Interest on pre-award land possession loss held to be capital receipt, not taxable as revenue income.

Interest paid for the period between taking possession of land by agreement and the passing of the award under the Land Acquisition Act, 1894 was treated as a capital receipt. The Court distinguished interest that compensates for compulsory acquisition after title has vested in the Government, which is revenue in nature, from interest paid for the loss of the right to retain possession before title passes, which partakes of compensation. As possession had been taken by agreement and the owner was deprived of the use of the compensation amount during the intervening period, the amount up to the date of the award was held to be capital and not taxable as revenue income.

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Issues: Whether interest received for the period between taking possession of land by agreement and the passing of the award under the Land Acquisition Act, 1894 is a capital receipt.

Analysis: Where possession of land is taken over under an agreement before the award is made, the landowner is deprived of the use of the compensation amount during the intervening period. The Court applied the distinction between interest paid as compensation for compulsory acquisition, which is a revenue receipt when title has already vested in the Government under sections 16 or 17 of the Land Acquisition Act, 1894, and interest paid in lieu of the right to retain possession, which is a capital receipt where possession is taken by agreement and title has not yet passed. Following the settled principle reflected in the earlier decisions, the interest paid up to the date of the award in such circumstances partakes of the character of compensation for the loss of possession.

Conclusion: The interest received for the period from taking possession until the award was a capital receipt and was not taxable as revenue income.

Final Conclusion: The substantial question of law was answered in favour of the assessee, and the Revenue's challenge failed.

Ratio Decidendi: Interest paid for the period during which possession is taken by agreement but title has not yet vested under the acquisition statute is a capital receipt, as it compensates the owner for the loss of the right to retain possession rather than for the use of money.

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