TaxTMI 
TaxTMI 
1980 (9) TMI 8
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....the Calcutta Improvement Tribunal where she also claimed compensation for damage suffered due to delay in making the award under s. 48A of the said Act. Following an unreported decision of this court in Appeal from Original Decree No. 173 of 1953 entitled Kedarnath Jute Manufacturing Co. Ltd. v. State of West Bengal, the Calcutta Improvement Tribunal by its judgment and order dated the 22nd February, 1960, awarded a further compensation to the assessee as follows : Rs. (a) Compensation for damage 26,982.71 (b) Interest at 6 per cent on the above amount 3,507.75 (c) Cost  ....
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....s compensation for the delay in making the award for compensation for the said acquisition was a receipt of a non-recurring nature and, as such, exempt from tax as a casual receipt. The Tribunal held that the said sum was not income by way of interest but was an additional compensation provided under the statute for a late award, originating from the acquisition of land and, as such, a capital receipt. The Tribunal also held that s. 2(47) read with s. 43 of the I.T. Act, 1961, was not applicable in the facts and as s. 12B(1) of the Indian I.T. Act, 1922, did not cover compulsory acquisition the said sum was not taxable as capital gains. On an application of the Commissioner of Income-tax, West Bengal. IV. Calcutta, under s. 256(1) of the I.T. Act, 1961, the Tribunal has drawn up a statement of case and has referred the following question of law for the opinion of this court: " Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the sum of Rs. 26,983 received by the assessee by virtue of the order of the Calcutta Improvement Tribunal dated 22nd February, 1962, was a capital receipt and, as such, not includible in the total income ....
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....nsation for the acquisition but deducted from such claim the income derived by the assessee from the said land under acquisition during the period of the delay. Mr. Sen submitted that what was claimed by the assessee and what was awarded to her was the loss of interest on the amount of compensation awarded on account of delay in making the said award which deprived her of the use or profitable use of the compensation awarded during the period of the delay. Mr. Sen contended that the said sum of Rs. 26,983 was, therefore, in the nature of a compensation for loss of interest and was thus a revenue receipt. Mr. Sen also contended that even otherwise, if compensation under s. 48A was awarded for loss of income or profit arising out of the awarded amount for the period of the delay in making the award, the same would still be revenue receipt in the hands of the assessee. The law was settled so far as this court was concerned in Kedarnath Jule Manufacturing Co. Ltd. Mr. Sen also contended that the assessee had made a specific claim for loss of interest under s. 48A of the L.A. Act, before the Calcutta improvement Tribunal and had obtained compensation on that basis. She was not ent....
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....r s. 48A and a party would not be prevented from claiming the amount simply because there is a provision to the effect that the Collector is to pay interest after he has taken possession of the premises in question ...... I do not see why the profitable use to which the money could have been put by the claimant cannot form the basis of such damages. In my opinion in spite of the provisions of s. 34 the claimant would be entitled to claim damages by way of loss of interest under s. 48A for a period of two years from the date of publication of declaration until the award is made." 2. Kedarnath Jute Manufacturing Co. Ltd. (Appeal from original Decree No. 173 of 1953). This was an appeal against a decision of the Calcutta Improvement Tribunal where a claim for compensation for damages under s. 48A had been rejected. A Division Bench of this court observed as follows : "Section 48A, therefore, ought to be liberally construed in favour of the owner for whose benefit it was enacted. So construed the section presents no difficulty. Damage suffered in consequence of the delay would in this context undoubtedly include loss of interest which would or might have been earned by the owner ....
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.... years the acquisition proceedings were dropped by notification under s.48(1) of the said Act. The owner claimed Rs. 81,871-4-0 as damages under several heads under s. 48(2) of the said Act. The matter ultimately came up by way of appeal before the High Court of Madras, a Division Bench whereof observed as follows (at pp. 62, 63): " The very conception of compensation for compulsory acquisition involves two elements (i) the value of the property, and (ii) as damages for injury ...... The very fact that, under s. 48(1) of the Act, such withdrawal has to necessarily take place before possession is taken of the land is sufficient to dispose of the argument that the damages should really be related to concrete injuries sustained by actual acts of possession by authorities, or merely to incidental costs ... The assessment of compensation would include conjectural claims through uses to which the property could have been put, and income derived therefrom, but from which the owner was prevented, by the pending acquisition. The principles applicable to compulsory acquisition, such as compensation for special adaptability, etc., will apply mutatis mutandis to a case of withdrawal also ......
