Commissioner of Income-Tax, West
Bengal, Calcutta Vs. Hindustan Housing & Land Development Trust Limited
[1986] INSC 151 (29 July 1986)
PATHAK, R.S.
PATHAK, R.S.
MUKHARJI, SABYASACHI (J)
CITATION: 1986 AIR 1805 1986 SCR (3) 390 1986
SCC (3) 641 JT 1986 2 1986 SCALE (2)142
ACT:
Income-tax Act, 1922 s. 4(1)(b)(i)/Income-tax
Act, 1961: s. 5(1)(b)-Acquisition of land-Additional compensation
received-liability to tax-Income whether could be deemed to have accrued or
arisen during the relevant assessment year.
HEADNOTE:
During the pendency of the appeal by the
State against an arbitrator's award made on July 29, 1955 enhancing the
original amount of compensation the Government deposited the extra amount,
which the assessee was permitted to withdraw on May 9, 1956 on furnishing
security. During the assessment proceedings for the relevant assessment year
the Income-tax Officer brought that amount to tax as the assessee's business
income. The Appellate Tribunal, however, accepted the assessee's contention that
the amount could not be said to have accrued to the assessee as its income
during the relevant previous year, and therefore, was not liable to tax in the
particular assessment year. The High Court answered the question referred in
favour of the assessee and against the Revenue.
Dismissing the appeal of the Revenue, this
Court, ^
HELD: It is only on the final determination
of the amount of compensation that the right to such income in the nature of
compensation arises or accrues and till then there is no liability in praesenti
in respect of the additional amount of compensation claimed by the owner of the
land.
[396G] There is a clear distinction between
cases where the right to receive payment is in dispute and it is not a question
of merely quantifying the amount to be received, and cases where the right to
receive payment is admitted and the quantification only of the amount payable
is left to be determined in accordance with settled or accepted principles.
[396H;397A-B] 391 In the instant case, although the award was made by the
arbitrator on July 29, 1955 enhancing the amount of compensation payable to the
assessee, the entire amount was in dispute in the appeal filed by the
Goverment. There was no absolute right to receive the amount at that stage, for
if the appeal had been allowed in its entirety the right to payment of the
enhanced compensation would have fallen altogether. The sum, therefore, could
not be said to have accrued or arisen during the relevant assessment year.
[393G; 394A-B] E.D. Sassoon & Company
Ltd. and others v. Commissioner of Income-tax, Bombay City, [1954] 26 ITR 27,
Commissioner of Incometax v. Jai Parkash Om Parkash Co. Ltd., (1961) 41 ITR
718, Pope The King Match Factory v. Commissioner of Income-tax, [1963] 50 ITR
495, Khan Bahadur Ahmed Alladin & Sons v. Commissioner of Income-tax,
[1969] 74 ITR 651, Topandas Kundanmal v. Commissioner of Income-tax, Gujarat,
[1978] 114 ITR 237, Harish Chandra Raj Singh v. The Deputy Land Acquisition
Officer & Anr., [1962] 1 SCR 676 and Additional Commissioner of Income-tax,
Gujarat, v. New Jehangir Vakil Mills Co. Ltd., (1979) 117 ITR 849, referred to.
Kedarnath Jute Mfg. Co. Ltd. v. Commissioner
of Income- Tax (Central), Calcutta, [1971] 82 ITR 363, distinguished.
CIVIL APPELLATE JURISDICTION: Civil Appeal
No. 1126 (NT) of 1974 From the Judgment Order dated 9th January, 1973 of the
Calcutta High Court in Income Tax Reference No. 5 of 1967.
V.S. Desai, Dr. M.B. Rao and Miss A.
Subhashini for the Appellant.
Nemo for the Respondent.
The Judgment of the Court was delivered by
PATHAK, J. This appeal by certificate granted by the High Court is directed
against the judgment of the Calcutta High Court answering the following
question in the negative:
"Whether on the facts and in the
circumstances of the case, the extra amount of compensation amounting to Rs.
392 7,24,914 was income arising or accruing
to the assessee during the previous year relevant to the assessment year
1956-57." The assessee, who is the respondent before us, is a limited
company dealing in land. It maintains its accounts on the mercantile system. By
an order dated June 21, 1946 under rule 75A(1) of the Defence of India Rules
read with s.
19 of the Defence of India Act, 1939 certain
plots of land measuring about 19.17 acres in village Kankulia in the District
of 24 Parganas and belonging to the assessee, were requisitioned by the
Government of West Bengal. Subsequently the land was acquired permanently in
the State Government under s.5, Requisition of Land (Continuance of Powers)
Act, 1951 by a notice of acquisition dated December 27, 1952 published in the
Gazette dated January 8, 1953. The Land Acquisition Officer awarded a sum of
Rs.24,97,249 as compensation payable to the assessee. The assessee was not
satisfied with the amount of compensation, and preferred an appeal before the
Arbitrator, 24 Parganas, Calcutta. The Arbitrator made an award dated July 29,
1955 whereby he fixed the amount of compensation at Rs.30,10,873 on account of
the permanent acquisition of the land, thus enhancing the original amount of
compensation by Rs.5,13,624 on which he directed interest at 5 per cent per
annum from January 8, 1953, the date of acquisition, to the date of payment.
