1964 (4) TMI 10 - SC - Income Tax

Taxable Interest on Land Acquisition Compensation: Supreme Court Rules on Revenue Receipts

Dr. Sham Lal Narula Versus Commissioner Of Income-Tax, Punjab, Jammu And Kashmir, Himachal Pradesh And Patiala

The Supreme Court held that the interest paid under section 34 of the Land Acquisition Act is a revenue receipt and subject to tax under the Indian ... Whether interest paid under section 34 of the Land Acquisition Act, 1894, hereinafter called the Act, is of the nature of a capital receipt or of a revenue receipt? Held that:- In a case where title passes to the State, the statutory interest provided thereafter can only be regarded either as representing the profit which the 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 section 16 or section 17 of the Act. We, therefore, hold that the statutory interest paid under section 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. Appeal dismissed. Issues Involved:1. Nature of interest paid under section 34 of the Land Acquisition Act, 1894.2. Whether the interest is a capital receipt or a revenue receipt.3. Tax liability of the interest received under the Indian Income-tax Act.Issue-wise Detailed Analysis:1. Nature of Interest Paid under Section 34 of the Land Acquisition Act, 1894:The primary question in this case is whether the interest paid under section 34 of the Land Acquisition Act, 1894, is of the nature of a capital receipt or a revenue receipt. Section 34 states: '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 shall have been so paid or deposited.' The court noted that the section itself makes a distinction between the amount awarded as compensation and the interest payable on the amount so awarded. Interest is paid on the amount awarded from the time the Collector takes possession until the amount is paid or deposited.2. Whether the Interest is a Capital Receipt or a Revenue Receipt:The appellant contended that the interest received under the award was compensation for depriving him of his right to possession of his property and was, therefore, a capital receipt not liable to tax. The court examined the provisions of section 34 and concluded that 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 for forbearance from demanding it after it has fallen due. The Act makes a clear distinction between the compensation payable for the land acquired and the interest payable on the compensation awarded. The court emphasized that the statutory interest payable under section 34 is not compensation paid to the owner for depriving him of his right to possession of the land acquired but is given to him for the deprivation of the use of the money representing the compensation for the land acquired.3. Tax Liability of the Interest Received under the Indian Income-tax Act:The Income-tax Officer included the interest received in the income of the Hindu undivided family and assessed it to income-tax. The Appellate Assistant Commissioner confirmed this order. However, the Income-tax Appellate Tribunal held that the interest amount was a capital receipt and excluded it from the total income of the assessee. The High Court of Punjab, on reference, held that the interest amount was not a capital but a revenue receipt and as such liable to tax under the Indian Income-tax Act. The Supreme Court upheld the High Court's decision, stating that the statutory interest paid under section 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.Conclusion:The Supreme Court concluded that the statutory interest paid under section 34 of the Land Acquisition Act is a revenue receipt and is liable to tax under the Indian Income-tax Act. The appeal was dismissed with costs.