Between:the Commissioner Of Income-Tax,Visakhapatnam … v. Subbaraju

HON’BLE THE CHIEF JUSTICE SRI MADAN B. LOKURAND THE HON’BLE SRI JUSTICE SANJAY KUMAR ITTA No.72 of 2000 3[rd] January, 2012 Between:The Commissioner of Income-Tax,Visakhapatnam … Appellant And V. Subbaraju Proprietor,Raja Trading Company,Kakinada. … Respondent Counsel for the appellant : Sri S.R. Ashok, Standing Counsel for Income-Tax Counsel for the respondent : Sri Y. Ratnakar THE HON’BLE THE CHIEF JUSTICE SHRI MADAN B. LOKURANDTHE HON’BLE SHRI JUSTICE SANJAY KUMAR I.T.T.A.NO.72 OF 2000 JUDGMENT: (per The Hon’ble the Chief Justice Shri Madan B. