1978 (8) TMI 112 - AT - Income Tax

Summary

Issues Involved:
1. Interpretation of Section 34 of the Land Acquisition Act, 1894.
2. Nature of the interest awarded as damages for wrongful possession of land.
3. Classification of interest awarded on compensation amount as income from other sources.
4. Treatment of the interest amount as capital receipt.

Detailed Analysis:

1. Interpretation of Section 34 of the Land Acquisition Act, 1894:
The primary issue revolves around whether the interest awarded under Section 34 of the Land Acquisition Act, 1894, should be considered a capital receipt or a revenue receipt. The section states: "When the amount of such compensation is not paid or deposited on or before taking possession of the land, the Collector shall pay the amount awarded with interest thereon at the rate of six per cent per annum from the time of so taking possession until it shall have been so paid or deposited." The AAC interpreted this provision to mean that the interest is a revenue receipt, as it pertains to the domain of payment after compensation has been ascertained.

2. Nature of the Interest Awarded as Damages for Wrongful Possession of Land:
The assessee argued that the interest awarded represented damages for the unauthorized possession of their land by the Delhi Administration and should thus be treated as a capital receipt. The AAC, however, upheld the ITO's view that the interest awarded under Section 34 is a revenue receipt, citing the Supreme Court decision in Dr. Shyamlal Narula's case, which held that statutory interest provided under Section 34 cannot be described as damages or compensation for the owner's right to retain possession but is interest paid for delayed payment of compensation.

3. Classification of Interest Awarded on Compensation Amount as Income from Other Sources:
The ITO classified the interest amount of Rs. 9,927 as income from other sources, which was upheld by the AAC. The AAC relied on the Supreme Court's ruling that statutory interest is a revenue receipt and thus taxable under the Income-tax Act. The AAC also referenced the decision in TNK Govindaraju Chetty vs. CIT Madras, which reiterated that statutory interest is a revenue receipt.

4. Treatment of the Interest Amount as Capital Receipt:
The assessee contended that the interest should be treated as a capital receipt, arguing that the possession taken by the Delhi Administration was not under Section 16 of the Act and thus the interest paid was for the deprivation of property, not for the use of money. The Tribunal considered various judicial pronouncements and found that when possession is taken otherwise than under Section 16, the interest paid is in lieu of the right to retain possession and thus constitutes damages for deprivation of property. The Tribunal followed the Kerala High Court decision in CIT vs. Periyar and Pereekanni Rubber Ltd., which held that interest paid for possession taken otherwise than under the Act is a capital receipt.

Conclusion:
The Tribunal concluded that the interest of Rs. 9,927 awarded to the assessee is a capital receipt and not liable to tax. The orders of the authorities below were set aside, and the appeal was allowed. The Tribunal's decision was based on the distinction between possession taken under Section 16 of the Act and possession taken otherwise, following the Kerala High Court's view that interest in the latter case is compensation for deprivation of property.