TaxTMI 
TaxTMI 
1971 (8) TMI 88
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.... those appeals is a Hindu undivided family and that family was the holder of the estate of Devarkota and Challappalli. This estate vested in the Government under the Act. During the assessment years 1953-54, 1954-55, 1956-57 and 1958-59, the assessee received some interim payments. The Income-tax Officer sought to include those payments in the assessment of the assessee in those years. The assessee contended that those receipts were not revenue receipts and hence not taxable. He based his plea, firstly, on the ground that those receipts represented agricultural income or alternatively they were capital receipts and, lastly, on the ground that the income having been apportioned among the principal landholder and the other persons referred to in sub-section (2) of section 50 of the Act, the entire amount did not fall to be assessed in his hands. All these contentions were rejected by the Income-tax Officer. Before the Appellate Assistant Commissioner, the assessee repeated those contentions; but the Appellate Assistant Commissioner rejected them and upheld the order of the Income-tax Officer. On a further appeal to the Income-tax Appellate Tribunal, the Tribunal held that as those pa....
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....cting Ryotwari settlement. The manner of effecting the ryotwari settlement of the estate vested in the Government is prescribed in sub-sections (2), (3) and (4) of section 22. Sections 24 to 27 prescribe the manner of determining the compensation payable for the estates taken over. The scale of compensation is laid down in section 37. Section 39 provides for determination of basic annual sum and of total compensation. Section 4 lays down that the Government shall deposit in the office of the Tribunal, the amount of compensation in respect of each estate as finally determined under section 39, in such form and manner and at such time or times and in one or more instalments as may be prescribed by the rules made under section 40. Then, we come to section 50. Two clauses of that section relevant for our present purpose are sub-sections (2) and (8) of that section. Sub-scction (2) says: "After the notified date and until the compensation is finally detprmined and deposited in pursuance of this Act, interim payments shall be made by the Government every fasli year prior to the fasli year in which the said deposit is made, to the principal landholder and to the other persons referred t....
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.... payment of interest on the compensation payable as from the date of vesting. Now we shall proceed to consider the question whether the interim payments made under the Act under section 50(2) are revenue receipts or capital receipts. It was urged on behalf of the assessee that those receipts were capital receipts. In support of that contention, reliance was placed on clause (e) of section 3 as well as on the circumstance that though the estate abolished vested in the Government on the notified date, compensation became payable to them only after the same was determined under section 39. On the other hand, it was urged on behalf of the department that the legislature deliberately made a distinction between the compensation and interim payment; the compensation for abolished estate was, firstly, paid as advance compensation, nextly, as total compensation and lastly, as additional compensation; the interim payments had nothing to do with compensation; they were recurring payments and they were made in lieu of the interest payable on the total compensation. While it is true that the terminology used by the legislature in respect of a payment is not conclusive of the true character ....
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....shows that the Government was compensating the former holders for taking away their income producing assets. The interim payments do not appear to have any relationship with the compensation ultimately payable. On the other hand, it takes note of the loss of income incurred by the former owners due to the abolition of the estates. The contention that it was in lieu of interest on the compensation payable overlooks the fact that the liability of the Government to pay the compensation excepting to the extent provided in section 54A, arose only after the compensation payable was finally determined under section 39. The interim payments were not fixed on the basis of the estimated compensation. They were fixed on the basis of the loss of income to the former owners. Under these circumstances, it is not possible to accept the contention that the interim payments were paid in lieu of interest or even that they represented compensation for loss of interest. If the legislature intended that the interim payments were to be made in lieu of the payment of interest on the compensation payable, nothing would have been easier than to say so in the Act. The term "interest" is a familiar term in l....
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....s caused to the owner because of the taking away of an income producing asset without payment of compensation. It is not the contention of the assesees that the interim payments made are part of the total compensation payable for the acquisition of the estates. According to them, it is a compensation for the destruction or taking away of an income producing asset of theirs till the assets taken from them are compensated. Now we shall proceed to consider the decided cases. We shall first take up the cases relied on by the appellants. The appellants placed great deal of reliance on the decision of the Madras High Court in Shanmuha Rajeswara Sethupathi v. Income-tax Officer, Karaikudi. The question that arose for decision therein was the very question that we are considering in these appeals. As a result of the Madras amendment after reorganization of States on November 1, 1956, clause (e) of section 3 as in force in Madras reads : "The principal or any other landholder and any other person whose rights stand transferred under clause (b) or cease and determine under clause (c) shall be entitled only to such rights and privileges as are recognised or conferred on him by or under th....
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....t test. This proposition is as sound as it is well-expressed, and has followed in numerous cases under the Indian Income-tax Act and also by the court. It is the quality of the payment that is decisive of the character of the payment and not the method of the payment or its it fall within capital or reenue. Again, at pages 407 and 408 of the report, the letrned judge observed: "Now, when the payment was made to compensation the assessee, no doubt the little was the out-turn of test which would have manufactured but that has little relevance. The assessee was not compensated for loss or destruction of or injury to a capital asset. The building were taken for the time being but the injury was not so much to the fixed capital as to the business as a whole." No reference may be made to some of the observations of Rowlatt J. in Simposon (H. M. Inspector trax ) v. Executors of Bonner Maurice as Executor of Edward Kay. In that case a naturalised British subject had at various dates deposited securities, stocks and shares in banks in Germany. He died during the war. After the peace treaty was signed claims of his representatives were admitted by the mixed arbitral tribunal in respect....
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....worth M. R., while confirming the judgment of Rowlatt J., observed: " The duty to pay compensation was imposed upon them by the treaty. The statute does not apply it, and the root of the payment is the duty to pay compensation .... For withholding this sum, for preventing Mr. Kay, or his executors, exercising the power of disposition over his property, the Germans have been compelled to pay compensation. The way to estimate that compensation or damages--the sensible way no doubt--would be by calculating a sum in terms of what interest it would have earned. That has been done, but the sum that was paid has not been turned into interest so as to attach income tax to it. It remains compensation and, for these reasons, it appears to me that it is not a sum which attracts or attaches income tax to it." The above observations undoubtedly support the case of the appellants. On the side of the department reliance was placed on the decision of this court in Raja Rameshwara Rao v. Commissioner of Income-tax. Therein this court was called upon to decide the nature of the payment made under section 14 of the Hyderabad (Abolition of Jagirs) Regulation, 1358F., under which the management o....
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....om sections 5, 8, 11, 12, 13 and 14 of the first regulation. Under section 5 thereof the quondam jagirdars were required to hand over the possession of ther estates to the jagir administrator. Section 8 required the former jagirdars to pay to the Government the administration expenses of their estates. Section 11 provided for distribution of the net income of an estate between the jagirdar and his hissedars who were entitled to a share in the income of the estate. Section 12(1) says : "From the amount payable to any person under section 11, there shall be deducted the amount of any maintenance allowance which under sub-section (2) is dubitable to the shtre of tbat person." Section 13 required the jagit administrator to maintain separate accounts in respect of each jagir and afford the concerned jagirdar and hissedar reasonable facilities for the inspection of the same. Section 14 reads : "The amounts payable to jagrdars and hissedars under the regulation shall be deemed to he interim maintenance allowances payable until such time as the terms for then commutation of jagirs are determined." It is the character of the payments made under section 14 that came up for considerat....