1968 (11) TMI 31 - HC - Income Tax

Estate of assessee was acquired by Govt. - Additional compensation awarded by District Judge - assessability of that enhanced compensation

Summary

Issues Involved:
1. Whether the purchase of the site and the buildings known as "Brengun Estate" was in the course of a profit-making scheme or adventure in the nature of trade?
2. If the answer to question No.1 is in the affirmative, whether the extra compensation of Rs. 99,245 awarded by the District Judge on 12th July, 1956, is assessable for the assessment year 1955-56?

Detailed Analysis:

Issue 1: Nature of the Purchase of "Brengun Estate"
The court had to determine if the purchase of "Brengun Estate" by the assessee was an adventure in the nature of trade or part of a profit-making scheme. The court referenced a prior decision in R.C. No. 42/62, where it was established that the purchase was indeed an adventure in the nature of trade. This decision was affirmed by the Supreme Court in Khan Bahadur Ahmed Alladin and Sons v. Commissioner of Income-tax. Consequently, the court answered the first question in the affirmative and in favor of the department, confirming that the purchase was part of a profit-making scheme.

Issue 2: Assessability of Extra Compensation
The second issue revolved around whether the additional compensation of Rs. 99,245, awarded by the District Judge on 12th July, 1956, should be assessed in the year 1955-56. The assessee argued that the compensation should be assessed in the year it was awarded, not when possession was taken. The department contended that the right to compensation accrued when possession was taken, thus it should be included in the year the Collector awarded the initial compensation.

The court examined the nature of acquisition proceedings and the timing of compensation accrual. It concluded that the right to compensation becomes inchoate when possession is taken, but it only accrues when the compensation amount is determined and payable. The court noted that income for tax purposes accrues or arises when it becomes a tangible, enforceable right, not merely a claim or an inchoate right. The court cited several precedents, including E.D. Sassoon & Co. Ltd. v. Commissioner of Income-tax and Commissioner of Income-tax v. A. Gajapathy Naidu, to support this view.

The court also referenced the decision in Mahalakshmi Rice & Oil Mill v. Commissioner of Income-tax, which distinguished between an ex gratia payment and a right to receive compensation. The court emphasized that income tax is not levied on a mere right to receive compensation but on an ascertained amount that becomes payable. Therefore, the enhanced compensation awarded by the District Judge accrued only on the date of the award, i.e., 12th July, 1956.

In conclusion, the court held that the enhanced compensation of Rs. 99,245 did not accrue in the year 1955-56 but in the year it was awarded by the District Judge. Thus, the answer to the second question was in the negative and in favor of the assessee.

Summary of Judgments:
The court answered the first question in the affirmative, confirming that the purchase of "Brengun Estate" was an adventure in the nature of trade. The second question was answered in the negative, determining that the extra compensation of Rs. 99,245 accrued in the year it was awarded by the District Judge, not in the year 1955-56. The assessee was awarded costs, with an advocate's fee of Rs. 250.