1962 (10) TMI 82 - HC - Income Tax

Character of the amount received - compensation with interest at 6% from the date of publication of the notice under section 5 of the Act, namely, 24th May, 1949 - capital receipt or busniss income - - Held that - We have no doubt that in the present case the award of interest was not part of the compensation fixed for the acquisition of the land. The statute authorized the Government to pay only the market value of the land as per the provisions of section 6 of the Act. It would be in contravention of the statute to hold that the direction to pay interest was in effect to result in a payment over and above the market value, the upper limit of which is fixed by the statute itself. So much is clear. The assessee having received the amount, the only question that arises for consideration is, did he receive it as income or as capital. It seems to us that the award of interest was made on the footing that the State Government became a debtor to the assessee for the payment of the true compensation for the acquired land under the Act as on the date of section 5 notification, and that the debt not having been discharged by payment on that particular date, the assessee was entitled, in law or in equity, to have interest at 6 per cent. till payment. This in substance appears to be the proper way of justifying the payment of interest and determining its true character. We, therefore, answer the first question against the assessee and in favour of the department. The amount of ₹ 1,28,716 is assessable to tax as income in the hands of the assessee. The Tribunal has not dealt with the question of apportionment of the tax amount between the two assessment years 1955-56 and 1956-57 as in its view the amount was not taxable at all. Question No. 2, therefore, does not arise out of the order of the Tribunal. It will be open to the Tribunal to go into this question afresh and pass suitable orders after hearing the assessee and the department.

Summary

Issues Involved:
1. Whether the sum of Rs. 1,28,716 is assessable as income under any of the provisions of the Act.
2. If the answer is in the affirmative, the assessment years in which the amount falls to be assessed by suitable apportionment.

Detailed Analysis:

Issue 1: Assessability of Rs. 1,28,716 as Income

The primary issue was whether the receipt of Rs. 1,28,716, which represented interest awarded to the assessee by the court, should be treated as income or capital. The assessee argued that this amount was a capital receipt, similar to the Rs. 5 lakhs received as compensation for the compulsory acquisition of the property. The Income-tax Officer, however, included the amount as part of the assessable income, treating it as miscellaneous income under section 12 of the Act. The Tribunal initially ruled in favor of the assessee, stating that the receipt was not income and thus not chargeable to tax.

The court examined the nature of the interest payment, referencing several legal precedents. It was noted that the interest awarded was not part of the statutory compensation for the acquisition but was an additional amount granted for the delay in payment of the compensation. The court cited Riches v. Westminster Bank Ltd. [1947] AC 390, emphasizing that the character of the amount received, whether capital or income, depends on the facts and circumstances of each case. The court concluded that the interest payment was not part of the compensation but rather an income, as it was awarded on the basis that the State Government became a debtor to the assessee for the true compensation amount.

Conclusion: The court held that the amount of Rs. 1,28,716 is assessable to tax as income in the hands of the assessee.

Issue 2: Apportionment of the Amount Between Assessment Years

Since the Tribunal had not dealt with the question of apportionment due to its initial view that the amount was not taxable, the court did not address this issue directly. The court noted that it would be open to the Tribunal to revisit this question and pass suitable orders after hearing both the assessee and the department.

Conclusion: The Tribunal is to address the apportionment of the tax amount between the assessment years 1955-56 and 1956-57 afresh.

Summary:
The court ruled that the interest amount of Rs. 1,28,716 received by the assessee is taxable as income and not a capital receipt. The Tribunal is directed to reconsider the apportionment of this amount between the relevant assessment years. The assessee is liable to pay the costs of the department.