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TMI Blog1982 (5) TMI 12X X X X Extracts X X X X X X X X Extracts X X X X ..... king of the assessee by exercising the option given in cl. 9(1) of the licence granted to the assessee read with s. 7(2) of the Indian Electricity Act, 1910. The Govt. of Punjab fixed a compensation of Rs. 3,17,691 as payable to the assessee in respect of the undertaking. The assessee-company did not agree to this compensation and agitated for an increase of, the compensation amount. On May 5, 1952, the assessee-company addressed a letter to the Secretary to the Punjab Govt. stating that the valuation of the undertaking placed by the Govt. of Punjab was grossly inadequate and wholly incorrect and that the correct value of the lands, buildings and all other effects of the undertaking would be Rs. 10,80,000. By this letter the assessee purported to " refer to arbitration " the dispute regarding the question of valuation in accordance with ss. 7(1) and 52 of the Indian Electricity Act read with cl. 13 of the licence granted to the assessee in 1934. The assessee's claim under cl. 9(1) of the licence read with s. 7(2) of the Act amounted to Rs. 10,80,000, besides interest up to the date of payment. By the above letter the assessee purported to appoint L. Jagraj, Straw Board Manufacturin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f a sum of Rs. 5,87,927." On November 23, 1961, an application was made to the Sub-Court, Ferozepur, for making the award of the umpire a rule of the court. This was done on September 28, 1962. The entire amount of interest, viz., Rs. 1,55,620 was paid to the assessee-company through the court on February 13, 1963. During the assessment proceedings of the assessee for the assessment year 1963-64 a question arose regarding the assessability to tax of the interest amount of Rs. 1,55,620 which had been received by the assessee during the previous year. The assessee had not returned this amount of interest for taxation. Its plea was that the sum represented a capital receipt and alternatively that it was a casual receipt not assessable to tax. It was also contended that even if the amount is treated as taxable, only the interest attributable to the previous year, i.e., the period of 12 months from April 1, 1962, to March 31, 1963, could be brought to charge in the assessment year 1963-64 and not the balance. Since the interest awarded by the arbitrator was only for a period of eight years the assessee was in effect contending that no part of the interest was taxable for the assessm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iv) that the right to receive interest must be treated as having accrued to the assesseecompany from year to year over a period of eight years from the date of acquisition. The learned judicial Member held: (1) agreeing with the Accountant Member, that the award assumed finality only on the date on which it was made a rule of the court, namely, September 28, 1962, date which fell within the previous year, with which we are concerned; (ii) that the assessee was being assessed on (the basis of) whatever system (of accounting) it was following and that the present claim that interest had accrued from the beginning was inconsistent with the books of account which contained no entries regarding the accrued interest even in relation to the undisputed amount of compensation which had been paid on May 7, 1951 ; (iii) that, in any event, even assuming that the company had a vested right to receive interest on the delayed payment of purchase money under the statute, the source of the interest awarded in the present case was not the statute but the award itself; and (iv) that the entire interest had accrued only on the date of the award and was rightly assessed in the assessment year in quest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taxed in the assessment year 1963-64 and not the proportionate amount relatable to that year ? " At the outset, we may deal with an attempt by the counsel for the assessee to cut short the whole controversy. His contention is that, even assuming that the interest arises only when awarded and not earlier the relevant date to be considered is July 31, 1961, when the award was published and not September 28, 1962, when it was made a rule of court. This contention if accepted, makes the interest taxable for the assessment year 1962-63, and the assessee gets relief so far as the year presently under consideration, that is, the assessment year 1963-64 is concerned. This contention has to be rejected for two reasons. In the first place, it is not open to the assessee to raise this question before us. On this aspect, all the three members of the Tribunal who heard the appeal have taken concurrent view and held that, though the award was made in July, 1961, it became enforceable and conferred a right on the assessee to recover the amount of enhanced compensation and interest thereon only when it was made a rule of the court in September, 1962, which is a date falling within the previous ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rposes of accrual) until the award had been made a rule of the court. This is also the view taken by the Allahabad High Court in A. P. S. Cold Storage and Ice Factory v. CIT [1979] 119 ITR 709. We uphold the view taken by the Tribunal on this point. It will be convenient at this stage to refer to the large number of cases which have dealt with the present issue, and then apply the principle emerging from their discussion to the facts of the present case : 1. CIT v. Sampangiramaiah [1968] 69 ITR 159 (Mys): In this case, the assessee's property was acquired under the Land Acquisition Act and possession thereof was taken by the Government on February 19, 1949. On June 2, 1949, the Land Acquisition Officer determined the compensation payable at Rs. 46,000 (Rs. 2 per sq. yard) and this amount was duly paid to the assessee on December 31, 1949. But there was a reference to the District judge under s. 18 of the Land Acquisition Act and the District Judge enhanced the compensation to Rs. 5 per sq. yard. From the decree made by the District Judge, both the assessee