1989 (11) TMI 2 - SC - Income Tax

Supreme Court: Interest on Enhanced Compensation Accrues Yearly from Dispossession

The Supreme Court resolved the conflict among various High Courts regarding the accrual of interest on enhanced compensation under the Land Acquisition ... Accrual of interest on enhanced compensation - interest payable under Sections 28 and 34 of the Land Acquisition Act - taxability by reference to the year of accrual - accrual year-by-year from date of possession until date of judicial award - precedential effect of this Court's decision in T. N. K. Govindarajulu ChettyAccrual of interest on enhanced compensation - interest payable under Sections 28 and 34 of the Land Acquisition Act - taxability by reference to the year of accrual - Whether interest awarded on enhanced compensation under the Land Acquisition Act accrues for tax purposes on the date of the court order granting enhancement or accrues year by year from the date of possession up to that order. - HELD THAT: - The Court held that the question is concluded by this Court's earlier decision in Commissioner of Income-tax v. Govindarajulu Chetty, which treats the point in issue directly and considers it in all its aspects. Applying that principle, and having regard also to the reasoning in Khorshed Shapoor Chenai v. Asst. CED, the Court clarified that interest payable under Sections 28 and 34 on compensation enhanced by a court on reference or appeal cannot be treated as accruing only on the date of the order granting enhanced compensation. Instead the interest must be taken to have accrued year after year from the date of delivery of possession of the lands until the date of the court's order awarding the enhanced amount. Consequently, for incometax assessment purposes the interest is to be allocated to the relevant years in which it accrued (i.e., apportioned to the accounting years in the period from possession to the award), rather than being brought wholly to tax in the year of the award merely because the award fixed the enhanced amount at that later date.Interest on enhanced compensation accrues year by year from date of possession until the date of the court order; it does not all accrue on the date of the order granting enhancement, and taxability must follow accrual accordingly.Final Conclusion: The appeals are allowed and the references answered by directing that interest on enhanced compensation under the Land Acquisition Act accrues year by year from the date of possession up to the date of the judicial award, and must be assessed in the years in which it so accrued in accordance with this Court's decision in T. N. K. Govindarajulu Chetty. Issues Involved:1. Determination of the point of time at which interest on enhanced compensation under the Land Acquisition Act accrues or arises.2. Conflict of decisions among various High Courts regarding the accrual of interest on enhanced compensation.Issue-wise Detailed Analysis:1. Determination of the point of time at which interest on enhanced compensation under the Land Acquisition Act accrues or arises:The primary issue in these cases is the determination of the point of time at which interest payable under Sections 28 and 34 of the Land Acquisition Act, 1894, accrues or arises. This interest is paid on enhanced compensation awarded on a reference under Section 18 of the said Act or further appeal to the High Court and/or the Supreme Court.The Tribunal, in its orders, followed the decision of the Andhra Pradesh High Court in CIT v. Sankari Manickyamma [1976] 105 ITR 172, which held that the interest on enhanced compensation should be assessed in the year in which the court order granting the enhanced compensation was passed.However, the Tribunal also noted that other High Courts, including the Punjab and Haryana High Court in CIT v. Dr. Sham Lal Narula [1972] 84 ITR 625, the Madras High Court in T. N. K. Govindarajulu Chetty v. CIT [1973] 87 ITR 22, and the Orissa High Court in Joyanarayan Panigrahi v. CIT [1974] 93 ITR 102, had taken a different view, supporting the contention that interest should be distributed over the period from the date of dispossession to the date of payment.The Supreme Court in its judgment referred to the decision in Commissioner of Income-tax v. Govindarajulu Chetty (T. N. K.) [1987] 165 ITR 231, which directly dealt with the point in issue. The Court clarified that the interest cannot be taken to have accrued on the date of the order of the court granting enhanced compensation but has to be taken as having accrued year after year from the date of delivery of possession of the lands till the date of such order. This principle also derives support from the earlier decision in Khorshed Shapoor Chenai v. Asst. CED [1980] 122 ITR 21.2. Conflict of decisions among various High Courts regarding the accrual of interest on enhanced compensation:The Tribunal acknowledged the apparent conflict between the decision of the Andhra Pradesh High Court in Sankari Manickyamma's case and the decisions of other High Courts. The references to the Supreme Court were made under Section 257 of the Income-tax Act, 1961, due to this conflict and the necessity of an authoritative pronouncement from the highest court.The Supreme Court resolved this conflict by affirming the principle that interest on enhanced compensation accrues year after year from the date of dispossession to the date of the court order granting the enhanced compensation. This decision aligns with the views of the Punjab and Haryana, Madras, and Orissa High Courts, and overrides the Andhra Pradesh High Court's decision in Sankari Manickyamma's case.Conclusion:The Supreme Court allowed the appeals and answered the references by stating that the interest on enhanced compensation should be taken as having accrued year after year from the date of delivery of possession of the lands till the date of the court order granting the enhanced compensation. This decision provides a clear and authoritative resolution to the conflict among various High Courts on this issue. The matters were disposed of accordingly, with no order as to costs.