1965 (4) TMI 136 - HC - Income Tax

Interest on Compensation for Jagirs Resumption: Revenue, Not Capital Receipt

The interest received on the compensation amount for the resumption of the assessee's jagirs was determined to be a revenue receipt, not a capital ... - Issues Involved:1. Whether the interest received on the amount of compensation paid for the resumption of the assessee's jagirs was a capital receipt or a revenue receipt.Issue-wise Detailed Analysis:1. Nature of Interest on Compensation: Capital Receipt or Revenue ReceiptThe primary question addressed in this judgment was whether the interest received on the compensation amount for the resumption of jagirs was a capital receipt or a revenue receipt. The material facts establish that the assessee, an ex-jagirdar, received interest on compensation due to the resumption of his jagir estate under the Madhya Bharat Abolition of Jagirs Act, 1951. The compensation amount carried simple interest at the rate of 2.5% per annum from the date of resumption until the date of payment. The Income Tax Officer taxed this interest amount as revenue, but the Tribunal held it to be a capital receipt, not liable to tax.The Tribunal's reasoning was that the interest was akin to a 'solatium' for dispossession, thus a capital receipt. However, the High Court examined the relevant provisions of the Act, particularly Section 8 and Schedule I, which clearly distinguished between the compensation amount and the interest on it. The Court noted that the interest did not form an element in the calculation of the compensation amount.The Court referred to various precedents, including the Supreme Court's decisions in *Commissioner of Income Tax v. Rai Bahadur Jairam Valji* and *Kettlewell Bullen and Co. Ltd. v. Commissioner of Income Tax*, which emphasize that the nature of the receipt-whether it is compensation for loss of a capital asset or income-depends on the specific facts of the case. The Court also cited *Senairam Doongarmal v. Commissioner of Income Tax*, which differentiates between compensation for loss of capital and compensation for loss of income.The High Court concluded that the interest received was a revenue receipt. The statutory interest provided under Section 8(2) of the Act was not part of the compensation for the loss of the jagir but was compensation for the delay in payment of the compensation amount. This conclusion was supported by the Supreme Court's decision in *Dr. Shamlal Narula v. Commissioner of Income Tax*, which held that statutory interest under the Land Acquisition Act was a revenue receipt.The Court rejected the argument that the heading 'Duty to pay compensation' in Section 8 and the use of the term 'compensation' in Sections 13, 14, and 15 implied that interest was part of the compensation. The Court emphasized that the clear and unambiguous language of Section 8(2) indicated that the interest was separate from the compensation amount. The proviso to Section 8(2), which stops interest for any default by the jagirdar, further supported this interpretation.The Court also distinguished the case from *Raja Rameshwara Rao v. Commissioner of Income Tax*, where maintenance allowances were treated as income because they were compensation for loss of income during an interim period, not for the loss of the jagir itself.In conclusion, the High Court held that the interest received by the assessee under Section 8(2) of the Act was a revenue receipt liable to tax. The answer to the question was in the negative, and the Commissioner of Income Tax was awarded costs.Final Judgment:The interest received on the amount of compensation paid for the resumption of the assessee's jagirs was a revenue receipt, not a capital receipt. The question was answered in the negative, and the Commissioner of Income Tax was awarded costs.