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TMI Blog1972 (8) TMI 37X X X X Extracts X X X X X X X X Extracts X X X X ..... Act of 1961. The question referred to us is: " Whether, on the facts and circumstances of the case, the income-tax authorities were justified in including the sum of Rs. 16,460 on receipt basis?" The facts of the case are these: A Hindu joint, family of which Joyanaravan Panigrahi is the karta owned properties in the villages of Pudapara and Baunsamura located in the district of Sambalpur. Under the provisions of Orissa Act 18 of 1948, 47.15 acres of land in village Padapara were acquired by the State of Orissa for the Hirakud Dam Project. This acquisition was covered by two independent notifications, one dated November 9, 1951, and the other dated March 28, 1955. Possession of these lands was taken on June 11, 1956, and on June 7, 1957, the competent authority offered compensation of Rs. 23,804-3-0 under rule 5 of the rules made under the said Act. 3.24 acres of land in the other village came to be notified for acquisition on April 12, 1957. On October 18, 1957, possession thereof was taken and the competent authority under rule 5 offered compensation of Rs. 2,514.03 on August 11, 1958. The assessee objected to the quantum of compensation and claimed higher compensation. Unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r less supplemental to the Land Acquisition Act of 1894 (Central Act 1 of 1894). Though in the Orissa Act there is no provision for payment of interest, on the basis of section 34 of the Central Act, interest has been found payable. Their Lordships of the Supreme Court in Satinder Singh v. Umrao Singh, indicated that section 34 embodied the rule of equity, justice and good conscience and on such basis, for acquisitions under the Orissa Act, interest has been found payable by this court and the Supreme Court has also sustained the-decision of this court with regard to payability of interest. Interest on the amount of compensation for the period between deprivation of possession and payment of compensation is awarded on the footing that th owner of the land has been deprived of the use of the land and also of the compensation which represents the value of the land. Their Lordships of the Supreme Court in the case of Dr. Sham Lal Narula v. Commissioner of Income-tax have laid down that while the amount of compensation is not liable to tax as income being a capital receipt, interest is income and is exigible to income-tax. That view has been reiterated in the case of Commissioner of In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eived or is deemed to be received in India in such year or accrues or arises or is deemed to accrue or arise to the assessee during such year. We are not concerned in this case with the expression " deemed to accrue " or " arise ". What is necessary to be determined is whether the income by way of receiving interest accrued to the assessee only during the assessment year 1961-62 for the whole amount or had accrued in regard to parts thereof in any previous year. The main point for determination, therefore, is as to when the interest accrued to the assessee If it is found that the interest accrued during the previous year of the assessment year in question, i.e., 1961-62, the assessee would be liable for tax in the entire amount. If, however, the conclusion reached that during some of the previous years a part of the total amount of interest had accrued, then only such part out of the total of income which accrued to the assessee during the assessment year 1961-62 could be brought into the net of taxation. In the case of. E. D. Sasson Company Ltd. v. Commissioner of Income-tax, their Lordships stated : " It is clear, therefore that income may accrue to an assessee without the ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s a right to receive the same. It is commonplace that there are two principal methods of accounting for the income, profits and gains of a business; one is the cash basis and the other, the mercantile basis. The latter system of accountancy ' brings into credit what is due immediately it becomes legally due and before it is actually received; and it brings into debit expenditure the amount for which a legal liability has been incurred before it is actually disbursed '. The book profits are taken for the purpose of assessment of tax, though the credit amount is not realized or the debit amount is not actually disbursed. If an income accrues within a particular year, it is liable to be assessed in the succeeding year. When does the right to receive an amount under a contract accrue or arise to the assessee, i.e., come into existence ? That depends upon the terms of a particular contract. No other relevant provision of the Act has been brought to our notice for there is none which provides an exception that though an assessee does not acquire a right to receive an income under a contract in a particular accounting year, by some fiction the amount received by him in a subsequent year i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arithmetical process by the assessee thus: --------------------------------------------------------------------------------------------------------------------------------------------------Accounting year Interest accrued ---------------------------------------------------------------------------------------------- Lands in Lands in Total Pudapara Baunsamura -------------------------------------------------------------------------------------------------------------------------------------------------- Rs. Rs. Rs. 1956-57 2,510.89 Nil 2,510.89 1957-58 3,393.42 131.48 3,524.90 1958-59 3,393.42 291.72 3,685.14 1959-60 3,393.42 291.72 3,685.14 1960-61 2,827.85 226.08 3,053.93 (10 months only ending 30-1-61) ------------------------------------------------------------------------------------------------------------------------------------------------- Total 15,519.00 941.00 16,460.00 -------------------------------------------------------------------------------------------------------------------------------------------------- According to the assessee, the total interest paid to him of Rs. 16,460 related to five accounting. years as indicated above and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -tax v. Vazir Sultan Sons on this occasion, their Lordships said : " The caution administered by this court shall always be borne in mind in construing the provisions of the Indian statute. The provisions of the Indian Income-tax Act shall be construed on their own terms with out drawing any analogy from English statutes whose terms may super ficially appear to be similar but on a deeper scrutiny may reveal differences not only in the wording but also in the meaning a particular expression has acquired in the context of the development of law in that country." We, therefore, propose to deal with the, matter by reference to the Income-tax Act of 1961 and the law as applied in India to the points in issue. It is admitted that the does not maintain any accounts. No adverse inference can be drawn against the assessee on that score, because the law did not cast any duty on the assessee to maintain accounts in this case. The assessee is a non-trader and but for the acquisition of his capital assets, namely, the agricultural lands, and payment of compensation in lieu thereof together with interest, the assessee would have had no liability to be dealt with under the Act. As alrea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion amount was paid. The Income-tax Officer assessed the entire interest as income earned in the assessment year 1962-63. The assessee succeeded before the Tribunal which accepted his contention that the interest related to different years between the event of dispossession and payment of compensation and had to be apportioned year-wise. In the reference at the instance of the revenue, the learned judges of the High Court upheld the view of the Tribunal; the proposition that the accrual of the right to interest stood postponed until determination of the quantum of compensation was negatived. Reliance was placed upon several decisions of the Supreme Court to hold that the accrual of income which had become due did not await quantification. It was said thus: " Now, when possession was taken by the Land Acquisition Officer, he became liable to pay interest until the amount awarded by him was paid, and the assessee acquired the right to recover it from him. The direction of the District Judge for the payment of interest on the enhanced compensation, which his decree made on February 28, 1951, incorporated, produced the right to recover such interest at least on the date of that decr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Haryana High Court in the case of Commissioner of Income-tax.v. Dr. Sham Lal Narula . The point in controversy was again apportionment of interest received under the Land Acquisition Act. Mahajan J. spoke for the court thus : "There was thus a complete acquisition of the right to recover the accumulated interest on the amount awarded by the Land Acquisition 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. Such interest became income which accrued in the year in which it became so recoverable within the meaning of section 4(1)(b)(i) of the Indian Income-tax Act, 1922, so long as that Act was in force and of section 5(1)(b) of the Income-tax Act, 1961, when that Act commenced to operate. The attribution of the whole of that interest to the year of receipt is manifestly impossible. The omission by the assessee to include the interest which had so accrued to him in the returns of the earlier years cannot yield the deduction that he chose to treat the interest as the income of the year in which he received it. Indeed, no such theory was evolved at any stage. O ..... X X X X Extracts X X X X X X X X Extracts X X X X
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