1967 (4) TMI 12 - SC - Income Tax

Supreme Court affirms tax liability on interest income under Income-tax Act

TNK Govindaraju Chetty Versus Commissioner of Income-Tax, Madras

TNK Govindaraju Chetty Versus Commissioner of Income-Tax, Madras - [1967] 66 ITR 465 (SC) Issues Involved:1. Assessability of the sum of Rs. 1,28,716 as income.2. Determination of the assessment years for the apportioned amount.Issue-wise Detailed Analysis:1. Assessability of the sum of Rs. 1,28,716 as income:The primary issue was whether the sum of Rs. 1,28,716 received by the assessees as interest on compensation was assessable as income under the Income-tax Act. The High Court of Madras answered this question in the affirmative, leading to the appeal.The background involves the requisition and subsequent acquisition of the property 'Lutterals Gardens' by the Government of Madras under the Defence of India Rules, 1939, and the Requisitioned Land (Continuance of Powers) Act, 1947. The assessees received Rs. 6,28,716 as compensation, which included Rs. 1,28,716 as interest, pursuant to the High Court's order.The Income-tax Officer assessed the interest amount as income, which was contested by the assessees. The Appellate Assistant Commissioner supported the assessment but suggested that the income should be calculated on an accrual basis from the notification date, leading to the reopening of previous years' assessments. The Income-tax Appellate Tribunal, however, accepted the assessees' contention that the interest was a capital receipt and not taxable.The Supreme Court referenced the case of Dr. Shamlal Narula v. Commissioner of Income-tax, where statutory interest under section 34 of the Land Acquisition Act, 1894, was deemed a revenue receipt liable to tax. It was noted that interest represents the profit or loss due to the delayed use of money, distinguishing it from the compensation for the property itself.The assessees argued that the interest in their case was not statutory, as neither the Requisitioned Land (Continuance of Powers) Act, 1947, nor the Defence of India Act, 1939, provided for interest on compensation. They cited cases like Commissioners of Inland Revenue v. Ballantine and Simpson v. Executors of Bonner Maurice, where interest calculated as part of damages or compensation was not considered taxable income.However, the Supreme Court distinguished these cases, noting that the interest in question arose due to statutory provisions akin to those in the Land Acquisition Act, 1894, implying an obligation to pay interest from the date of dispossession. The court concluded that the interest received by the assessees was taxable as income.2. Determination of the assessment years for the apportioned amount:The second issue was whether the assessment years for the apportioned amount of Rs. 1,28,716 should be determined by suitable apportionment. The High Court declined to answer this question, stating it did not arise from the Tribunal's order.The Supreme Court did not provide a separate analysis for this issue, as the primary focus was on the assessability of the interest amount. The conclusion that the interest was taxable income inherently addressed the apportionment concern, affirming the Income-tax Officer's approach of assessing the amounts in the years they were received.Conclusion:The Supreme Court upheld the High Court's decision, affirming that the interest amount of Rs. 1,28,716 received by the assessees was assessable as income. The appeals were dismissed with costs, confirming that the interest was a revenue receipt liable to tax under the Income-tax Act.