and the Land Acquisition Officer appealed to the High Court. The High Court by a decree dated March 30, 1956, enhanced the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... could be said to have accrued. However, this decision is of help here for two reasons : (i) In the course of the judgment, the court dealt with the issue of accrual. In repelling the contention that " the right to no part of the interest was born until the Land Acquisition Officer made his arithmetic after the Supreme Court disposed of the appeals ", the court observed : " 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 decree. Then again, when compensation was further enhanced by the former High Court of Mysore which made a similar direction for the payment of interest on such enhanced compensation, all that interest which that amount so earned from February 19, 1949, became immediately due and payable under an executable decree." It will be seen from these observations that the High Court did not agree w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tober 1, 1955, to September 30. 1956, apparently oil the basis of the date on which the compensation was paid. However, the AAC, on appeal, held that the amount was assessable for the assessment year 1956-57. He pointed out that the award had been given on December 10, 1954, and hence the amount of compensation was assessable An the assessment year 1956-57 and not 1957-58. The ITO, thereupon made reassessment for 1956-57 and in so doing, he included not only the amount of Rs. 1,25,131 originally awarded but also the additional compensation awarded by the order dated July 12, 1956. Again, there was an appeal. This time the AAC held that only the amount awarded on December 10, 1954, could be assessed in the assessment year 1956-57 and that the additional compensation had accrued only on December I2, 1956, and could be assessed only in the assessment year 1957-58. But the Tribunal reversed the order of the AAC and upheld the assessment as made by the officer holding that the right to receive compensation had accrued on June 23, 1954, when the land was taken over and that whatever was the amount of compensation payable, it should be attributed to that date and the assessment year relev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to tax all the compensation amount in one year though receivable in different years, and (ii) by making it difficult for the assessee to claim any refunds or rectifications in the event of the compensation amounts getting reduced at the stages of appeal because of rules of limitation. It would also be prejudicial to the Revenue itself because of the rules of limitation making it impossible for the Department either to keep the assessment indefinitely open until the final compensation figure is determined or to re-open the assessment from time to time to include the additional compensation subsequently declared. 3. CIT v. Dr. Sham Lal Narula [1972] 84 ITR 625 (P H): In this case the assessee's land was acquired by the State Government under the provisions of the Land Acquisition Act and the assessee was deprived of the possession of the land on October 15, 1951. The interest, on the amount of compensation, amounting to Rs. 48,660, was paid to the assessee in the previous year relevant to the assessment year 1956-57. The assessee contended that the entire amount could not be assessed in 1956-57, but should be spread over the earlier years as well. The Appellate Tribunal held that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ugh this was an aspect irrelevant in relation to assessment year 1956-57. (b) The report of the case shows that the award in the case had been made on September 30, 1955, but the accrual as held by the High Court, will even be from the earlier date of dispossession. So also, it appears that there was a reference from the award and an enhancement the dates of which are not known and the interest received was on the enhanced compensation amount. To the extent the decision holds that interest on the amount awarded must be treated to have accrued earlier to the award and that the interest on the enhanced amount should be also deemed to have accrued from the long anterior date of dispossession, the ruling does not appear to be in accord with Sampangiramaiah [1968] 69 ITR 159 (Mys). (c) This decision clearly proceeds on the footing that as a right to be paid interest on the compensation amount springs under s. 34 from the date of dispossession, the accrual of interest on the compensation amount whether it is the one originally awarded or subsequently modified must start from that date and be spread over from year to year until it is actually paid though the determination of these amo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the assessee in each of the previous years aforesaid included a proportionate interest component. He, therefore, brought to tax a sum of Rs. 50,592 in the assessment year 1955-56 and Rs. 78,124 in the assessment year 1956-57, the allocation being on the basis of the total amounts received in the respective years. The plea of the assessee was that the interest receipt of Rs. 1,28,716 should be assessed by apportioning it to the several respective years to which the interest is relatable. The High Court accepted this contention. It observed (p. 27) : " In this case the assessee has acquired a right in presenti against the Government to get the compensation for the land acquired even on the date of the notification, and to get interest on the amount of compensation if payment of the same is postponed for some reason or other. From the mere fact that the amount of compensation was fixed ultimately by this court, it cannot be said that the liability to pay either the compensation or the interest thereon arose only on the date of such fixation." and again (p. 30): " In this case the liability to pay interest would arise when the compensation amount due to the assessee had not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red for arbitration. Apparently the arbitrator enhanced the compensation and ultimately on January 30, 1961, the entire compensation was paid to the assessee along with an interest of Rs. 16,460 in respect of the period from June 11, 1954, and November 18, 1957, respectively, up to the date of payment. The entire income was assessed for assessment year 1961-62 by the officer while the assessee contended that it should be apportioned among assessment years 1957-58 to 1961-62 in the manner tabulated at page 108 of the report. The assessee's contention was upheld relying on Sampangiramaiah [1968] 69 ITR 159 (Mys) and Narula [1972] 84 ITR 625 (P H). The one additional feature about this case was that the relevant statute did not provide for the payment of interest but this was held to make no difference. Here again the fact that the assessee maintained no accounts was held to make no difference. 