TaxTMI 
TaxTMI 
1962 (10) TMI 82
X X X X Extracts X X X X
X X X X Extracts X X X X
.... on 30th January, 1944. Subsequently on 24th May, 1949, the Collector of Madras notified the intention of the Government to acquire the property under section 5 of the Requisitioned Land (Continuance of Powers) Act, 1947. On 12th December, 1949, the Collector fixed the compensation payable for the property at Rs. 2,40,000 stating that it would be twice the market value of the property at the time of the requisition. The following communication was issued by the Collector to the assessee : "Please state whether you are agreeable to receive the said sum of Rs. 2,40,000 towards the compensation with interest at 6% from the date of publication of the notice under section 5 of the Act, namely, 24th May, 1949." The assessee was not willing to accept the Collector's offer and the matter was, therefore, referred to the Chief Judge of the Court of Small Causes, Madras, who was the competent authority to act as arbitrator and to fix the proper amount of compensation. This authority fixed the amount of compensation at Rs. 3,67,666 and passed the following award : "That the respondent (Collector) do pay the claimant (assessee) Rs. 3,67,666 as compensation and do also p....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n for the acquisition of the property, and that, therefore, the materials on record would only support the conclusion that the receipt is of an income nature. The assessee contends that the amount cannot be treated as income from the mere description of the amount as interest, as in substance what was paid to it was only compensation either for the taking of the property by the Government or for withholding the proper amount of compensation till the High Court rendered its decision. In either view of the matter, the assessee submits, the amount is only something in the nature of damages received and that such damages can only be of a capital nature. It is necessary to refer briefly to the provisions of the Act under which the acquisition was made. This Act is the Requisitioned Land (Continuance of Powers) Act, VII of 1947, which has now been repealed by Act XXX of 1952. Immovable property could be requisitioned by the Government prior to the 1947 Act, under the Rules framed under the Defence of India Act, 1939. After the expiry of that Act necessity for legislation arose to deal with the properties requisitioned under the 1939 Act. Section 3 of the 1947 Act, which we shall herea....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... awarded by the Collector. The Collector has to make an offer to the owner of the amount of compensation payable. The owner of the property to whom the offer is made should, within 15 days of the receipt of the offer, communicate in writing to the Collector his acceptance or otherwise of the offer. If he accepts the offer the Collector shall enter into an agreement with him on behalf of the Government in the prescribed form. The Collector, except in cases of dispute over the amount of compensation, should as soon as may be practicable pay to such person the sums specified in the offer. Rule 7 prescribes the remedy of the aggrieved person (owner) where he is not satisfied with the compensation amount fixed by the Collector. That rule reads : "If any person to whom an offer is made under rule 4 does not accept the offer or does not within 15 days of the receipt of the offer communicate in writing to the Collector his acceptance or otherwise of the offer, the Collector shall, as soon as may be, submit to the Provincial Government through the Board of Revenue a report setting forth in full the facts of the case particularly as regards the nature and extent of disagreement betw....
X X X X Extracts X X X X
X X X X Extracts X X X X
....umstance can it be deemed to be part of the compensation amount. Learned counsel for the assessee relied upon certain decisions in support of the contention that though the amount of Rs. 1,28,716 was paid as and for interest, it should be deemed to be really part of the compensation amount, which was undoubtedly a capital receipt. The first case relied upon is that reported in Commissioners of Inland Revenue v. Ballantine [1924] 8 Tax Cas. 595. The headnote in that case sets out the facts and the actual decision as follows : "A claim for 'additional costs, loss, and damage incurred' by a firm of contractors against a railway company was referred to arbitration on the 1st March, 1916. On the 14th January, 1921, the arbiter awarded the firm a certain sum, mainly as damages, together with interest thereon at 5 per cent. per annum, from the 4th November, 1918 (the date of lodgment of an amended claim), until payment. Long before the award was made, the firm had assigned any sums they might recover from the railway company, with any interest accruing thereon, to a bank as security for advances, but, notwithstanding notice of this assignment, the railway comp....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sed by sale or redemption, partly interest and dividends and interest thereon, partly compensation under the treaty computed on the basis of interest on certain amounts. The question raised was whether the compensation computed on the basis of interest was or was not income for the purposes of the Income-tax Act. It was held that the compensation was not income for income-tax purposes. At page 605, Lawrence J. observed thus Simpson v. Executors of Bonner Maurice as Executor of Edward Kay's case (Supra ) : "Article 297 of the treaty says nothing about the payment of interest, and the money paid under the direction of the Mixed Arbitral Tribunal was paid as compensation and not as interest. Neither the fact that the compensation was measured by the amount of the interest, which but for the embargo placed upon the money by the German Government could have been earned by the respondents, nor the fact that part of the compensation was described as 'interest' in the decision of the Mixed Arbitral Tribunal, in my judgment, has the effect of altering the character of the compensation paid to the respondents." The decision in this case also turned upon the fact that ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t the true nature of the amount was capital ; and cases where that word was held to be descriptive of an amount of revenue receipt. Some cases evolve the formula that the true position is whether the amount, though styled as interest, is part of the capital award in respect of which interest is directed to be given. A few cases prescribed the test whether the amount was really damages, measured in terms of interest. The maze of case-law before the decision of the House of Lords in Riches v. Westminster Bank Ltd. [1947] AC 390, 398, 402 ; 28 Tax Cas. 159 did not enunciate any clear principle and was therefore not of much value as precedent. The House of Lords however in Riches' case (Supra) gave a clear guidance in the matter and removed many cobwebs that hung round this part of the tax law by laying down the straight rule, "Is it capital or income ?" Simon in his Income Tax Law, referring to Riches' case (Supra ), observes thus at page 418 : "The result of the decision in Riche's case (Supra) may be epitomised by two extracts from the speeches in the House of Lords. Viscount Simon L.C. : 'But I see no reason why, when the judge orders payment of interest....