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TMI Blog1980 (9) TMI 8X X X X Extracts X X X X X X X X Extracts X X X X ..... fered due to delay in making the award under s. 48A of the said Act. Following an unreported decision of this court in Appeal from Original Decree No. 173 of 1953 entitled Kedarnath Jute Manufacturing Co. Ltd. v. State of West Bengal, the Calcutta Improvement Tribunal by its judgment and order dated the 22nd February, 1960, awarded a further compensation to the assessee as follows : Rs. (a) Compensation for damage 26,982.71 (b) Interest at 6 per cent on the above amount 3,507.75 (c) Cost 624.07 --------- 31,114.53 --------- In her assessment for the assessment year 1963-64 for which the relevant previous year ended on the 27th October, 1962, the assessee claimed that the said sum of Its. 31.114.53 was additional compensation for acquisition of her said land. The ITO, following an order of assessment in an earlier year in respect of the said initial compensation awarded to the assessee, held that Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... capital gains was leviable on the said sum of Rs 26,983 were obiter. There was no appeal nor any cross-objection from the decision of the AAC on this aspect of the matter. The said findings of the Tribunal have not been challenged by the Revenue by raising an appropriate question and the same is not in issue in this reference. Mr. Subas Sen, learned counsel for the Revenue, did not dispute such contention on behalf of the assessee. Mr. Sen, however, contended that the observations of the Tribunal that s. 12B(1) of the 1922 Act did not cover compulsory acquisition and hence the said sum was not taxable as capital gains were erroneous. In this connection he cited Mangalore Electric Supply Co. Ltd. v. CIT [1978] 113 ITR 655, where the Supreme Court held that the word " transfer " in s. 12B(1) of the 1922 Act included compulsory acquisition of property. Section 48A of the L.A. Act, 1894, as it stood before its amendment by the Calcutta Improvement (Amendment) Act, 1955, may be referred to all this stage : " 48A. Compensation to be awarded when land not acquired within two years.-(1) If within a period of two years from the date of the issue of the public notice under sub-s. ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed. The only damage proved by the assessee in the instant case was loss of interest on the amount of compensation for acquisition of her land due to delay in making the award which was compensated by the award made under s. 48A. In support of his contention Mr. Sen cited the following decisions i 1. An unreported decision of a Division Bench of this court in Appeal from Original Decree No. 182 of 1953, entitled Mirza Nasir Ali v. State of West Bengal. This was an appeal from a decision of the Calcutta Improvement Tribunal awarding compensation. The appellants contended that they were entitled to compensation under s. 48A of the L.A. Act for loss suffered by them for delay in making the award as the early receipt of the said compensation under the award could have been invested and would have earned interest. The respondents contended, on the other hand, that interest was specifically provided for in s. 34 of the said Act and not under s. 48A, which provided for damage suffered otherwise than by loss of interest. This court observed as follows : " It is true that s. 34 of the L.A. Act provided that the interest will be paid from the time of taking possession until the amoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bly be expected to derive income by investing the same and ordinarily interest is the measure of such income and compensation then would be for such loss of interest less, of course, the net income, if any, which the owner had derived from the property in the meantime. This deduction will be by way of mitigation of damages and the trust or the State is entitled to debit it under the law against damages claimed and in some cases it may even exceed the loss of interest and thus wipe off entirely the claim for damages under that head ...... On the owner's right to payment immediately on the making of the award, three sections are important, namely, s. II, s. 12 and s. 31. Section II speaks of the making of the award. Section 12 enjoins that it should be filed and immediate notice thereof should be given to the persons interested. Under s. 31 it is the duty of the Collector to tender payment of the compensation to the persons interested, entitled thereto according to the award, and to pay it to them. It is clear, therefore, that the owner is entitled to the compensation money immediately on the making of the award which, on proper reading of the three sections, ss. 11, 12 and 31, would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a premises with a printing press had been requisitioned by the Government for the duration of the war. The assessee, the owner of the press, had to shift its business elsewhere and recommenced its business sometime later. The assessee claimed compensation for the said requisition on various counts including for compulsory vacation of the premises, disturbance and loss of business and received Rs. 57,435 as compensation. The question arose whether the said sum was a capital receipt or a revenue receipt. The Supreme Court rejected the contention of the assessee that the said amount included compensation for loss of goodwill and held that it was compensation for loss of profits and thus a revenue receipt. 5. Senairam Doongarmall v. CIT [1961] 42 ITR 392 (SC). In this case the factories and other buildings of a tea estate were requisitioned under the Defence of India Rules while the tea garden remained in the possession of the owner. The owner received compensation under the Defence of India Rules calculated on the basis of the out-turn of tea which could have been manufactured. The dispute was whether the amount of such compensation was a revenue receipt or not. The Supreme Court fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3(2), of the L.A. Act. The assessee contended that such additional sum should be excluded in computing capital gains arising out of the acquisition as the same was a special compensation granted in consideration of the compulsory nature of the acquisition. The Gujarat High Court held that the said sum was a solatium by way of compensation for something other than property acquired which went to augment the compensation for the property acquired and formed part of the compensation received for the compulsory acquisition of the property and had to be taken into account in computing capital gains arising from such compulsory acquisition. 