1965 (12) TMI 13 - HC - Income Tax

Court upholds tax on interim payments under Section 148, dismisses challenge. Distinction between interim payments and compensation clarified.

Kumara Rajah of Venkatagiri and Others Versus Income-Tax Officer, A-Ward, Nellore, and Another.

The court dismissed the petitions challenging the reopening of assessments under Section 148 of the Indian Income-tax Act. It held that interim payments ... Income escaping from escapement - reopening of assessment u/s 148 on the ground that interim payments made by the Government under the Madras Estates Abolition Act XXVI of 1948 are income - It could not be said that the power to pay interest under the Land Acquisition Act on the market value of the property acquired till such time as the compensation is not deposited is ultra vires the powers of the legislature - petition of assessee is dismissed Issues Involved:1. Validity of reopening assessments under Section 148 of the Indian Income-tax Act.2. Nature of interim payments under the Madras Estates Abolition Act.3. Applicability of the Madras High Court's decision in Shanmugha Rajeswara Sethupathi v. Income-tax Officer, Karaikudi.4. Distinction between interim payments and compensation under the Abolition Act.5. Interpretation of Section 50 of the Abolition Act.6. Jurisdiction of the Income-tax Officer in reopening assessments.Issue-wise Detailed Analysis:1. Validity of reopening assessments under Section 148 of the Indian Income-tax Act:The petitioner challenges the notice issued for reopening assessments from 1950-51 onwards under Section 148 of the Indian Income-tax Act. The contention is that interim payments made by the Government under the Madras Estates Abolition Act are capital receipts and not assessable to income-tax. The petitioners argue that these payments have been treated as non-taxable for over a decade, and the Income-tax Officer lacks jurisdiction to reopen these assessments by misconstruing the provisions of the Abolition Act.2. Nature of interim payments under the Madras Estates Abolition Act:The petitioners assert that interim payments, advance compensation, and final compensation under the Abolition Act are parts of the compensation scheme for the estate taken over and are of a capital nature, not liable to income-tax. They rely on the Madras High Court's decision in Shanmugha Rajeswara Sethupathi v. Income-tax Officer, Karaikudi, which held that interim payments are an addition to the compensation for the deprivation of the estate and are not income.3. Applicability of the Madras High Court's decision in Shanmugha Rajeswara Sethupathi v. Income-tax Officer, Karaikudi:The respondents contend that the decision in Shanmugha Rajeswara Sethupathi v. Income-tax Officer, Karaikudi, did not consider the provisions of the Abolition Act, which show that interim payments are income liable to assessment. They argue that the Supreme Court's decision in Raja Rameshwara Rao v. Commissioner of Income-tax should be applied, which construed payments under the Hyderabad (Abolition of Jagirs) Regulation as income.4. Distinction between interim payments and compensation under the Abolition Act:The court notes that the Abolition Act makes a clear distinction between compensation and interim payments. Section 50(8) explicitly states that interim payments shall not be deemed to constitute any part of the compensation. The court emphasizes that interim payments are made pending the final determination of compensation and are not part of the compensation for the loss of the estate.5. Interpretation of Section 50 of the Abolition Act:Section 50 provides for interim payments to be made by the Government every Fasli year until compensation is finally determined and paid. These payments are based on an estimate and are subject to adjustment for excess or deficiency. The court concludes that interim payments are revenue payments made to compensate for the loss of income until final compensation is paid and are not part of the compensation for the estate's abolition.6. Jurisdiction of the Income-tax Officer in reopening assessments:The court finds that the Income-tax Officer has jurisdiction to reopen the assessments under Section 148 of the Indian Income-tax Act. The court rejects the petitioners' argument that interim payments are not assessable to income-tax and upholds the reopening of assessments.Conclusion:The court dismisses the petitions, holding that interim payments under the Abolition Act are of a revenue nature and liable to income-tax. The reopening of assessments under Section 148 of the Indian Income-tax Act is valid. The court emphasizes that interim payments are distinct from compensation and are intended to provide for the loss of income until final compensation is paid. The petitions are dismissed with costs.