1997 (1) TMI 155 - AT - Income Tax

Summary

Issues Involved:
1. Determination of whether the interest awarded is part of the compensation for land acquisition or assessable as income from other sources.

Detailed Analysis:

1. Determination of whether the interest awarded is part of the compensation for land acquisition or assessable as income from other sources:

Facts and Background:
The assessee owned a piece of land which was reserved by the Government for a municipal garden. The land acquisition process involved a purchase notice, followed by the issuance of a notice by the Special Land Acquisition Officer and the determination of compensation through an award dated 23-9-1986. The compensation awarded included Rs. 8,98,796 for the land, Rs. 6,92,073 as interest, and Rs. 2,69,224 as solatium.

Assessing Officer's View:
The Assessing Officer accepted the compensation and solatium as part of the land price but treated the interest amount of Rs. 6,92,073 as income from other sources. The Officer's rationale was that the interest was awarded on the capital of the assessee and did not form part of the compensation.

CIT(A)'s Decision:
The CIT(A) held that the interest was part of the compensation, citing section 23(1A) of the Land Acquisition Act, 1894. The CIT(A) concluded that the compensation, interest, and solatium were part of the land price and thus not assessable as income from other sources.

Revenue's Argument:
The revenue contended that the CIT(A) erred in appreciating the facts. They relied on the Supreme Court decision in Dr. Shamlal Narula v. CIT, which held that statutory interest paid under section 34 of the Land Acquisition Act, 1894, is a revenue receipt liable to tax under the Income-tax Act. The revenue argued that the interest was a revenue receipt for delayed payment of compensation and thus assessable as income from other sources.

Assessee's Argument:
The assessee's counsel argued that the word 'interest' was not mentioned in section 23(1A) and that the amount awarded under this section should be considered part of the compensation. The counsel also cited the Bombay High Court decision in Union of India v. Smt. Maria Olivia Carvalho, which supported the view that the amount calculated under section 23(1A) is additional compensation, not interest.

Tribunal's Analysis:
The Tribunal examined the provisions of section 23 of the Land Acquisition Act, 1894, noting that section 23(1A) uses the word 'amount' and not 'interest'. The Tribunal distinguished between the compensation determined under section 23 and the interest payable under section 34. The Tribunal concluded that the amount awarded under section 23(1A) is part of the compensation and not interest.

The Tribunal also considered the Supreme Court decision in Dr. Shamlal Narula, noting that it was rendered before the enactment of section 23(1A). The Tribunal opined that the provisions of section 23(1A) were introduced to address the issues highlighted by the Supreme Court and should be considered as part of the compensation.

Conclusion:
The Tribunal upheld the CIT(A)'s decision, holding that the amount awarded under section 23(1A) is part of the compensation and not assessable as income from other sources. The appeal by the revenue was dismissed.

Summary:
The Tribunal concluded that the interest awarded under section 23(1A) of the Land Acquisition Act, 1894, is part of the compensation for land acquisition and not assessable as income from other sources. The decision emphasized the distinction between compensation and interest, with the former being determined under section 23 and the latter under section 34. The Tribunal upheld the CIT(A)'s decision, dismissing the revenue's appeal.