Dr. Shamlal Narula Vs. Commissioner of
Income-Tax, Punjab [1964] INSC 115 (9 April 1964)
09/04/1964 SUBBARAO, K.
SUBBARAO, K.
SHAH, J.C.
SIKRI, S.M.
CITATION: 1964 AIR 1878 1964 SCR (7) 668
CITATOR INFO:
F 1967 SC 657 (4) F 1968 SC 129 (6,9) R 1970 SC1582
(4) R 1970 SC1702 (3) R 1972 SC 260 (9)
ACT:
Income Tax-Land acquired-Award made by
Collector--Interest on compensation awarded-If interest amounted to a part of
compensation-Indian Income-tax Act, 1922 (11 of 1922), ss. 3, 4--Land
Acquisition Act, 1894, s. 34.
HEADNOTE:
The State acquired the land of the appellant.
The Collector made an award under the Land Acquisition Act as a result of which
the appellant received Rs. 2,81,822/-, which included a sum of Rs. 48,660/as
interest upto the date of the award. 'The Income-tax Officer included Rs.
48,660/(the said interest) in the total income of the appellant on the ground
that the said amount was not a capital receipt. The matter went upto the
Income-tax Appellate Tribunal. The Tribunal excluded the said interest from the
total income of the assessee (appellant) on the ground that it was a capital
receipt. On a reference the High Court held that the said interest was not a
capital but a revenue receipt and as such liable to tax under the Indian Income-tax
Act. The High Court granted a certificate to the appellant to file an appeal to
the Supreme Court. Hence the appeal.
Held: (i) The scheme of the Land Acquisition
Act and the express provisions thereof establish that the statutory interest
payable under s. 34 is not compensation paid to the owner for depriving him of
his right to possession of the land acquired, but that given to him for the
deprivation of the use of the money representing the compensation for the land
acquired. In other words the statutory interest paid under s. 34 of the Act is
interest paid for the delayed payment of the compensation amount and,
therefore, is a revenue receipt liable to tax under the Income-tax Act.
Behari Lal Bhargava v. Commissioner of
Income-tax, C.P. and U.P., (1941), 9 I.T.R. and P. V. Kurien, v. Cmmissioner of
Income-tax, Kerala, (1962), 46 I.T.R. 288, overruled.
Westminister Bank Ltd. v. Riches, (1947), 28
T.C. 159, Commissioner of Income-tax, Madras v. CT. BM. N. Narayanan Chettiar,
(1943), 11 T.T.R. 470 and Commissioner of Income tax Bihar and Orissa v.
Maharajadhiraj Sir Kameshwar Singh, (1953), 23 I.T.R. 212, approved.
Inglewood Pulp and Paper Co. Ltd. v. New
Brunswaick Electric Power Commission, A.I.R. 1928 P.C. 287 and Revenue
Divisional Officer, Trichinopoly v. Venkatarama Ayyar, A.I.R. 1936 Mad. 199,
distinguished.
Shaw Wallace's case, A.I.R. 1932 P.C. 138,
Schulze v Bensted, (1915), 7 T.C. 30, and Commissioner of Inland Revenue v.
Barnato, (1934-36), 20 T.C. 455, referred to.
(ii) The interest under s. 34 of the Land
Acquisition Act shall be paid on the amount awarded from the time the Collector
take possession until the amount is paid or deposited. It 669 makes no
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 possession has been
taken.
In no sense of the term can it (interest) be
described as damages or compensation for the owner's right to, retain
Possession, for as he has no right to retain possession after possession was
taken under s. 16 or s. 17 of the Act.
CIVIL APPELLATE JURISDICTION: Civil Appeal
No. 503 of 1963.
Appeal from the judgment and order dated
January 31, 1962, of the Punjab High Court in I.T.R. No. 28 of 1960.
B. N. Kripal and A. N. Kripal, for the
appellant.
Gopal Singh and R. N. Sachthey, for the
respondent.
April 9, 1964. The judgment of the Court was
delivered by SUBBA RAO, J.-This appeal by certificate granted by the High Court
of Punjab raises the question whether interest paid under s. 34 of the Land
Acquisition Act, 1894, hereinafter called the Act, is of the nature 'of a
capital receipt or of a revenue receipt.