The Arbitrator also directed that further recurring compensation at Rs.6272/10/4
per mensem should be paid to assessee from the date of requisition till the
date of the acquisition.
The State Government now appealed to the High
Court and during the pendency of the appeal on April 25, 1956 it deposited
Rs.7,36,691, which the assessee was permitted to withdraw on May 9, 1956 on
furnishing security. On receipt of the amount the assessee credited it in its
suspense account on the same date.
During the assessment proceedings for the
assessment year 1956-57, the relevant accounting period being the year ended
March 31, 1956 the Income Tax Officer brought to tax a sum of Rs.7,24,914 in
the assessee's business income. This represented the difference between the sum
of Rs.7,37,190 payable to the assessee in terms of the award dated July 29,
1956 of the Arbitrator and a sum of Rs.12,276 out of that amount which had
already been assessed to tax. The Income tax Officer treated the sum as liable
to income-tax during that year on the basis that the income accrued to the
assessee on the date of the award.
393 The assessment was confirmed by the
Appellate Assistant Commissioner of Income-tax on first appeal. In second
appeal by the assessee before the Income-tax Appellate Tribunal, two
contentions were raised by it. It was urged that the amount of compensation
received by the assessee was not a receipt of a revenue nature. It was also
contended that in any event the amount did not accrue to the assessee as its
income during the relevant previous year ended March 31, 1956. The Appellate
Tribunal rejected the first contention and held that the compensation received
by the assessee related to the acquisition of land which was the stock-in-
trade of the assessee, and was, therefore, a trading receipt of the business
carried on by the assessee, and therefore, a receipt of a revenue nature liable
to tax. The Appellate Tribunal, however, accepted the other contention that the
sum of Rs.7,24,914 was not taxable in the assessment year 1956-57. It allowed
the appeal accordingly by its order dated February 22, 1964. At the instance of
the Revenue the Appellate Tribunal referred the question of law set out earlier
to the Calcutta High Court for its opinion, and by its judgment dated January
9, 1973 the High Court answered the question in favour of the assessee and
against the Revenue.
The question raised in this appeal is limited
to the point whether on the facts and circumstances of the case the Revenue can
claim that the sum of Rs.7,24,914 payable to the assessee as compensation can
be said to have accrued to it as income during the previous year ended March
31, 1956 relevant to the assessment year 1956-57. Now as long ago as E.D.
Sassoon & Company Ltd. and others v. Commissioner of Income-tax, Bombay
City, [1954] 26 ITR 27 this Court considered the question as to the point at
which income could be said to accrue or arise to an assessee for the purpose of
the Indian Income Tax Act. In the majority judgment delivered by N.H. Bhagwati,
J. it was explained that the words "arising or accruing" describe a
right to receive profits, and that there must be a debt owed by some body.
"Unless and until there is created in favour of the assessee a debt due by
somebody", it was observed "it cannot be said that he has acquired a
right to receive the income or the income has accrued to him". In the
present case, although the award was made by the Arbitrator on July 29, 1955
enhancing the amount of compensation payable to the assessee, the entire amount
was in dispute in the appeal filed by the State Government. Indeed, the dispute
was regarded by the Court as real and substantial, because the assessee was not
permitted to withdraw the sum of Rs.7,36,691 deposited by the State Government
on April 25, 1956 without furnishing a security bond for refunding the amount
in 394 the event of the appeal being allowed. There was no absolute right to
receive the amount at that stage. If the appeal was allowed in its entirety the
right to payment of the enhanced compensation would have fallen altogether.
This is a case which must be distinguished from that decided by this Court in
Kedarnath Jute Mfg. Co. Limited. v. Commissioner of Income-Tax (Central),
Calcutta., [1971] 82 ITR 363 where the liability to sales tax arose immediately
on a dealer affecting sales which were subject to sales tax and what remained
to be done was a mere quantification of that liability. The case compares
rather with Commissioner of Income-tax v. Jai Parkash Om Parkash Co. Ltd.
[1961] 41 ITR 718. The very foundation of the claim made by the assessee was in
serious jeopardy and nothing would be due if the appeal was decided against the
assessee. Our attention has been drawn by the Revenue to Pope The King Match
Factory v.
Commissioner of Income-tax, [1963] 50 ITR
495. That case, however, proceeded on the basis that excise duty was payable
and its quantification alone remained to be decided in the appeal. We may point
out that the Andhra Pradesh High Court, dealing with the taxability of
compensation received under the Land Acquisition Act in Khan Bahadur Ahmed Alladin
& Sons. v. Commissioner of Income-tax, [1969] 74 ITR 651 held that when
land was taken over by the Government the right of the owner to compensation
was an inchoate right until the compensation had been actually determined and
had become payable. It was observed that the enhanced compensation accrued to
an assessee only when the Court accepted the claim and not when the land was
taken over by the Government. Examining the question whether income could be
said to have accrued to the assessee on the date when possession of the land
was taken by the Government for the purpose of assessment to tax in the year of
assessment P.
