TaxTMI 
TaxTMI 
1985 (12) TMI 117
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....sp; Village S. No. land owner Ac. Cts. ------------------------------------------------------------------------ Kolluru Ramaiah Marripalem 145-1Ai 0-98 141-1A 3-73 ....
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....0,000 and Rs. 31,000 as per the directions of the Hon'ble High Court. Excluding the amounts already paid the balance amount of compensation found payable as per the rates fixed tentatively by the Government was found to be Rs. 12,909. However, the assessee claimants refused to accept the offer and so the Government appointed Shri G. Radhakrishna Rao at that time working as District and Sessions Judge, Visakhapatnam as arbitrator under the said Act. Before the arbitrator the assessees claimed compensation at the rate of Rs. 35 per sq. yd. besides claiming solatium as well as interest at 15 per cent per annum from the date of notification till the date of payment. The learned arbitrator passed his award dated 28-3-1981. A copy of the award was made available to us by the learned counsel for the assessee. As can be seen from it at the close of paragraph 21 of his order the arbitrator fixed the compensation at Rs. 15 per sq. yard as reasonable. He also granted solatium at 15 per cent and interest at 6 per cent per annum. He summarised all the reliefs granted by him in paragraph 25 of his order which is as follows : "In the result, an award is passed fixing rate of compensation at Rs. ....
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....; 12,500 1979-80 5,037 1981-82 3,305 The assessees did not show interest receipts in their income-tax returns filed for the first three assessment years. So the assessments for the first three assessment years in the table given above were completed without including interest income. However, they were reopened now. But for the assessment year 1981-82 the assessees no doubt had shown the interest but put in Part III of the return and claimed it exempt on the ground that it is a capital receipt. They contended that compensation received on land acquisition is capital receipt and the interest received on the said capital receipt should also partake the nature of capital receipt. This contention was negatived by the ITO and in each case of the assessees an amount of Rs. 3,305 was added in the assessment for the assessment year 1981-82 by the ITO whil....
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....lso contended before the AAC that the learned arbitrator wrongly referred to section 1 to award interest. It was pointed out before him that unless there is prior demand notice issued, to the debtor to the effect that interest also would be realised from the date of demand till the date of payment interest would not be payable under the clear provisions of section 1. In this case no such notice was ever issued by the assessees to the Government. Section 1 was quoted in the impugned orders of the AAC and after closely scrutinising the words used in the said section the AAC held that the interpretation of the learned representative of the assessees that interest cannot be awarded without satisfying the primary condition as argued appears to be correct. However, the AAC held that this section does not help the assessee inasmuch as the fact remains that the interest was granted under section 1 and, therefore, he held summarising his conclusion that what is awarded by the Court is under the Interest Act and, therefore, is under a statute. He distinguished the Orissa High Court saying that the said High Court held that if interest is awarded under a statute or under a contract it would b....
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.... or not (if it is not under a statute, all the more it should be considered as discretionary)." He further held that in this case the amount of interest was clearly discretionary and, therefore, till the award is passed granting interest, interest does not accrue. Lastly, it was submitted before the AAC that the award did not become final but an appeal was pending over it in the High Court and still it is not disposed of. Unless the grant of interest becomes final after it receives the approval of the Andhra Pradesh High Court then only in any event the interest becomes taxable. However, when the appeal is still pending there is no question of the interest becoming taxable either in a lump sum or on accrual basis year after year. In support of the said contention, the learned counsel for the assessee relied upon the decision of the Gujarat High Court in the case of Topandas Kundanmal v. CIT [1978] 114 ITR 237 and the decision of the Andhra Pradesh High Court in the case of CIT v. Syed Khadruddin Ali Khan [1983] 144 ITR 266. The AAC in his impugned order clearly stated that he had elicited from the counsel for the assessee that award of interest by the arbitrator was not a point of....
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....ns of the said Act with the provisions of the Land Acquisition Act, two striking differences would be apparent to us. In the latter Act at least there are two clear provisions dealing with grant of interest. Out of them section 34 of the Land Acquisition Act empowers the grant of statutory interest. It automatically follows the grant of compensation, whenever there is time lag between date of taking over possession and date of payment of compensation. So also section 28 would empower the civil court to grant discretionary interest on the award of additional compensation. The grant of interest under the said provision is purely discretionary and dependent upon facts and circumstances of each case. However, the discretion is to be exercised judiciously. Another striking difference between the abovesaid two Acts is that under the latter Act there was a provision for granting solatium, i.e., compensation for compulsory acquisition of the land. However, neither provisions enabling the grant of solatium nor the grant of statutory interest or discretionary interest were present in the said Act. When the acquisition itself is made under the said Act there is no question of going out in sea....
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....erest but he has not even applied his mind to the claim made on this count in the petition on which he was adjudicating. Accordingly, the claimant in this case is entitled to interest for the period from the date of the acquisition, as claimed in the petition, for the reason that on and from that date she lost her right to recurring compensation and she became, instead, entitled to full compensation for the property in which she lost all manner of rights which got vested in the Government on and from that date." But the real question would be when neither the statute nor any contract empowers grant of interest, however, when the interest was granted ex gratia, what is the exact nature of such interest received falls for our consideration. In this connection we may first consider the two leading English decisions on this subject. The first being IRC v. Ballantine [1924] 8 TC 595. In the said decision Lord President Clyde observed as follows : "But an interest calculation is a natural and legitimate guide to be used by an arbiter in arriving at what he thinks would be a fair amount. In most cases in which such an allowance is a constituent of an award it does not separately appear,....
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....xecution of the Government contracts. During the course of the execution of these contractual works certain disputes relating to the value of works executed by the contractor were referred to an arbitrator. The arbitrator awarded a sum of Rs. 4 lakhs representing interest. Out of Rs. 4 lakhs the Tribunal found that Rs. 2,77,962 related to the year of account and, therefore, it had ruled that the same should be held to be income liable to tax in that year. However, it was found as a fact that there was no stipulation in the contract for the payment of interest. When the matter came to the High Court it was found as a fact that interest was not payable under a statute or under a contract. Under the circumstances, the Orissa High Court held that though termed as interest it was an ex gratia payment by way of compensation worked out through the medium of interest and, therefore, it had held that Rs. 2,77,692 awarded to it was not a revenue receipt and not liable to tax. Now in the case before us also, the said Act did not contain any provision for grant of interest. There is no contract between the Government and any of these assessees empowering the assessees to claim interest under t....