The relevant facts are not in dispute and
they may be briefly stated. The appellant, Dr. Shamlal Narula, is the Manager
of a Hindu undivided family, which owned, inter alia, 40 bighas and 11 biswas
of land in the town of Patiala. The Patiala State Government initiated land
acquisition proceedings for acquiring the said land under Regulation then
prevailing in the Patiala State. It is common case that the State Regulations
are in pari materia with the provisions of the Act. The State of Patiala first
merged into the Union of Pepsu and later the Union of Pepsu merged into the
State of Punjab. It is also common case that there was a Land Acquisition Act
in the Union of Pepsu containing provisions similar to those obtaining in the
Act.
On October 6, 1953, the Act was extended to
the Union of Pepsu. On September 30, 1955, the Collector of Patiala made an
award under the Act ,as a result of which the appellant received on December 1,
1955, a sum of Rs. 2,81,822/-, which included a sum of 48,660/as interest up to
the date of the award. For the year 1956-57, the Income-tax Officer included
the said interest in the income of the Hindu undivided family of which the
appellant is the manager, and assessed the same to income-tax, after overruling
the appellant's contention that the said interest was a capital receipt and,
therefore, not liable to tax. On June 14, 1957, the Appellate Assistant
Commissioner confirmed the order of the Income-tax Officer. The Appellant
preferred an appeal to the Income-tax Appellate Tribunal. The said Tribunal by
its order dated July 9, 1957, held that 670 the said amount representing the
interest was a capital receipt and on that finding the said amount was excluded
from the total income of the assessee. At the instance of the Commissioner of
Income-tax the said Tribunal referred the following question to the High Court
of Punjab under s. 66(1) of the Income-tax Act, 1922:
"Whether on a true interpretation of
section 34 of the Land Acquisition Act and the Award given by the Collector 'of
Pepsu on the 30th September, 1955, the sum of Rs. 48,660/-, was captital
receipt not liable to tax under the Indian Income tax Act?" The said
reference was heard by a Division Bench of the High Court and it held that the
said amount was not a capital but a revenue receipt and as such liable to tax
under the Indian Income-tax Act. Hence the present appeal.
Learned counsel for the appellant raised
before us two contentions, namely, (i) the sum of Rs. 4.8,660/received by the
appellant under the award was compensation for deprivinl,7 him of his right to
possession of his property and was therefore, a capital receipt not liable to
tax; and (ii) whatever may be the character of the amount awarded under s. 34
of the Act by way of interest in a case where possession of the land has been
taken by the State after the award, in a case where possession of the land
acquired has been taken before the award, it would be a capital receipt, for it
is said that in the latter the interest necessarily takes the character of
compensation for depriving the owner of the land his, right to possession.
On behalf of the Revenue the order of the
High Court is sought to be sustained for the reasons stated therein.
The question raised turns upon the true
meaning of the provisions of s. 34 of the Act. It reads:
"When the amount of such compensation is
not paid or deposited on or before taking possession of the land, the Collector
shall pay the amount awarded with interest thereon at the rate 'of six per
~centum per ~annum from the time of so ~taking possession until it should have
been so paid or deposited".
The section itself makes a distinction
between the amount awarded as compensation and the interest payable on the,
amount so awarded. The interest shall be paid on the amount awarded from the
time the Collector takes possession until the amount is paid or deposited. To
appreciate the scope of the section it is necessary to notice briefly the scope
of an award and the manner in which possession is taken under the Act. After
the statutory notifications are issued and the 671 requisite notice is given to
the persons interested in the land so acquired, the Collector, after holding
the necessary enquiry, makes an award, inter alia, determining the amount of
compensation payable for the land so acquired. Section 15 in of the Act says
that in determining the amount of compensation the Collector shall be guided by
the provisions contained in ss. 23 and 24. Section 23 provides for the matters
to be considered in determining compensation; s. 24 describes the matters to be
neglected in determining the compensation. A perusal of the provisions of s. 23
shows that interest is not an item included in the compensation for any of the
matters mentioned therein; nor is it mentioned as a consideration for the
acquisition of the land. Under cl. (2) of s. 23, the Legislature in express
terms states that in addition to the market value of the land the court shall
in every case award a sum of 15 per cent. of such market value in consideration
of -the compulsory nature of the acquisition. If interest on the amount of
compensation determined under s. 23 is considered to be a part of the
compensation or given consideration of the compulsory nature of the
acquisition, the Legislature would have provided for it in s. 23 itself. But
instead, payment of interest is provided for separately under s. 24 in Part V
of the Act under the heading "Payment". It is so, done, because
interest pertains to the domain of payment after the compensation has been
ascertained. It is a consideration paid either for the use of the money or
forbearance from demanding it after it has fallen due.