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....Rs. 1,28,716 as interest. In the income-tax assessment of the owner the question arose, whether the amount received as interest was a revenue or a capital receipt. The Appellate Tribunal held the same to be a capital receipt. On a reference, the Madras High Court held that the same was a revenue receipt. The Supreme Court, in an appeal by the assessee, held that the amount was taxable as income. 7. Chandroji Rao v. CIT [1970] 77 ITR 743 (SC). In this case under s. 8(2) of the Madhya Bharat Abolition of Jagirs Act, 1951, a Jagir was resumed by the State Government and it was directed that the compensation payable would carry interest from the date of resumption to the date of payment of the compensation. On a dispute whether such interest would be a capital receipt or revenue receipt, it was ultimately held by the Supreme Court following its earlier decision in Dr. Shamlal Narula v. CIT [1964] 53 ITR 151 (SC), that such interest would be a revenue receipt. 8. Vadilal Soda Ice Factory v. CIT [1971] 80 ITR 711 (Guj). In this case the land leased to the assessee where it was running an ice factory was compulsorily acquired under the L. A. Act and the assessee had to shift to anot....
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....tion only after possession was taken when the property would vest in the Government free from all encumbrances under s. 16 of the Act. Till possession was taken, the owner continued to be entitled to deal with or dispose of the property except that the value of the property under acquisition in case of a transfer or the rent or premium therefor in case of a lease would be adversely affected. The Act provided for compensation for acquisition and not for a proposed acquisition. Mr. Bajoria next urged that the compensation for damages under s. 48A of the said Act could not be loss of interest on the compensation money which was not quantified till the award was made. Interest could be claimed or paid only on a quantified and ascertained sum and not on money which might become payable at a future date. Such compensation for damages might be calculated on the basis of loss of interest on the amount of compensation receivable by the owner but that was merely rough and ready method for a determination of such compensation. Such basis or method for quantification of the compensation for damages could not decide the character of the compensation. Such compensation for damages could not a....
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....sation awarded under s. 48A but if the said compensation itself was interest then the Act would be deemed to have provided for interest upon interest which would be absurd. The interest allowed to the assessee on the amount of compensation awarded under s. 48A has been taxed as income of the assessee and there is no dispute with regard to the same. The L. A. Act makes a clear distinction between interest and compensation and provides for different methods for computation thereof and the two should not and cannot be equated. The statutory compensation allowed under s. 48A is not referable in any manner to the property under acquisition and does not arise out of any injury thereto or interference therewith. The expressions "interest" and "compensation" appear in different sections of the L.A. Act and each should be given the same meaning wherever they occur. Mr. Bajoria next contended that the compensation under s. 48A could not be income of the assessee as the same did not arise out of any business of the assessee and even if it could be said to be casual or non-recurring income, it would not be taxable in the relevant year. For the meaning and definition of the expression " i....
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....mpany to that extent has been sterilised and destroyed, and it is in respect of that action that the sum of pounds 15,316 was paid. It is unsound to consider the fact that the measure, adopted for the purpose of seeing what the total amount should be, was based on considering what are the profits that would have been earned. That, no doubt, is a perfectly exact and accurate way of determining the compensation, for it is now well settled that the compensation payable in such circumstances is the full value of the minerals that are to be left unworked, less the cost of working, and that is, of course, the profit that would be obtained were they in fact worked. But there is no relation between the measure that is used for the purpose of calculating a particular result and the quality of the figure that is arrived at by means of the application of that test. I am unable to regard this sum of money as anything but capital money. " 2. Simpson (H.M. Inspector of Taxes) v. Executors of Bonner Maurice as Executors of Edward Kay [1929] 14 TC 580 (CA). In this case a person domiciled and ordinarily resident in the United Kingdom during his life-time deposited diverse securities, stocks and....
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.... the decision of the Mixed Arbitral Tribunal, in my judgment, has the effect of altering the character of the compensation paid to the respondents. " 3. Vats den Berghs Ltd. v. Clark (H. M. Inspector of Taxes) [1935] 19 TC 390, also reported in [1935] 3 ITR (Eng Cas) 17 (HL) i This was cited for the following observation of Lord Macmillan in the leading judgment (p. 431) : "But even if a payment is measured by annual receipts, it is not necessarily in itself an item of income. " 4. IRC v. Barnato [1936] 20 TC 455 (CA): In this case the assessee, under the will of his father, was bequeathed certain amounts payable by a firm, Barnato Brothers, and was also entitled to be inducted as a partner in the said firm upon attaining majority. The assessee was also bequeathed certain amounts from the firm under the will of his cousin. The assessee received part of the said amounts and upon attaining majority also became a partner in the firm. Subsequently, at the instance of the assessee, the firm was dissolved and the other partners agreed to pay a further amount to the assessee subject to accounting. The latter amount not having been paid, the assessee obtained a decree for the amou....
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.... and governed by quite different considerations from, the damages which were recovered in respect of the loss of profitable use of the jetty. It appears to me that both on principle and on the authorities to some of which I have referred, the sum recovered for loss of use of the jetty must be treated as a revenue receipt, and, therefore, properly taxable." and Diplock L.J. observed as under (p. 515): " Where, pursuant to a legal right, a trader receives from another person compensation for the trader's failure to receive a sum of money which, if it had been received, would have been credited to the amount of profits (if any) arising in any year from the trade carried on by him at the time when the compensation is so received, the compensation is to be treated for income-tax purposes in the same way as that sum of money would have been treated if it had been received instead of the compensation. The rule is applicable whatever the source of the legal right of the trader to recover the compensation. It may arise from a primary obligation under a contract, such as a contract of insurance, from a secondary obligation arising out of non-performance of a contract, such as right to ....