Jaganmohan Reddy, C.J., speaking for the
Court, said:
"If the actual amount of compensation
has not been fixed, no income could accrue to him. It cannot be contended that
the mere claim by the assessee, after taking of possession, at a particular
rate or for a certain sum is the compensation. It is the amount actually
awarded by the Collector or subsequently decreed by the court which accrues to
him, and the respective amounts, whether awarded by the Collector or the court
accrue on the respective dates on which the award or the decree is passed.
Income-tax is not levied on a mere right to receive compensation; there must be
something tangible, something in the nature of a debt, 395 something in the
nature of an obligation to pay an ascertained amount. Till such time, no income
can be said to have accrued ...................... On the date when the
Collector awarded the compensation, it is only that amount which had accrued or
deemed to accrue, whether in fact paid or not. But by no stretch of the words
in section 4(1)(b)(i), could it be said that the right to enhanced
compensation, which has not yet been accepted by the proper forum, namely, the
court, has become payable on the date when the original compensation become
payable, for being included in that year of assessment. The enhanced
compensation accrues only when it becomes payable, i.e., when the court accepts
the claim. As has been stated earlier, a mere claim by the assessee, after
taking of possession of the land, at a particular rate or for a certain sum is
not compensation. It must not be forgotten that, even if a court was awarded
enhanced compensation, there is a right of appeal by the Government to the High
Court, and the High Court may either disallow that claim or reduce the
compensation. As against that judgment, there is further right of appeal to the
Supreme Court. The assessee also can appeal against the insufficiency of the
enhanced compensation. Can it be said that the final determination by the
highest court of the compensation would entitle the Income-tax Officer,
notwithstanding the period of limitation fixed under the Income-tax Act, to
reopen the assessment in which he had included the initial compensation awarded
by the Collector and recompute the entire income on the basis of the final
compensation? We do not think there can be any justification for such a
proposition. On a proper construction of the terms 'accrue' or 'arise', we are
of the view that such an interpretation cannot be placed. The interpretation
given by us does not affect the interests of the revenue. At the same time, it
safeguards the assessee and prevents harassment.
To hold otherwise would be contrary to the
provisions of law." The legal position was explained in further detail by
the Gujarat High Court in Topandas Kundanmal v. Commissioner of Income-tax,
Gujarat, [1978] 114 ITR 237. The High Court was called upon to decide without
the right to receive the enhanced compensation under the Land Acquisition Act
accrued or arose to the assessee when he sought 396 a reference under s. 18 of
the Act or when the award was made by the Civil Judge although an appeal was
pending against that award. The learned Judges referred to the nature of an
award made by the Collector, and adverting to the opinion of this Court in
Harish Chandra Raj Singh v. The Deputy Land Acquisition Officer & Anr.,
[1962] 1 SCR 676 that the award made by the Collector was merely an offer or
tender of the compensation determined by the Collector to the onwer of the
property on the acquisition, the High Court observed:
"...the legal position which emerges is
that there is no liability in praesenti to pay an enhanced compensation till it
is judicially determined by the final court since the entire question, namely,
whether the offer made by the Land Acquisition Officer is inadequate and the
claimant is entitled to an additional compensation and if yes, at what rate is
in flux till the question is set at rest finally, we do not think that any
enforceable right to a particular amount of compensation arises. The offer made
by Land Acquisition Officer, by his award, if not accepted by a claimant would
not result automatically in a liability to pay additional compensation as
claimed by party aggrieved. There is no doubt a liability to pay compensation
as offered by the Land Acquisition Officer. But that is far from saying that
liability is a liability to pay additional compensation or enhanced compensation
as claimed by a party aggrieved. If there is an existing liability, the mere
fact that the payment is postponed to the future would not detract that
liability from becoming a debt but the liability to pay unliquidated damages or
additional compensation which are inchoate or contingent would not create a
debt." Khan Bahadur Ahmed Alladin & Sons (supra) and Topandas
Kundanmal (supra) were relied on by the Gujarat High Court in Additional
Commissioner of Income-tax, Gujarat v. New Jehangir Vakil Mills Co. Ltd.,
[1979] 117 I.T.R. 849 for reaffirming that it was on the final determination of
the amount of compensation that the right to such income in the nature of
compensation would arise or accrue and till then there was no liability in
praesenti in respect of the additional amount of compensation claimed by the
owner of the land.
It is unnecessary to refer to all the cases
cited before us. It is sufficient to point out that there is a clear
distinction between cases 397 such as the present one, where the right to
receive payment is in dispute and it is not a question of merely quantifying
the amount to be received, and cases where the right to receive payment is
admitted and the quantification only of the amount payable is left to be
determined in accordance with settled or accepted principles. We are of opinion
that the High Court is right in the view taken by it and, therefore, this
appeal must be dismissed.
The appeal is dismissed. There is no order as
to costs.
P.S.S. Appeal dismissed.
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