Therefore, the Act itself makes a clear
distinction between the compensation payable for the land acquired and the
interest payable on the compensation awarded.
Another approach to the problem leads to the
same result.
Under s. 16 of the Act when the Collector has
made an award under s. 11 he may take possession of the land which shall
thereupon vest absolutely in the Government free from all encumbrances. Under
s. 17 thereof:
"In cases of urgency, whenever the
appropriate Government so directs, the Collector, though no such award has been
made, may, on the expiration of fifteen days from the publication of the notice
mentioned in section 9, sub-section (1), take possession of any waste land or
arable land needed for public purposes or for a Company.
Such land shall thereupon vest absolutely in
the Government, free from all encumbrances".
Under both the sections the land acquired
vests absolutely in the Government after the Collector has taken possession in
one case after the making of the award and in the other, even 672 before the
making of the award. In either case, some time may lapse between the taking of
possession of the acquired land by the Collector and the payment or deposit of
the compensation to the person interested in the land acquired. As the land
acquired vests absolutely in the Government only after the Collector has taken
possession of it, no interest therein will be outstanding in the claimant after
the taking of such possession: he is divested of his title to the land and his
right to possession thereof, and both of them vest thereafter in the
Government. Thereafter he will be entitled only to be paid compensation that
has been or will be awarded to him. He will be entitled to compensation, though
the ascertainment thereof may be postponed, from the date his title to the land
and the right to possession thereof have been divested and vested in the
Government. It is as it were that from that date the Government withheld the
compensation amount which the claimant would be entitled to under the
provisions of the Act. Therefore, a statutory liability has been imposed upon
the Collector to pay interest on the amount awarded from the time of the taking
possession until the amount is paid or deposited. This amount is not,
therefore, compensation for the land acquired or for reprint the claimant of
his right to possession, but is that paid to the claimant for the use 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 possession has been taken.
The Legislature expressly used the word
"interest" with its well known connotation under s. 34 of the Act. It
is, therefore, reasonable to give that expression the natural meaning it bears.
There is an illuminating exposition of the expression "interest" by
the House of Lords in Westminster Batik, Ltd. v. Riches(1). The question there
was whet tier where in an action for recovery of any debt or damages the court
exercises its discretionary power under a statute and orders that there shall
be included in the sum for which the judgment is given interest on the debt or
damages, the sum of interest so included is taxable under the Income-tax Acts.
If the said amount was "interest of money" within Schedule D and the
General Rule 21 of the All Schedules Rules of the Income Tax Act, 1918,
income-tax was payable thereon. In. that context it was contended that money
awarded as damages for the detention of money was not interest and bad not the
quality of interest. Lord Wright observed:
"The general idea is that he is entitled
to compensation for the deprivation. From that point of view (1) (1947) 28 T.C.
159, 189.
673 it would seem immaterial whether the
money was due to him under a contract express or implied, or a statute, or
whether the money was due for any other reason in law. In either case the money
was due to him and was not paid or, in other words, was withheld from him by
the debtor after the time when payment should have been made, in breach of his
legal rights, and interest was a compensation, whether the compensation was
liquidated under an agreement or statute, as for instance under section 57 of
the Bills of Exchange Act, 1882, or was unliquidated and claimable under the
Act as in the present case. The essential quality of the claim for compensation
is the same, and the compensation is properly described as interest".
This passage indicates that 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 s. 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.
The scheme of the Act and the express
provisions thereof establish that the statutory interest payable under s. 34 is
not compensation paid to the owner for depriving him of his right to possession
of the land acquired, but that given to him for the deprivation of the use of
the money representing the compensation for the land acquired.
We shall now proceed to consider the case law
cited at the Bar. Where a Tribunal directed the Improvement Trust, under the
provisions of s. 28 of the Land Acquisition Act, to pay interest to the
assessee from the date of taking possession ,of the property to the date of
payment, a Division Bench of the Allahabad High Court held, in Behari Lal
Bhargava v. Commissioner of Income-tax, C. P. and U. P. (1), that the interest
so awarded was in the nature of compensation for the loss of the assessee's
right to retain possession of the property acquired and, therefore, was no
income liable to tax. The reason for the said conclusion is stated thus:
"It is not the "fruit of a
tree"-to borrow the simile used in Shaw Wallace's case (2)-but was
compensation or damages for loss of the right to re (1) (1941) 9 I.T.R. 9, 24.
