1981 (1) TMI 25 - HC - Income Tax

Land requisition compensation taxed as revenue receipt under 'Other sources' for 1962-63 assessment year.

Nawn Estates Private Limited Versus Commissioner Of Income-Tax, West Bengal I, Calcutta

The court determined that the compensation of Rs. 91,062 for the requisition of land was a revenue receipt taxable under 'Other sources' for the ... No Income Liable To Tax, Penalty Issues Involved:1. Nature of the compensation received (capital or revenue receipt).2. Method of accounting (cash or mercantile) adopted by the assessee.3. Taxability of the compensation under the head 'Other sources.'4. Year of assessment for the compensation received.Detailed Analysis:1. Nature of the Compensation Received (Capital or Revenue Receipt):The primary issue was whether the compensation of Rs. 91,062 received by the assessee for the requisition of land was a capital or revenue receipt. The assessee argued that the compensation was of a capital nature, as it was for the deprivation of the right to use the land. The court, however, distinguished between requisition and acquisition, noting that requisition is temporary and does not transfer title. The court held that the compensation for the temporary deprivation of the right to use the land, which was a trading asset, was a revenue receipt. The court emphasized that the compensation represented the income for the government's use of the land, aligning with the principle that compensation for the loss of profits is a revenue receipt.2. Method of Accounting (Cash or Mercantile) Adopted by the Assessee:The Tribunal found that the assessee had adopted the cash basis of accounting for the compensation received. Despite the assessee maintaining accounts on the mercantile system for other sources of income, the Tribunal noted that the compensation was recorded only upon receipt. The Tribunal's conclusion was based on the assessee's conduct and the entries in the books of account, which indicated the adoption of the cash system for this particular source of income. The court upheld this finding, stating that there was sufficient evidence to support the Tribunal's conclusion.3. Taxability of the Compensation Under the Head 'Other Sources':The court addressed whether the compensation should be taxed under the head 'Other sources.' The Tribunal had upheld the ITO's decision to tax the compensation under this head, as the income from the requisitioned land was not included in the return of income filed by the assessee in past years. The court agreed with this assessment, noting that the compensation was not assessable under any specified head and was rightly taxed as income from other sources.4. Year of Assessment for the Compensation Received:The court examined whether the compensation should be taxed in the year it was received (1962-63) or apportioned over the years it related to. The Tribunal had taxed the entire amount in the year of receipt, aligning with the cash system of accounting adopted by the assessee for this income. The court upheld this decision, rejecting the assessee's alternative argument that the compensation should be considered as income for the earlier years to which it related. The court emphasized that the compensation was received during the relevant previous year and was rightly included in the total income for that year.Conclusion:The court answered the questions as follows:1. The compensation of Rs. 91,062 was a revenue receipt and assessable to income-tax in the assessment year 1962-63 under the head 'Other sources.'2. The Tribunal's finding that the assessee had adopted the cash basis for the compensation was based on evidence and was not perverse.3. The compensation received was taxable in the assessment year 1962-63 under the provisions of the Income-tax Act, 1961.In the facts and circumstances of the case, parties were directed to pay and bear their own costs.