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Issues:
1. Taxability of interest awarded to the assessee. 2. Assessment of interest amount for the year in question. Analysis: The case involved questions regarding the taxability of interest awarded to the assessee for the assessment year 1968-69. The interest was granted as part of compensation for agricultural lands acquired under different Acts. The total interest amount was Rs. 7,288, granted for a period of about 22 years. The Income Tax Officer (ITO) sought to include the entire sum as income for the assessment year, resulting in a tax liability of Rs. 940. However, if the interest was spread over the 22-year period, no tax would be payable for the year in question. The central issue was whether the interest should be taxed as income accruing over 22 years or as a revenue receipt for the specific assessment year. The Tribunal based its decision on a distinction between sections 28 and 34 of the Land Acquisition Act. It concluded that if the interest was paid under section 34, it should be spread over the period, whereas if paid under section 28, it should be treated as a revenue receipt for that period. However, neither of these sections directly applied to the case as the acquisition was not under the Land Acquisition Act. The court referred to relevant provisions of the Defence of India Act and the Requisitioning and Acquisition of Immovable Property Act of 1952, indicating that interest could be paid under these Acts. Citing the Supreme Court's decision in a similar case, the court established that interest was payable on general principles when the owner of immovable property loses possession. The court reasoned that the interest compensated for the loss of income during the period of deprivation of the property and compensation amount. It emphasized that the interest was not a revenue receipt for a single year but a replacement for the income lost over the 22 years. Consequently, the court held that the interest awarded to the assessee was akin to interest on enhanced compensation and not initial interest, corresponding to the statutory provision for payment of interest under section 34 of the Land Acquisition Act. Regarding the assessment of the interest amount, the court ruled that it should be spread over the 22-year period rather than taxed as a lump sum for the assessment year 1968-69. The court's decision was based on the understanding that the interest represented compensation for the loss of income over the extended period. As a result, the questions raised were answered in favor of the assessee, emphasizing the unique circumstances of the case and concluding that no costs were to be awarded due to its unusual nature.
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