Interest paid under Section 34 of the Land Acquisition Act is a revenue receipt and is liable to tax under the Income-tax Act.

Tek Chand, J.

1. This is an income-tax reference at the instance of the Commissioner of Income-tax arising out of the order of the Tribunal in I. T. A. No. 5276 of 1957-58, and the following question of law has been referred to this Court under Section 66 (1) of the Indian Income-tax Act -

"Whether on a true interpretation of Section 34 of the Land Acquisition Act and the Award given by the Collector of Pepsu on the 30th September, 1955 the sum, of Rs. 48,660/- was capital receipt not liable to tax under the Indian Income Tax Act?

2. The question of law reproduced above has been referred to this Court in view of the under noted facts and circumstances.

3. The assessee is a Hindu undivided family represented by Dr. Sham Lal Narula. Apart from other sources, the assessee owned land measuring 40 bighas 11 biswas in the erstwhile Patiala State. This land was acquired by the Patiala Government under Patiala Act 3 of 1995 Bk. On 15th October, 1951, possession of the land was taken over by the Government though by that date the amount of compensation to which the assesses was entitled had not been determined. An award was given by the Collector of Pepsu on 30th September 1955, and the assessee received a sum of RS. 2,81,822/- which included a sum of Rs. 48,660/- as interest. The following is the relevant extract from the award made by the Collector Pepsu :

"Hence I, am of the opinion that the market value of the land in question is Rs. 5000/- per bigha. The total amount of compensation of the land acquired comes to Rs. 2,02,750/-. The possession of this land was taken by the Acquiring Department on 5-10-1951. As such the owner of the land is entitled to receive an interest at the rate of 6 per cent per annum, on the amount to be paid as price of the land. The amount of interest comes to Rs. 48,660/- in addition to it the owner of the land is entitled to receive an amount of Rs. 30,412/- at the rate of 15% on account of compulsory nature of acquisition. Thus the grand total of the amount comes to Rs. 2,81,822/-."

The interest of Rs. 48,660/- was awarded under Section 34 of the_ Land Acquisition _ Act (1 of 1894) read with Pepsu Land Act of 1954. When assessment made by the Income Tax Officer for the assessees income in 1956-57 it was contended on behalf of the assessee that the sum of Rs. 48,660/- was capital Receipt not liable to tax under the Indian Income Tax Act. The Income Tax Officer Ayas of the view that the same was in the nature, of revenue receipt and, therefore, attracted tax liability. This view on appeal by the, assessee was affirmed by the Appellate Assistant Commissioner. The assessee then appealed to the Income Tax Tribunal and succeeded. The Tribunal held that the receipt of Rs. 48,660/- was clearly receipt of a capital nature not liable to tax under the Act.

According to the Tribunal, Section 34 of the Land Acquisition Act quantified the amount of interest to be paid to a person whose land was acquired. The Tribunal felt that merely because the amount of compensation was determined by a particular measure, its real character would not change. Following the rule laid down by the Allahabad High Court in Behari Lal V/s. Commissioner of Income-Tax C. P. and U. P. (1941) 9 I. t. R. 9 : (AIR 1941 All 135), the Tribunal held that the amount in question was not liable to tax.

4. The Commissioner of Income-tax applied under Section 66(1) of the Income-tax Act requiring the Appellate Tribunal to refer to this Court the question of law reproduced above and the Tribunal has drawn up the statement of the case and framed the question of law for the opinion of this Court.

5. Learned counsel at the bar cited a number of authorities in support of their respective contentions which will be examined presently. It will be advantageous to consider at this stage the general scheme of the Land Acquisition Act with reference to the relevant provisions.

6. The Land Acquisition Act (1 of 1894) was passed to amend the law for the acqui