1982 (4) TMI 119 - AT - Income Tax

Appeal Granted: Tax Interest on Compensation Over Relevant Years, Following Accounting System & Legal Precedents

The Tribunal allowed the appeal, directing that the interest of Rs. 39,862 received on enhanced compensation should be taxed over the relevant assessment ... - Issues Involved:1. Taxability of interest received on enhanced compensation.2. Whether interest should be taxed in the year of receipt or spread over the relevant assessment years.Issue-wise Detailed Analysis:1. Taxability of Interest Received on Enhanced Compensation:The appeal concerns whether the interest of Rs. 39,682 received by the assessee on enhanced compensation should be taxed in the year of receipt or spread over the period from 29th March 1971 to 31st October 1975. The facts are undisputed: the assessee's land was acquired by the Punjab Government, and the compensation was enhanced by the District Judge, Patiala, who also awarded interest. The ITO taxed the entire amount in the year of receipt, which was upheld by the AAC.2. Whether Interest Should Be Taxed in the Year of Receipt or Spread Over Relevant Assessment Years:The assessee argued that the interest should be spread over the years it accrued, citing the mercantile system of accounting and relevant judicial precedents. The counsel for the assessee contended that the interest under Section 28 of the Land Acquisition Act should be treated similarly to interest under Section 34, which is taxed on an accrual basis. The counsel cited the Full Bench of the J&K High Court and the Supreme Court's interpretation of 'may' as 'shall' in specific contexts, arguing that interest under Section 28 is mandatory and should accrue over the relevant years.The Department's representative argued that interest under Section 28 is discretionary and should be taxed in the year of receipt, citing various judgments that differentiate between interest under Sections 28 and 34. The representative contended that interest under Section 34 accrues automatically, while under Section 28, it accrues only upon a court decree.The Tribunal examined the judicial pronouncements and the provisions of Sections 28 and 34 of the Land Acquisition Act. It noted that the Supreme Court in the case of Dr. Sham Lal Narula likened interest under Section 28 to that under Section 34, both being compensation for delayed payment. The Tribunal observed that the Punjab and Haryana High Court in the case of Dr. Sham Lal Narula held that interest should be taxed in the years it accrued, not in the year of receipt.The Tribunal concluded that the interest of Rs. 39,862 should be taxed over the relevant assessment years from 29th March 1971 to 31st October 1975. The Tribunal also noted that if there are two reasonable interpretations of a fiscal statute, the one favoring the assessee should be adopted, as expressed by the Supreme Court in the case of Naga Hills Tea Co. Ltd.Conclusion:The Tribunal allowed the appeal, directing that the interest should be taxed in the relevant assessment years in which it accrued, rather than in the year of receipt.