6. CIT v. Sankari Manickyamma [1976] 105 ITR 172 (AP): The lands of the assessee in this case were acquired in 1933. The compensation awarded was alleged to be inadequate and proceedings followed. Ultimately on May 9, 1963, the High Court passed a compromise decree awarding the assessee add ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8. Topandas Kundanmal v. CIT [1978] 114 ITR 237 (Guj): In this case, the assessee's lands were acquired and the Land Acquisition Officer made an award on July 18, 1962, offering a compensation of Rs. 24,293. On a reference, the compensation was enhanced to Rs. 5,04,824 and an interest of Rs. 61,416.90 for the period August 15, 1960 to August 31, 1963, was also worked out. The State Govt. preferred an appeal and the assessee filed cross-objections therein. Pending their disposal, the assessee was permitted to withdraw a sum of Rs. 50,000 on furnishing security. Eventually, the appeal of the State Govt. was allowed and the assessee had to repay the amount withdrawn by him with interest. Pending these proceedings the ITO included, for the assessment year 1964-65, the additional compensation of Rs. 4,80,531 and interest of Rs. 61,417 which the assessee was awarded by the District judge. So far as the compensation amount was concerned, it was taxable, in terms of s. 45, in the year of transfer. But the general question of accrual became relevant in the context of the interest amount. It is in this context that the court had to consider the time of accrual of the principal amount of comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation which are inchoate or contingent would not create a debt. We are, therefore, of opinion that if an aggrieved party whose land is acquired does not accept the offer made by the Land Acquisition Officer in his award, he has a right to seek reference under section 18 for getting the question of the compensation determined by the court and it is on the amount thus determined judicially that the owner would be entitled to enforce that right for a particular sum. It is on the final determination, in our opinion, of the amount of compensation that the right to that income in the nature of compensation would arise or accrue and till then there is no liability in presenti in respect of the additional amount of compensation claimed by the owner of the land sought to be acquired." And further (p. 252): "It is no doubt true that he has a right to be awarded interest on the amount of compensation from the date of possession till the date of payment. None the less the vested and enforceable rights to receive such interest would accrue or arise only if the designated authorities under the Land Acquisition Act ultimately determine that the assessee is entitled to enhanced or additional a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, cannot be regarded as a right or income 'arising' or 'accruing', when riddled with many imponderables, such as the actual making of the reference, the award of excess compensation, and the further award of interest thereon. It appears to us that income by way of interest on excess compensation under s. 28 of the Central Act (s. 30 of the Kerala Act) cannot be regarded as having 'accrued' or be 'deemed to have accrued' from the moment of dispossession or of the notification under s. 4. At these stages, it cannot invariably be predicated that the assessee would file an application for reference in the court for excess compensation, or that the court would enhance the compensation; or even if it does so, that it would award interest on the excess compensation. In an allied sphere, considering the provisions of the General Clauses Act, with respect to the expression ' right accrued ' and 'vested right', it has been ruled that a mere right to take advantage of the provisions of a statute, without anything done to effectuate that right, is not a ' right accrued ' within the meaning of the section-see, for instance, the discussion in Narayanaswami v. Inspector of Police, AIR 1949 Mad 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Orissa views holds act (p. 927) "that the right to interest under s. 34 of the Land Acquisition Act, 1894, accrued on the date on which the Collector took possession of the property. It was right in praesenti which recurred from day to day throughout the years in between the two events, namely, dispossession and actual payment and continued to accrue in each of the succeeding years and only that amount of interest income could be taxed in a particular assessment year which accrued in that year. 11. Moti Lal Chaddami Lal Jain v. CIT [1980] 122 ITR 949 (All): This has considered the taxability of the interest awarded on enhanced compensation. The enhanced compensation was awarded by the District Court on May 31, 1971, and the assessment was of a sum of Rs. 1,09,492 received towards interest during the previous year relevant for the assessment year 1973-74 which commenced on November 18, 1971. Though the Tribunal had observed that the interest must be taken to have accrued from year to year, the High Court had only to hold that, for the assessment year 1973-74, only the interest attributable to the previous year could be said to have accrued on the mercantile system followed by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 53 ITR 114 (SC), viz., that the income accrues at the point of time when a right to receive that income is created