9. Mangalore Electric Supply Co. Ltd. v. CIT [1978] 113 ITR 655 (SC). Here the Supreme Court held that the expression " transfer" was comprehensive and included both voluntary and involuntary transfers and there was no reason for limiting the operation of the said word to voluntary acts of transfer only and to exclude compulsory acquisition of property. Mr. R. N. Bajoria, on the other hand, contended on behalf of the assessee that compensation under s. 48A of the L.A. Act for delay in making the award was a compensation for dereliction of duty by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owed to be deducted as would appear from the said two unreported Bench decisions of this court in Mirza Nazir Ali (Appeal from Original Decree No. 182 of 1953) and Kedarnath Jute Manufacturing Co. Ltd. (Appeal from Original Decree No. 173 of 1953). Mr. Bajoria further submitted that, in the above two unreported decisions, this court was concerned with what should be the measure of such damages and bow the same was to be determined and although the court adopted the measure of loss of interest on the amount of compensation for acquisition as the basis for determination of such compensation still what was granted by the court was compensation for damages. The court had no occasion to and did not consider the nature or character of the said compensation or of the receipt thereunder in the hands of the owner for the purposes of taxation. Mr. Bajoria further contended that possession of the said property was taken by the Collector on 19th Jan., 1960, and, therefore, transfer of the said property took place on that date. Under s. 12B of the Indian I.T. Act, 1922, capital gains, if any, resulting from the transfer including the said compensation for damages was taxable in the assessmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is the compensation allowed by law or fixed by the parties for the use or forbearance or detention of money..." (b) Jowitt's Dictionary of English Law (2nd Edn., 1977), p. 996. Interest : ... Interest also signifies a sum payable in respect of the use of another sum of money, called the principal. Interest is calculated at a rate proportionate to the amount of the principal and to the time during which non-payment continues : Interest is of two kinds, namely, that which is agreed to be paid on a loan, and that payable as damages for the non-payment of a debt or other sum of money on the proper day. In equity, interest seems to have been allowed as damages in all cases where there was a wrongful detention of money which ought to have been paid (Hyde v. Price [1837] Coop Pr. Cas 193). In support of his contentions, Mr. Bajoria cited the following decisions : 1. Glenboig Union Fireclay Co. Ltd. v. IRC [1922] 12 TC 427 (HL). In this case the Glenboing Union Fireclay Company Ltd., the appellant, had rights for mining fireclay in certain properties, over a part of which lines of a railway company were laid, the latter having a right over the surface of the land. Litig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce stood to his credit in the said banks. He died during the war. After the end of the war the executors of his estate recovered certain amounts from the Anglo-German Mixed Arbitral Tribunal. The money so recovered fell into five categories which included capital, dividend and interest paid by the banks to the custodian of enemy property in Germany together with compensation for damage or injury to property, right of interest, etc. The taxing authorities in England sought to tax the said receipts as income. One of the questions was as to what was the nature of the compensation received by the estate. Lord Hanworth M.R. observed as follows (p. 602) : " For withholding this sum, for preventing Mr. Kay, or his executors, exercising the power of disposition over his property, the Germans have been compelled to pay compensation. The way to estimate that compensation or damages-the sensible way no doubt-would be by calculating, a sum in terms of what interest it would have earned. That has been done, but the sum that was paid has not been turned into interest so as to attach income tax to it. It remains compensation ...... .." and Lawrence L.J. observed as follows (p. 605): " I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. Lord Wright observed as under (p. 512): " If Captain Woolf Barnato as the beneficiary had been paid the proper sum at the time when he ought to have been paid the proper sum if the accounts had been kept in due order ... he would have had that money in his hands and the beneficial use of it at the proper time, and it was owing, not to any fraud, as the case has proceeded on the part of the defendants, but owing to their negligence and improper accounting, that he was deprived of that money for all that time, and he was entitled, according to the ordinary law, either to the profits or to interest and I see no reason at all why the appropriate sums payable under the admissions embodied in the consent order of Romer J. should not be treated as interest here in the ordinary sense. " 5. London Thames Haven Oil Wharves Ltd. v. Attwooll (H. M. inspector of Taxes) [1966] 43 TC 491, 493; [1968] 70 ITR 460 (CA): Here the assessee owned a jetty which was damaged by the negligent navigation of a tanker. The jetty was repaired at a cost of pounds 83,168. The assessee also lost the use thereof for 380 days which was quantified at i 32,450. The owners of the tanker admitted liability b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which legal obligations arise. But the source of a legal right is relevant to the first problem involved in the application of the rule to the particular case, namely, to identify what the compensation was paid for. If the solution to the first problem is that the compensation was paid for the failure of the trader to receive a sum of money, the second problem involved is to decide whether, if that sum of money had been received by the trader, it would have been credited to the amount of profits (if any) arising in any year from the trade carried on by him at the date of receipt, that is, would have been what I shall call for brevity an income receipt of that trade, The source of the legal right to the compensation is irrelevant to the second problem. The method by which compensation has been assessed in the particular case does not identify what it was paid for; it is no more than a factor which may assist in the