9911796707
|
Home
Issues Involved
1. Taxability of interest received on compensation under the Land Acquisition Act. 2. Applicability of cash or accrual accounting methods. 3. Proportionate assessment of interest over multiple years. Detailed Analysis 1. Taxability of Interest Received on Compensation Under the Land Acquisition Act The primary issue was whether the entire interest amount of Rs. 86,208 received in the assessment year 1962-63 should be taxed in that year or proportionately over the years it accrued. The interest was paid under Section 34 of the Land Acquisition Act for the period from April 5, 1950, to April 25, 1961, due to the delayed payment of compensation for the acquired property. The Tribunal held that the interest accrued year by year from the date of possession (April 5, 1950) until the date of payment (April 25, 1961), and only the proportionate interest for the assessment year 1962-63 should be taxed in that year. This decision was supported by the case of CIT v. Sampangiramaiah [1968] 69 ITR 159 (Mys), which held that interest should be assessed proportionately over the relevant years. 2. Applicability of Cash or Accrual Accounting Methods The Income Tax Officer (ITO) initially taxed the entire interest amount in the assessment year 1962-63, arguing that the assessee followed the cash system of accounting. However, the Appellate Assistant Commissioner (AAC) and the Tribunal found that the method of accounting was irrelevant in this case. The AAC noted that the interest income had accrued from the date of possession, and thus, the entire interest could not be taxed in a single year. The Tribunal, referring to Section 34 of the Land Acquisition Act, emphasized that the interest accrued annually from the date of possession and should be assessed proportionately. This was further supported by the Supreme Court's interpretation in E. D. Sassoon & Co. Ltd. v. CIT [1951] 26 ITR 27 (SC), which clarified that income accrues when the right to receive it arises, not necessarily when it is received. 3. Proportionate Assessment of Interest Over Multiple Years The Tribunal's decision was challenged by the Revenue, which argued that the entire interest amount should be taxed in the year of receipt, citing the case of Khan Bahadur Ahmed Alladin & Sons v. CIT [1969] 74 ITR 651 (AP). However, the Tribunal distinguished this case, noting that the right to interest under Section 34 of the Land Acquisition Act was not inchoate but accrued annually. The Tribunal's decision was further supported by the Supreme Court in Dr. Shamlal Narula v. CIT [1964] 53 ITR 151, which held that statutory interest under Section 34 is a revenue receipt liable to tax and accrues annually. The Orissa High Court in Jayanarayan Panigrahi v. CIT [1974] 93 ITR 102 also supported the annual accrual of interest, emphasizing that the right to receive interest was absolute and not contingent. The Tribunal concluded that only the interest accrued in the relevant assessment year should be taxed, aligning with the established legal principles that distinguish between compensation and interest on delayed compensation. Conclusion The High Court affirmed the Tribunal's decision, holding that the proportionate interest for the assessment year 1962-63 alone should be taxed in that year. The judgment emphasized that interest under Section 34 of the Land Acquisition Act accrues annually and should be assessed accordingly. The Revenue was held liable for costs, and the decision was unanimously agreed upon by both judges.
|