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....award and in the other, even before the making of the award. In either case, some time may lapse between the taking of possession of the acquired land by the Collector and payment or deposit of the compensation to the person interested in the land acquired. As the land acquired vests absolutely in the Government only after the Collector has taken possession of it, no interest therein will be outstanding in the claimant after the taking of such possession ; he is divested of his title to the land and his right to possession thereof, and both of them vest thereafter in the Government. Thereafter he will be entitled only to be paid compensation that has been or will be awarded to him. He will be entitled to compensation, though the ascertainment thereof may be postponed, from the date of his title to the land and the right to possession thereof have been divested and vested in the Government. It is as it were that from that date the Government withheld the compensation amount which the claimant would be entitled to under the provisions of the Act. Therefore, a statutory liability has been imposed upon the Collector to pay interest on the amount awarded from the time of his taking poss....
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....re said to be by the statute. We must give the word 'compensation' its normal and natural meaning. " 8. CIT v. Periyar and Pareekanni Rubbers Ltd. [1973] 87 ITR 666 (Ker) i Here, the assessee received a certain amount as interest on compensation paid under the L.A. Act for the period from the date of taking of possession of the land by the Government under an agreement between the parties up to the date of payment of the compensation. The Incometax Appellate Tribunal held that the bulk of the said amount represented compensation for deprivation of property and was a capital receipt not taxable and directed deletion of the amount paid. In a reference before the Kerala High Court, the Revenue contended that there was no distinction between interest payable under s. 28 or s. 34 of the Land Acquisition Act or otherwise. Interest under s. 28 or s. 34 of the said Act was payable although possession was taken outside the said Act. The High Court held (at p. 668): "A distinction has been drawn in relation to possession assumed under the provisions of the Act and possession otherwise taken. In the former case, sections 16 and 17 of the Land Acquisition Act stipulate that on possession....
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.... the objections, if any, submitted by such persons are disposed of, the Collector makes an award. All these, however, do not divest " the persons interested of their right, title and interest in the land as the State Govt. under s. 48(1) of the Act may withdraw the land from the acquisition if possession has not been taken. The divesting of the right, title and interest of the persons interested in the land and vesting thereof in the State Govt. takes place only after possession has been taken by or on behalf of the Government as will appear from ss. 11 and 17 of the Act and so long possession is not taken, the right, title and interest in the land and possession thereof remain vested in persons interested therein and they are entitled to the rents, issues, profits and other usufructs thereof including the right to transfer or otherwise encumber the same. The only prejudice to such persons is that because of the pendency of the acquisition proceedings, any transfer or encumbrances of such land may not fetch a normal return. The compensation for acquisition of the land is payable to the persons interested only after they are divested of their interest in such land. The Act, however,....
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....rship and other interest. The compensation under s. 48A of the Act is a compensation for damage suffered by the owner in consequence of the delay in making the award under s.11. The statute contains specific provisions for payment of interest in ss. 28 and 34 of the Act. The expression " compensation " has been used in the Act whenever compensation is given. Reference may be made in this connection to ss. 11, 36, 48 and 48A of the Act. The Legislature has advisedly used the two expressions " interest " and " compensation " in different sections and same meaning to each of the said expressions should, therefore, be given wherever they occur. Thus the expression " interest " cannot be understood to mean compensation and vice versa. We accept the contention of Mr. Bajoria that no one is entitled to payment of interest unless the amount on which interest is claimed is quantified and is payable to him. As noticed earlier, the compensation for acquisition of property becomes payable to the owner or persons interested only after they are divested of their right, title and interest in the property by the act of taking possession thereof by the Government. Thus the compensation for da....
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....ed to the amount of compensation immediately on the making of the award no longer appear to be good law. In Dr. Shyamlal Narula [1964] 53 ITR 151 (SC), the Supreme Court referred to the decision of the House of Lords in Westminster Bank Ltd. [1947] 15 ITR (Suppl.) 86 for a limited purpose, only to construe the meaning of the expression " interest ". In its later decision in S. R. Y. Sivaram Prasad Bahadur [1971] 82 ITR 527 (SC) the Supreme Court quoted With approval the observations of the House of Lords in Bonner Maurice's case [1929] 14 TC 580. Even the obiter of the Supreme Court is binding and must be held to override the view of the Privy Council expressed in Raja's Commercial College [1976] 2 All ER 801 about Bonner Maurice's case. The contention of Mr. Sen that the compensation payable under s. 48A of the Act is loss of profit is not sustainable on the very authority of Mirza Nasir Ali and Kedarnath Jute Manufacturing Co. Ltd. relied on by him where this court in awarding compensation under s. 48A also directed deduction of the rents, issues and profits realised or which could have been realised if the owner was diligent. The said contention cannot also be sustained as, u....