1980 (9) TMI 8 - HC - Income Tax

Summary

Issues Involved:
1. Taxability of compensation for delay in making an award under Section 48A of the Land Acquisition Act.
2. Nature of compensation received under Section 48A of the Land Acquisition Act-whether it is a capital receipt or revenue receipt.
3. Applicability of Section 12B(1) of the Indian Income Tax Act, 1922, to compulsory acquisition.

Issue-wise Detailed Analysis:

1. Taxability of Compensation for Delay in Making an Award under Section 48A of the Land Acquisition Act:

The assessee claimed that the sum of Rs. 31,114.53 awarded by the Calcutta Improvement Tribunal was additional compensation for the acquisition of her land. The ITO taxed Rs. 26,983 as capital gains and Rs. 4,132 as income from other sources. The AAC contended that the right to receive the amount arose from the Tribunal's order and was assessable as interest income under "Other sources." The Tribunal, however, held that the sum was not income by way of interest but additional compensation for a late award, thus a capital receipt. The Tribunal also held that Section 2(47) read with Section 43 of the I.T. Act, 1961, was not applicable, and Section 12B(1) of the Indian I.T. Act, 1922, did not cover compulsory acquisition, making the sum non-taxable as capital gains.

2. Nature of Compensation Received under Section 48A of the Land Acquisition Act-Whether it is a Capital Receipt or Revenue Receipt:

Mr. Sen, representing the Revenue, argued that the compensation was for loss of interest due to delay, thus a revenue receipt. He cited cases like Mangalore Electric Supply Co. Ltd. v. CIT and others to support his contention. The court, however, observed that the compensation under Section 48A was for damages suffered due to delay, not for loss of interest. The court noted that compensation could be measured by the loss of interest but that did not change its character to interest. The court referred to various cases, including Glenboig Union Fireclay Co. Ltd. v. IRC and Simpson v. Executors of Bonner Maurice, to support that compensation measured by interest does not become interest itself.

3. Applicability of Section 12B(1) of the Indian Income Tax Act, 1922, to Compulsory Acquisition:

The court noted that the Tribunal's observation that Section 12B(1) did not cover compulsory acquisition was not challenged by the Revenue. Mr. Sen argued that the Supreme Court in Mangalore Electric Supply Co. Ltd. v. CIT held that "transfer" in Section 12B(1) included compulsory acquisition. However, the court did not address this issue further as it was not raised appropriately in the reference.

Conclusion:

The court concluded that the compensation under Section 48A was not for loss of interest but for damages due to delay, making it a capital receipt. The compensation was not taxable as capital gains under Section 12B(1) of the Indian I.T. Act, 1922. The court answered the reference in the affirmative, favoring the assessee, and ruled that the sum of Rs. 26,983 received by the assessee was a capital receipt and not includible in the total income. There was no order as to costs.