1982 (5) TMI 33 - HC - Income Tax

Summary

Issues Involved:
1. Whether the interest amount of Rs. 83,867 was assessable in the assessment year 1961-62.
2. The nature of interest awarded under s. 28 of the Land Acquisition Act, 1894.
3. The method of accounting for interest income.

Summary:

1. Assessability of Interest Amount:
The Tribunal was tasked with determining whether only Rs. 29,820 out of Rs. 83,867 was assessable in the assessment year 1961-62. The assessee-firm received enhanced compensation with interest under s. 28 of the Land Acquisition Act, 1894. The ITO treated Rs. 83,867 as revenue receipts for the assessment year 1961-62, while the assessee contended only Rs. 28,920 should be assessed for that year. The Tribunal, after considering differing opinions, concluded that Rs. 28,920 was assessable for the assessment year 1961-62.

2. Nature of Interest Awarded under s. 28:
The court examined whether interest on enhanced compensation under s. 28 accrued from the date of possession or the date of the court's order. It was held that interest under s. 28 is compensation for delayed payment and not for deprivation of possession. The court concluded that the right to receive interest accrued from the date of dispossession, i.e., 5th May 1958, and should be spread over the relevant years.

3. Method of Accounting for Interest Income:
The court noted that the method of accounting (mercantile or cash basis) does not affect the assessability of interest income under s. 28. The interest income must be spread over the years it accrued, irrespective of the accounting method. The court agreed with the views of the Allahabad and Mysore High Courts that the interest income should be taxed in the years it accrued.

Conclusion:
The court answered the question in the affirmative, holding that only Rs. 28,920 was assessable for the assessment year 1961-62. The method of accounting was deemed irrelevant to the assessability of interest income under s. 28. No order as to costs was made.