2012 (3) TMI 207 - HC - Income Tax

Whether the interest received by the assessee from the date of taking over possession of the assessee s land to the date of passing an award under the Land Acquisition Act, 1894 is liable to be treated as a capital receipt - assessee an individual doing business of trading in cycles and cycle parts and also derives income from agricultural land owned by him - assessee s agricultural land was taken possession of by the Government on October 31, 1988, with his consent that interest would not be payable to the assessee up to October 30, 1988, or till the date of the award, whichever is earlier - Held that -title in the property had not passed on to the Government it may be said that the owner was given interest in place of his right to retain possession of the property - In such a case, the interest received would be a capital receipt.

Summary

Issues:
1. Determination of whether interest received by the assessee from a specific period is a capital or revenue receipt.

Analysis:
The judgment revolves around the issue of whether the interest received by the assessee, from the date of taking over possession of the land to the date of passing an award under the Land Acquisition Act, should be treated as a capital or revenue receipt. The assessee, engaged in trading and deriving income from agricultural land, had a part of the land acquired by the Government. An agreement was made between the assessee and the Government regarding the payment of interest until the award was passed. The Assessing Officer considered the interest as a revenue receipt, while the Commissioner of Income-tax (Appeals) viewed it as a capital receipt, a decision upheld by the Income-tax Appellate Tribunal.

The court delved into the legal aspects concerning the nature of interest received in such cases. It referenced the Supreme Court's stance that when possession of land is acquired by the Government under the Land Acquisition Act, any compensation received is for deprivation of property, while interest is for deprivation of the use of money representing compensation. This view was supported by the decision in Dr. Shamlal Narula v. CIT. The court contrasted situations where the title had passed to the State, indicating that interest on compensation would be a revenue receipt in such cases.

Moreover, the judgment highlighted the distinction made by the Kerala High Court in a similar case, where interest received until the date of the award was considered a capital receipt. The court aligned with this interpretation, emphasizing that in the present case, possession was taken by agreement, and the award was passed later. Therefore, the interest received by the assessee during this period should be treated as a capital receipt. Consequently, the substantial question of law was answered in favor of the assessee, affirming that the interest in question is a capital receipt rather than a revenue receipt.