that under Section 34 of the Land Acquisition Act, the right to recover interest arises the moment the owner was deprived of his property under the Act and the rate at which he was entitled to interest was also specified. The view of the Punjab High Court was that the interest on compensation amount compensates him for the loss of income which would have accrued to him if possession had been taken after making the award under Section 16 and after payment of compensation. Therefore, the benefit which he was to acquire from the property or land was benefit accruing every year which is compensated by way of interest under Section 34. Interest accrues each year and is payable as such after possession is taken from the owner. The Punjab High Court in the course of its judgment referred to its earlier decision in the case of Commissioner of Income-tax v. Jai Parkash Om Par-kash Co. Ltd. and also the decision of the Andhra Pradesh High Court in the case of Khan Bahadur Ahmed Alladin & Sons v. Commissioner of Income-tax : [1969]74ITR651(AP) .

27. The decisions of the Supreme Court in the cases of Commissioner of Income-tax v. K. R. M. T. T. Thiagaraja Chetty & Co. : [1954]1SCR258 , Keshav Mills Ltd. v. Commissioner of Income-tax : [1954]1SCR258 , Indermani Jatia v. Commissioner of Income-tax : [1959]35ITR298(SC) and Commissioner of Income-tax v. A. Krishnaswami Mudaliar : [1964]53ITR122(SC) deal mainly with the question of the nature and effect of the mercantile system of accounting. The principles enunciated in the said decisions are well-settled.

28. In the case of Commissioner of Income-tax v. Hiralal Mittal and Sons : [1972]86ITR463(All) , the Allahabad High Court was concerned with the question when the liability of the assessee to refund the amount which the assessee had already received accrued. On the basis of the decree of the trial court the assessee received a particular amount as damages awarded against the Government. On appeal to the High Court the decree was set aside. The assessee realised the decretal amount from the Government and the amount realised by the assessee had also earned interest. Ultimately, however, on appeal the said decree of the learned trial judge was set aside. After receipt of the money on the basis of the decree of the trial court the assessee had been assessed to income-tax on the income earned by way of interest on the said sum. On the reversal of the decree by the court of appeal the assessee claimed deduction of a particular amount as interest which had accrued due in that account and which was refundable to the Government. The court held that the assessee was under a legal obligation to effect restitution and the obligation arose on the reversal of the erroneous decree of the trial court; and the liability arose on the date when the decree of the trial court was reversed by the appellate court, that is, on 8th April, 1960. The court is further of the view that, ordinarily, an assessee maintaining his accounts on the mercantile system is entitled to deduction only if the appropriate debit entry has been made in the account; but that is not an absolute rule and where a liability arises by operation of law, its deduction cannot be denied merely because it has not been entered in the accounts.

29. The decision of this case really turned on the question of the principle of restitution contained under Section 144 of the Code of Civil Procedure. This case, in our view, cannot be an authority for the converse proposition urged by the learned counsel for the revenue that in the event of the Government succeeding in the appeal the assessee will be entitled to claim appropriate deduction on the basis of the final order and the amount already awarded must, therefore, be held to have accrued to the assessee on the basis of the order of the Tribunal enhancing the amount awarded by the Collector in the first instance.

30. On a consideration of these authorities, we are of the opinion that a compensation amount can only be considered to have accrued or arisen when the said amount has become determinate and payable. The authorities which we have discussed so far, in our opinion, support us in this view.Whether the amount of compensation is determinate and payable or not, will necessarily depend on the facts of each particular case. In the facts of the instant case the Collector made an award for a particular sum. On appeal to the court of the arbitrator the arbitrator has enhanced that amount. Against the decision of the arbitrator enhancing the amount an appeal has been preferred and is now pending in the High Court. So far as the amount awarded by the Collector is concerned, in the first instance the said amount is clearly a determinate and, in fact, a determined amount, and is payable. There is no dispute with regard to the said amount and the said amount has already suffered tax. With regard to the enhanced amount which was subsequently fixed by the order of the arbitrator, the said amount cannot be said to be a determinate amount as the said amount is now pending appeal in the High Court. The enhanced amount may be affirmed by the High Court, may be reduced by the High Court or the entire enhanced amount may be disallowed. In the instant case the claim for the said further amount is in jeopardy and the right of the assessee to receive any further amount is also clearly unsettled. Unless the question of payment of any enhanced compensation is decided and the amount of enhanced compensation becomes determinate and payable, the said amount cannot, in our opinion, be said to accrue or arise. The further amount awarded by the arbitrator forms in reality at this stage the subject-matter of a mere claim or an assertion on the part of the assessee to receive the said amount, but the said claim has yet to be accepted by the court. The facts that the assessee was allowed to withdraw the said amount after furnishing the security bond, does not, in our opinion, affect the position and does not make the amount of compensation either determinate or payable. Apart from the question that actual payment is not a material consideration in the matter of compensation in a case where the accounts are maintained on the mercantile system, in the instant case the said payment received by the assessee cannot be considered to be a payment of any compensation, as the right of the assessee to receive any further compensation or the amount of the further compensation has not yet been adjudicated upon and decided. The said receipt is really the receipt of a particular sum pursuant to an order of court on the security bond executed by the assessee and on the basis of terms and conditions mentioned in the said bond. We are, therefore, of the opinion that the Tribunal in the instant case was right in coming to the conclusion that the said extra amount of compensation amounting to Rs. 7,24,914 was not income which accrued or arose during the previous year relevant to the assessment year 1956-57. We shall make it clear that in view of our answer to the question referred, we have not considered it necessary to go into the break-up of the said amount of Rs. 7,24,914 mentioned by the Tribunal and to the question whether theamount of interest, and compensation for occupation, if any, included in thesaid amount of Rs. 7,24,914 can be said to have accrued in the relevant year or in a particular year or in a number of years. We may observe that, in view of the decision of the Tribunal, the Tribunal has also not considered this aspect.

31. Wa, therefore, answer the question in the negative and in favour of the assessee and against the revenue. There will be no order as to costs.

T.K. Basu, J.

32. I agree.


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