solution of the problem of identification. " 6. Dr.Shamlal Narula v.CIT [1964] 53 ITR 151(SC):In this case lands in the town of Patiala owned by an HUF was acquired. The proceedings were initiated by the Patiala State which merged with the Union of Pepsu which ultimate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of his money by the State. In this view there cannot be any difference in the legal position between a case where possession has been taken before and that where possession has been taken after the award, for in either case the title vests in the Government only after the possession has been taken. The legislature expressly used the word 'interest' with its well-known connotation under section 34 of the Act. It is, therefore, reasonable to give that expression the natural meaning it bears ...... interest, whether it is statutory or contractual, represents the profit the creditor might have made if he had the use of the money or the loss he suffered because he had not that use. It is something in addition to the capital amount though it arises out of it. Under section 34 of the Act when the legislature designedly used the word ' interest ' in contradistinction to the amount awarded, we do not see any reason why the expression should not be given the natural meaning it bears. " 7. S. R. Y. Sivaram Prasad Bahadur v. CIT [1971] 82 ITR 527 (SC) Here certain estates of an HUF vested in the State under the Madras Estates (Abolition and Conversion into Ryotwari) Act, 1948, for which th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imes unauthorisedly, the view is that there has been deprivation of property and the interest paid by the Government is merely compensation for deprivation of such property. The fact that compensation that is payable for such deprivation is calculated on percentage of interest on that amount does not affect the question. It is still compensation for deprivation of property. " Mr. Suhas Sea submitted in reply that in none of the English authorities cited by Mr. Bajoria compensation was given for loss of profit or interest but the measure of damages or compensation was determined on the basis of interest. Mr. Sea referred to a decision of the House of Lords in Riches v. Westminster Bank [1947] 15 ITR (Suppl) 86, where the decision in Executors of Bonner Maurice as Executors of Edward Kay [1929] 14 TC 580 (CA), was not followed and the Supreme Court in Dr. Shamlal Narula's case [1964] 53 ITR 151 cited with approval the said decision of the House of Lords in Westminster Batik Ltd.. Mr. Sea next referred to the decision of the Privy Council in Raja's Commercial College V. Gian Singh Co. Ltd. [1976] 2 All ER 801, where the Privy Council observed that Bonner Maurice's case was of a ve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proceedings under ss. 35 and 48 of the Act, respectively. The observations of the Division Bench of this court in Kedarnath Jute Manufacturing Co. Ltd. (Appeal from Original Decree No. 173 of 1953) that the owner is normally entitled to the compensation for the property as it exists on the date of publication of the declaration under s. 6 has to be read in the above context. What their Lordships meant was that when acquisition has been completed and possession has been taken by the Government divesting the persons interested of their right, title and interest in the property, the persons interested would be entitled to compensation for the property from the date of publication of the declaration under s. 6 and not from any anterior date. Their Lordships did not lay down that as soon as a declaration under s. 6 has been made irrespective of whether the land is subsequently acquired and possession is taken or not or the land is withdrawn from the acquisition and possession is never taken, the persons interested would in all cases be entitled to compensation for acquisition of the property from the date of publication of the declaration under s. 6. The several provisions of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loss of interest on the ultimate amount of compensation for acquisition but that is merely a measure adopted for the purpose of determining such compensation. The two unreported decisions of the Division Bench of this Court in Mirza Nasir Ali (Appeal from Original Decree No. 182 of 1953) and Kedarnath Jute Manufacturing Co. Ltd. (Appeal from Original Decree No. 173 of 1953) in our opinion do not lay down that the compensation for damages under s. 48A of the Act was or could be loss of interest suffered by the owner for delay in making the award. In those cases claims for compensation for damages due to delay in making the award were made on the basis of loss of interest on the amount of compensation. Arguments were accordingly advanced on behalf of the claimant that the compensation, under s. 48A should be determined on the basis of loss of interest suffered by the claimant on the amount of compensation. The court, therefore, allowed compensation under s. 48A on that basis. In the said cases the court neither considered nor decided the nature or character of the compensation paid by the Government and received by the claimant nor was it called upon to do so. That the compensati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and usufructs of the property sought to be acquired. No right to receive, the compensation money having accrued to the assessee during the period of the delay contemplated under s. 48A of the said Act, nor any amount of compensation being ascertained, the compensation paid to the assessee under the said section could not be loss of interest suffered by the assessee for deprivation of profitable use of the compensation money. In our view, a hypothetical loss of interest on the amount of compensation might be a good measure for a determination of the compensation under s. 48A but the same could not affect the nature or character of the receipt of such compensation in the hands of the assessee. Thus the amount of compensation under s. 48A being neither loss of profit nor loss of interest the receipt thereof in the hands of the assessee does not appear to have the character of a revenue receipt. Such an amount appears to be of the nature of a casual receipt of a non-recurring character arising out of particular statutory provision. Even otherwise, such a receipt is more in the nature of a capital receipt and does not have the characteristic of income. For the above reasons the ques ..... X X X X Extracts X X X X X X X X Extracts X X X X
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