Statutory interest paid under S. 34 of the Land Acquisition Act is interest paid for the delayed payment of the compensation amount and, therefore, is a revenue receipt liable to tax under the Income-tax Act.

Headnote:
LAND ACQUISITION ACT - SECTION 34 - INTEREST ON COMPENSATION - REVENUE RECEIPT - TAXABLE INCOME: Whether interest paid under S. 34 of the Land Acquisition Act, 1894, is of the nature of a capital receipt or of a revenue receipt.
Fact of the Case:

The appellant, Dr. Shamlal Narula, received Rs. 48,660/- as interest on the compensation awarded for the acquisition of his land under the Land Acquisition Act, 1894. The Income-tax Officer included the said interest in the income of the appellant and assessed it to income-tax. The appellant contended that the said interest was a capital receipt and, therefore, not liable to tax.
Finding of the Court:

The court held that the statutory interest paid under S. 34 of the Land Acquisition Act is interest paid for the delayed payment of the compensation amount and, therefore, is a revenue receipt liable to tax under the Income-tax Act.
Issues: Whether the interest paid under S. 34 of the Land Acquisition Act is of the nature of a capital receipt or of a revenue receipt.
Ratio Decidendi: The court observed that the Act itself makes a clear distinction between the compensation payable for the land acquired and the interest payable on the compensation awarded. The interest is paid to the claimant for the use of his money by the State. Therefore, the statutory interest payable under S. 34 is not compensation paid to the owner for depriving him of his right to possession of the land acquired, but that given to him for the deprivation of the use of the money representing the compensation for the land acquired.
Final Decision: The appeal was dismissed with costs.

Judgement

SUBBA RAO, J.: This appeal by certificate granted by the High Court of Punjab raises the questions whether interest paid under S. 34 of the Land Acquisition Act, 1894, hereinafter called the Act, is of the nature of a capital receipt or of a revenue receipt.

2. The relevant facts are not in dispute and they may be briefly stated. The appellant, Dr. Shamlal Narula, is the manager of a Hindu undivided family, which owned, inter alia, 40 bighas and 11 biswas of land in the town of Patiala. The Patiala State Government initiated land acquisition proceedings for acquiring the said land under Regulations then prevailing in the Patiala State. It is common case that the State Regulations are in pari materia with the provisions of the Act. The State of Patiala first merged into the Union of Pepsu and later the Union of Pepsu merged into the State of Punjab. It is also common case that there was a Land Acquisition Act in the Union of Pepsu containing provisions similar to those obtaining in the Act. On October 6, 1953, the Act was extended to the Union of Pepsu. On September 30, 1955, the Collector of Patiala made an award under the Act as a result of which the appellant received on December 1, 1955, a sum of Rs. 2,81,822/-, which included a sum of Rs. 48,660/- as interest up to the date of the award. For the year 1956-57, the Income-tax Officer included the said interest in the income of the Hindu undivided family of which the appellant is the manager, and assessed the same to income-tax, after overruling the appellant contention that the said interest was a capital receipt and, therefore, not liable to tax. On June 14, 1957, the Appellate Assistant Commissioner confirmed the order of the Income-tax Officer. The appellant preferred an appeal to the Income-tax Appellate Tribunal, The said Tribunal by its order dated July 9, 1957, held that the said amount representing the interest was a capital receipt and on that finding the said amount was excluded from the total income of the assessee. At the instance of the Commissioner of Income-tax the said Tribunal referred the following question to the High Court of Punjab under S. 66 (1) of the Income-tax Act, 1922:

"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?

3. The said reference was heard by a Division Bench of the High Court and it held that the said amount was not a capital but a revenue receipt and as such liable to tax under the Indian Income-tax Act. Hence the present appeal.

4. Learned counsel for the appellant raised before us two contentions, namely, (i) the sum of Rs. 48,660/- received by the appellant under the award was compensation for depriving him of his right to possession of his property and was, therefore, a capital receipt not liable to tax; and (ii) whatever may be character of the amount awarded under S 34 of the Act by way of interest in a case where possession of the land has been taken by the State after the award, in a case where possession of the land acquired has been taken before the award, it would be a capital receipt for, it is said that in the latter the interest necessarily takes the character of compensation for depriving the owner of the land of his right to possession.

5. On behalf of the Revenue the order of the High Court is sought to be sustained for the reasons stated therein.

6. The question raised turns upon the true meaning of the provisions of S. 34 of the Act. It reads:

"When the amount of such compensation is not paid or deposited on or before taking possession of the land, the Collector shall pay the amount awarded with interest thereon at the rate of six per centum per annum from the time of so taking possession until it should have been so paid or deposited.

The section itself makes a distinction between the amount awarded as compensation

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1964 Supreme(SC) 129

Statutory interest paid under S. 34 of the Land Acquisition Act is interest paid for the delayed payment of the compensation amount and, therefore, is a revenue receipt liable to tax under the Income-tax Act.

Cases Referred (5)