1970 (4) TMI 19 - SC - Income Tax

Amount of compensation awarded for the period from the date Govt. has taken possession of the land compulsorily acquired is interest paid for the delayed payment of the compensation and is therefore a revenue receipt liable to tax under the IT Act - Assessee s appeal dismissed

Summary

Issues:
1. Whether the interest received on the compensation for the resumption of a jagir constitutes a capital receipt?

Analysis:
The case involved appeals arising from references made by the Income-tax Appellate Tribunal regarding the assessment years 1956-57, 1957-58, 1958-59, and 1961-62. The appellant, a jagirdar, claimed that the interest received on compensation under the Madhya Bharat Abolition Jagirs Act, 1951, should be considered a capital receipt. The Income-tax Officer and the Appellate Assistant Commissioner included the interest in the appellant's income, while the Appellate Tribunal held it to be a capital receipt. The High Court ruled against the appellant, leading to the appeal to the Supreme Court.

The main contention was whether the interest formed part of the compensation amount or was a separate payment. Section 8 of the Act specified that compensation became due from the date of resumption of the jagir and carried simple interest at 2 1/2 % per annum until payment. The appellant argued that the interest was part of the compensation, citing the marginal heading of section 8 as "Duty to pay compensation" and the lack of distinction in sections 13, 14, and 15 between the compensation and interest payments. However, the Court disagreed, emphasizing that the language of the Act was clear and unambiguous. The Court referred to a previous decision regarding statutory interest under the Land Acquisition Act, stating that interest for delayed payment of compensation is a revenue receipt subject to tax. Similarly, in this case, the interest payable under section 8(2) was distinct from the compensation amount and could not be considered part of it.

The Court concluded that the interest payable under the Act was a separate payment for the delayed payment of compensation and could not be treated as part of the compensation amount. Therefore, the appeals were dismissed with costs, upholding the High Court's decision against the appellant.

In summary, the Supreme Court clarified that the interest received on compensation for the resumption of a jagir was not a capital receipt but a separate payment for delayed compensation. The Court emphasized the clear language of the Act, distinguishing between compensation and interest payments, and ruled in favor of treating the interest as a revenue receipt subject to tax.