Interest awarded by the High Court under the order of acquisition is taxable as a revenue receipt.

Judgement

SHAH, J.:- The Income-tax Appellate Tribunal submitted two questions for the opinion of the High Court of Madras :

"1. Whether the sum of Rs. 1,28,716 is assessable as income under any of the provisions of the Act ?

2. If the answer is in the affirmative, the assessment years in which the amount falls to be assessed by suitable apportionment."

The first question was answered by the High Court in the affirmative. The High Court declined to answer the second question because it did not, in their view, arise out of the order of the Tribunal. The assessees have appealed to this Court.

2. By order dated January 30, 1944, the Collector of Madras, exercising power under Rule 75A of the Defence of India Rules, 1939, requisitioned a property known as "Lutterals Gardens" belonging to the assessees. The property continued to remain under requisition till it vested in the Government of Madras absolutely in consequence of an order made on May 24, 1949 by the Collector of Madras under Section 5 of the Requisitioned Land (Continuance of Powers) Act, 1947, declaring the intention of the Government of Madras to acquire that property. The assessees declined the offer made by the Collector to pay Rs. 2,40,000 as compensation for acquisition of the property and interest at the rate of 6 per cent thereon from the date of notification for acquisition, and the dispute relating to compensation payable to the assessees was referred to the Chief Judge of the Court of Small Causes, Madras. By order of the High Court of Madras in appeal from the order of the Chief Judge it was adjudged that the assessees be paid Rs. 5,00,000 as compensation for the property. The High Court also awarded interest at the rate of 6 per cent on the amount of compensation from the date of notification for acquisition.

3. During the two previous years corresponding to the assessment years 1955-56 and 1956-57 the assessees received pursuant to the order of the High Court, a total sum of Rs. 6,28,716. In proceedings for assessment of tax for the assessment years 1955-56 and 1956-57, the Income-tax Officer apportioned the amount of Rs. 1,28,716 on the basis of actual receipts in the two previous years and assessed the amounts so apportioned to income-tax. The Appellate Assistant Commissioner held that the apportioned amounts were of the nature of revenue and not capital receipts, but in his view the income received was liable to be calculated on accrual basis year after year from the date of the notification for acquisition, and on that account the assessments of the previous years from 1950-51 to 1954-55 should be reopened and the interest which accrued in those years should be assessed.

4. The Commissioner of Income-tax and the assessees appealed to the Appellate Tribunal against the order of the Appellate Assistant Commissioner. The assessee submitted that Rs. 1,28,716 received as interest being part of compensation were not assessable to tax, whereas the Commissioner claimed that the Income-tax Officer was justified in assessing the amounts in the years in which they were received. The Income-tax Appellate Tribunal accepted the contention of the assessees that the receipts were not assessable to tax because they were of the nature of capital receipts. At the instance of the Commissioner, the Tribunal referred the two questions set out herein before.

5. Section 5 of the Requisitioned Land (Continuance of Powers) Act, 1947 authorises the Government by which or under the authority of which land has been requisitioned, to acquire the land subject to requisition, by publishing a notice to the effect that the Government has decided to acquire such land. Section 6 of the Act provides, inter alia, that compensation payable to the owner of the land shall be determined in accordance with the provisions of Section 19 of the Defence of India Act, 1939, and the rules made thereunder. Section 19 of the Defence of India Act, 1939, sets out the principles for determining the compensation pa