(2) A.I.R. 1932 P.C. 138.
LP(D)lSC-22 . .
674 tain possession; and it seems to us that
Section 28 was designed as a convenient method of measuring such damages in
terms of interest".
As we have pointed out earlier, as soon as
the Collector has taken possession of the land either before or after the award
the title absolutely vests in the Government and thereafter owner of the land
so acquired ceases to have any title or right of possession to the land
acquired. Under the award he gets compensation for both the rights.
Therefore, the interest awarded under s. 28
of the Act, just like under s. 34 thereof, cannot be a compensation or damages
for the loss of the right to retain possession but only compensation payable by
the State for keeping back the amount payable to the owner. Adverting to the
said decision a Division Bench of the Madras High Court in Commissioner of
Income-tax, Madras v. CT. RM. N. Narayanan Chettiar(1) observed:
"........... with great respect we find
ourselves unable to follow the reasoning.
Certainly we are not prepared to accept the
judgment as a guide to the decision in the present case".
So was the interest granted to an assesse
under s. 18A of the Income-tax Act on the advance payment of tax by him under
the provision of that section held to be income taxable in his hand: see Commissioner
of Income-tax, Bihar and Orissa v. Maharajadhiraj Sir Kameshwar Singh(2). There
when the decision of the Allahabad High Court in Behari Lal Bhargava's case(3)
was relied upon, the learned Judges,.
refusing to follow it, observed thus:
"It is not a matter of discussion for
the Central Government but the duty to pay interest is imposed by statute.
Apart from this I think (with great respect) that the Allahabad decision is of
doubtful authority.
The decision is not consistent with the
principle laid down in Schulze v. Bensted(1) and Commissioners of Inland
Revenue v.
Barnato(5). The Madras High Court expressly
declined to follow the Allahabad case in Commissioner of Income-tax v.
Narayanan Chettiar(1)." The Kerala High Court in P. V. Kurien v. Commissioner
of Income-tax, Kerala(6) held that interest paid on the enhanced amount of
compensation directed to be paid by an appellate (1) (1943) 11 I.T.R. 470, 477.
(2) (1953) 23 I.T.R. 212, 225.
(3) 9 I.T.R. 9.
(4) (1915) 7 T.C. 30.
(5) (1934-36) 20 T.C. 455.
(6) (1962) 46 I.T.R. 288.
675 court in an appeal against an award of
compensation for compulsory acquisition of land under the Land Acquisition Act
represented capital and was not income liable to be taxed under the Indian
Income-tax Act. It was argued there, sum estimated in terms of interest. In
coming to the conclusion which they did, the learned Judges relied upon the
decision of the Judicial Committee in Inglewood Pulp and Paper Co., Ltd. v. New
Burnswick Electric Power Commission(1) and that of the Madras High Court in
Revenue Divisional Officer, Trichinopoly v. Venkatarama Ayyar(2). In the
former, the Judicial Committee directed the purchaser who had taken delivery
and possession of the property he had purchased before the sale to pay interest
to the vendor on the purchase money from the date he had taken possession on
the ground that "the right to receive interest takes the place of the
right to retain possession and is within the rule"; and in the latter,
though it arose under the Land Acquisition Act, possession was taken by the
Government under circumstances falling outside the scope of ss. 16 and 17 of
the said Act. In both the cases the title did not pass to the vendee in one
case and to the State in the other when possession was taken by them and,
therefore, it may be said that the owner was given interest in place of his
right to retain possession of the property. But in a case where title passes to
the State, the statutory interest provided thereafter can only be regarded
either as representing the profit which owner 'of the land might have made if
he had the use of the money or the loss he suffered because he had not that
use. In no sense of the term can it be described as damages or compensation for
the owner's right to retain possession, for he has no right to retain
possession after possession was taken under s. 16 or s. 17 of the Act. We,
therefore, hold that the statutory interest paid under s. 34 of the Act is
interest paid for the delayed payment of the compensation amount and, therefore,
is a revenue receipt liable to tax under the Income-tax Act. The order of the
High Court is, therefore, correct.
In the result, the appeal fails and is
dismissed with costs.
Appeal dismissed.
(1) A.I.R. 1928 P.C. 287. (2) A.I.R. 1936
Mad. 199.
L/ P(D) ISCI--22(a) . .
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