1961 (5) TMI 69 - HC - Income Tax

Summary

Issues Involved:

1. Legality of Income Tax deductions from interest on compensation bonds.
2. Nature of the additional amount paid over the principal compensation amount.
3. Applicability of relevant sections of the U.P. Zamindari Abolition and Land Reforms Act.
4. Interpretation of interest under the Indian Income Tax Act.
5. Applicability of previous case law and principles.
6. Classification of compensation bonds as government securities.

Issue-wise Detailed Analysis:

1. Legality of Income Tax deductions from interest on compensation bonds:

The petitioner objected to the deduction of income tax from the interest on compensation bonds, arguing it was illegal. The Income Tax Officer denied issuing a certificate to stop the deductions, citing general instructions from the Central Government. The petitioner sought a writ of mandamus to stop further deductions and refund the deducted amount.

2. Nature of the additional amount paid over the principal compensation amount:

The petitioner argued that the additional amount paid over the principal compensation was not interest or income but additional compensation. The respondents contended that it was income from securities or other sources and thus taxable. The court examined the provisions of the U.P. Zamindari Abolition and Land Reforms Act, particularly Sections 27, 28, 29, 30, and 54, to understand the nature of the payments.

3. Applicability of relevant sections of the U.P. Zamindari Abolition and Land Reforms Act:

Section 27 entitles intermediaries to compensation for acquired estates. Section 28 provides for interest on the compensation amount from the date of vesting to the date of payment. Section 54 determines compensation as eight times the net assets. The court noted that the compensation declared under Section 60 is the principal amount, and the additional sums paid are for the use of the money by the government until redemption.

4. Interpretation of interest under the Indian Income Tax Act:

The court analyzed Section 6 of the Indian Income Tax Act, which includes interest on securities and income from other sources as taxable income. The petitioner, being a resident in taxable territories, was liable to income tax on all income received or deemed to be received. The court concluded that the additional sums paid as interest on compensation bonds were not additional compensation but income from securities or other sources.

5. Applicability of previous case law and principles:

The petitioner relied on the case of Behari Lal Bhargava v. Commissioner of Income Tax, where interest awarded under the Land Acquisition Act was considered compensation. The court distinguished this case, noting that the compensation under the U.P. Zamindari Abolition and Land Reforms Act is fixed and not related to the property's actual value. The court also referenced other cases and principles, concluding that the sums paid as interest were not compensation but income.

6. Classification of compensation bonds as government securities:

The court examined whether compensation bonds could be considered government securities under the Indian Securities Act and the Public Debt Act. It concluded that the bonds issued under the U.P. Zamindari Abolition and Land Reforms Act were not government securities within the meaning of the Indian Securities Act. However, they were covered under the Public Debt Act as they were in the form of promissory notes.

Conclusion:

The court dismissed the petition, holding that the sums paid as interest on compensation bonds were liable to income tax. The court expressed reluctance, acknowledging the hardship caused by the deductions but emphasized that it must administer the law as it stands. The parties were ordered to bear their own costs.