1971 (1) TMI 40 - HC - Income Tax

Acquisition of land - interest on compensation - time of accrual - the right to recover interest arises from the moment the owner is deprived of his property

Summary

Issues Involved:
1. Whether the Tribunal was right in law in deleting the amount of Rs. 42,577.50 out of Rs. 48,660 from the assessment for the assessment year 1956-57.

Detailed Analysis:

1. Tribunal's Deletion of Rs. 42,577.50:
The primary issue pertains to whether the Tribunal was correct in law in deleting Rs. 42,577.50 from the total interest of Rs. 48,660 for the assessment year 1956-57. The assessee, a Hindu undivided family, had land acquired by the State Government, with the notification issued on June 21, 1950. The acquisition was later challenged and quashed by the Pepsu High Court on February 14, 1955. The Collector's award was made on September 30, 1955, and the assessee was due interest on the compensation awarded, amounting to Rs. 48,660, paid in the year preceding the assessment year 1956-57.

2. Accrual of Interest:
The Tribunal held that only the interest referable to the relevant assessment year could be brought to tax. The Tribunal referenced the Bombay High Court in Commissioner of Income-tax v. Associated Commercial Corporation and the Punjab High Court in Commissioner of Income-tax v. Jai Parkash Om Parkash Co. Ltd., noting that income must actually accrue or arise and not merely be claimed. The Tribunal concluded that the right to receive interest was finalized only after the High Court's judgment on February 14, 1955. Therefore, the interest accrued only during the previous year ending March 31, 1955.

3. Legal Precedents:
The Tribunal's decision aligned with the Mysore High Court in Commissioner of Income-tax v. Sampangiramaaiah, which held that interest accrued when it became legally due and recoverable. The Tribunal further referenced the Supreme Court's decision in E. D. Sassoon & Company Ltd. v. Commissioner of Income-tax, which stated that income accrues when a right to receive it becomes vested, though its valuation may be postponed.

4. Department's Contention:
The department argued that the right to compensation under the Land Acquisition Act is inchoate until an award is given. However, the Tribunal noted that section 34 of the Land Acquisition Act specifies the right to interest from the date of dispossession, compensating for the loss of income due to deferred payment of compensation.

5. Tribunal's Conclusion:
The Tribunal concluded that interest of Rs. 42,577.50 accrued in the previous years 1951-52 to 1954-55, and only Rs. 6,082.50 accrued and was received during the previous year relevant to the assessment year 1956-57. Thus, only Rs. 6,082.50 was includable in the total income for the assessment year 1956-57.

6. Court's Decision:
The High Court agreed with the Tribunal's decision, emphasizing that under section 34 of the Land Acquisition Act, the right to recover interest arises immediately upon dispossession. The High Court supported the Tribunal's view that the interest accrued each year and was payable as such after possession was taken from the owner. The court also referenced Commissioner of Income-tax v. Sham Lal Narula, affirming that interest under section 34 is not casual but regularly and recurrently payable.

Judgment:
The High Court answered the question in the affirmative, against the department and in favor of the assessee, affirming that the Tribunal was right in deleting Rs. 42,577.50 from the assessment for the year 1956-57. There was no order as to costs.