in the assessee. If we view the subject-matter of taxation in the abstract the compensation or interest thereon receivable by an assessee when his property is taken away, then clearly the right to compensation or interest thereon will arise as from the date of dispossession both under the relevant statutory provisions as well as the earlier provisions in the Constitution which prohibited the deprivation of property without compensation. But if we consider the subject-matter as the assessee's entitlement to a particular amount, which has been awarded to him, such entitlement clearly can be said to have crystallised only on the date on which the amount is awarded to him finally with no dispute possible in regard thereto. The former view proceeds on the principle that where a right clearly exists, the delay in quantification or even a dispute regarding the same is immaterial and irrelevant, a principle settled beyond doubt, in regard to accrual of liabilities, by the decision of the Supreme Court in Kedarnath Jute Manufacturing Company's case [1971] 82 ITR 363(S C). The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... become effective. There can be hardly any doubt that the profits on a sale accrue at the point of sale. But the assessee is entitled to succeed even if it is treated as on par with acquisition cases. The decisions in Sassoon's case (1954] 26 ITR 27 (SC), as well as Gajapathy Naidu's case [1964] 53 ITR 114 (SC), make it perfectly clear that income is said to have accrued when a right to receive such income arises in favour of an assessee. In the present case, as in the other cases relating to land acquisition, there can be no doubt that the moment the property is taken over there is a right in the seller or owner of the property to receive compensation. Indeed, before the recent amendment of art. 31 of the Constitution no acquisition was at all possible without awarding compensation to the owner of the property. It seems to us that this right to receive compensation cannot be described as an inchoate right: it is a definite right in praesenti, the accrual of the compensation does not depend upon a requirement that it has to be quantified in accordance with the procedure outlined in the statute before the assessee can become entitled to any particular sum of money by way of compensat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at there are no two separate rights-one a right to receive compensation and the other, a right to receive extra or further compensation. Upon acquisition of his lands under the Land Acquisition Act the claimant has only one right which is to receive compensation for the lands at their market value on the date of the relevant notification and it is this right which is quantified by the Collector under s.11 and by the civil court under s. 26 of the Land Acquisition Act. It is true that under S.11 the Collector after holding the necessary inquiry determines the quantum of compensation by fixing the market value of the land and in doing so is guided by the provisions contained in ss. 23 and 24 of the Act-the very provisions by reference to which the civil court fixes the valuation. It is also true that the Collector's award is, under s. 12, declared to be, except as otherwise provided, final and conclusive evidence as between him and the persons interested. Even so, it is well settled that in law the Collector's award under s. 11 is nothing more than an offer of compensation made by the Govt. to the claimants whose property is acquired ...... If that be the true nature of the award mad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ond question poses this issue but we find it cannot be disposed of satisfactorily in the circumstances of this case. Normally, in cases of acquisition, interest runs from the date of dispossession to the date of payment and will be taxed, in the view we have taken, proportionately, i.e., in each year the interest in respect of the previous year will be liable to tax. But in the present case, the arbitrator has awarded interest for a period of 8 years. In the circumstances, can it be said that there is any interest proportionately relatable to that year, i.e., that can be said to have accrued from April 1, 1962, to March 31, 1963 ? We find that we are not called upon in this reference to answer this point as there has been no decision of the Tribunal thereon. The Vice-President and the judicial Member, in the view they took, had no occasion to consider it at all; only the Accountant Member answered it and he related the interest to the financial years 1949-50 to 1956-57. Thus, on this point, there was no effective decision. Now that we have disagreed with the view of the majority, the matter has to be considered afresh by the Tribunal and a decision given thereon. We, therefore, lea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... piry of the period of six months from the specified date on which the purchase took effect till the actual date of payment of the purchase money. The Punjab Electricity Act was repealed by Act 15 of 1960. But s. 3 of the Repealing Act provided that such repeal " shall not affect the validity, invalidity, effect or consequences of anything already done or suffered, or any right, title, obligation or liability already acquired or incurred, or any remedy or proceeding in respect thereof, or any release or discharge of or from any debt, penalty obligation, liability, claim or demand, or any indemnity already granted, or the proof of any past act or thing ". It is therefore, clear that though the Punjab Electricity Act was repealed, the right that had accrued to the assessee-company to claim interest as well as the liability of the Punjab State Electricity Board to pay interest to the assessee in terms of s. 4 survived. It is, however, urged that the arbitrator did not award interest in accordance with the formula mentioned in s. 4. On the other hand he awarded interest at a rate determined by him and for a period also determined by him. It is, therefore, contended that the interest whi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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