1967 (8) TMI 21 - HC - Income Tax

Amount awarded by the Land Acquisition Officer - there was a complete acquisition of the right to recover the accumulated interest on the amount awarded by the Officer when possession was taken, and on the enhancement, when the appropriate decree made such enhancement and to subsequent interest so long as it ran but was not paid - Tribunal was right in holding that the entire interest was not assessable

Summary

Issues:
Assessment of interest amount for tax purposes in the assessment year 1962-63.

Analysis:
The judgment of the High Court of Karnataka addressed the issue of whether the entire interest amount of Rs. 87,265 received by the assessee should be assessed in the assessment year 1962-63 or only the proportionate interest referable to that year. The case involved the acquisition of land by the Corporation of the City of Bangalore, where the compensation amount and interest were subject to multiple revisions through legal proceedings up to the Supreme Court's decision in 1961.

The Income-tax Officer initially taxed the interest amount as a revenue receipt, leading to an appeal by the assessee. The Income-tax Appellate Tribunal determined that only the proportionate interest related to the assessment year 1962-63 should be taxed. The Tribunal reasoned that the right to receive interest had accrued to the assessee each year since 1949, even though the final amount was determined in 1961. It held that the interest for each year should be assessed in that respective year, not just when it was ascertained or paid.

The department argued that the Tribunal misinterpreted previous Supreme Court decisions and contended that the right to compensation and interest did not accrue until quantification by the Land Acquisition Officer post-Supreme Court appeals. However, the High Court rejected this argument, emphasizing that the right to interest accrued when possession was taken and when compensation was enhanced, irrespective of pending appeals.

The High Court further discussed the accrual of income under the Income-tax Act, stating that interest became taxable when legally due and recoverable, not necessarily when quantified or paid. It distinguished between the mercantile and cash systems of accounting, emphasizing that income accrues when legally due and recoverable, regardless of accounting method.

Ultimately, the High Court upheld the Tribunal's decision, ruling in favor of the assessee. It held that only the proportionate interest referable to the assessment year 1962-63 should be assessed, not the entire interest amount. The judgment concluded by awarding costs to the assessee and affirming the Tribunal's decision on the tax assessment of the interest amount.