Interest on compensation for land acquired under the Land Acquisition Act accrues when the right to receive the interest arises, not when it is received.

D.K.Mahajan, J.

1. The Income-tax Appellate Tribunal, Delhi Bench "A", at the instance of the department, has referred the following question of law for our opinion :

"Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in deleting the amount of Rs. 42,577.50 out of Rs. 48,660 from the assessment for the assessment year 1956-57 ? "

2. The assessee, a Hindu undivided family, owned land. Land measuring 40 bighas and 11 biswas was acquired by the State Government. The notification acquiring the land was issued on 21st of June, 1950. This notification was issued under Section 9 of the Patiala Land Acquisition Act of 1995 Bk. and Patiala Land Acquisition Act of 2006 Bk. Both these Acts were replaced and the proceedings for the acquisition were finalised under the Indian Act. Later on, a notification was issued on 11th October, 1953, withdrawing the acquisition proceedings. The validity of this notification was challenged by the assessee and this, notification was quashed by the Pepsu High Court on 14th of February, 1955. On the 15th October, 1951, the assessee was deprived of possession of the land. The Collector made his award on 30th of September, 1955. The assessee was dissatisfied with this award and applied for reference under Section 18 of the Land Acquisition Act to the district judge. The learned district judge-enhanced the compensation and, excepting by way of historical importance, this fact has no material bearing on this case. In the ultimate analysis, it was found that the assessee was due interest on the amount of compensation awarded to him to the tune of Rs. 48,660. This interest was paid to him in the year previous to the assessment year 1956-57. The department proceeded to assess this interest to income-tax. The assessee claimed that the interest could not be taxed to income-tax at all. He failed in his contention right up to the Supreme Court. After the decision of the Supreme Court, the assessee raised the contention that the entire interest could not be assessed in the year 1956-57. It had to be spread over the various years for which it had accrued due. This contention did not find favour with the Income-tax Officer and so also with the Appellate Assistant Commissioner in appeal. However, on appeal to the Tribunal, the Tribunal held that only the interest referable to the relevant assessment year could be brought to tax. The relevant part of the decision of the Tribunal is as follows:

"On the above facts the question for determination is as to whether the entire interest accrued to the assessee during the previous year or only part thereof. In this connection reference may be made to the observations of their Lordships of the Bombay High Court in the case of Commissioner of Income-tax v. Associated Commercial Corporation, [19631 48 I.T.R. 1 (Bom.). Their Lordships have quoted with approval the observations of the Punjab High Court in the case of Commissioner of Income-tax v. Jai Parkash Om Parkash Co. Ltd, [1961] 41 I.T.R. 718 (Punj.)., to the following, effect: The scheme of the Income-tax Act showed that only those sums were taxable which accrued as income, i.e., they must have actually accrued or arisen. No amount could be said to accrue unless it was actually due. A claim to an amount was not tantamount to the amount being due or having accrued."

3. Their Lordships after quoting the above observations of the Punjab High Court have at page 18 observed as follows :

"The learned judges observed in that case that the foundation of the claim was in jeopardy at the time when the claim was said to have accrued to the assessee, and included in his taxable income, and they pointed out that it was only when the claim was no longer in jeopardy as a result of having been decided in his favour that the amount could be said to have accrued to the assessee. In our opinion, a profit could be said to have accrued or a liability or loss could be said to have been incurred only w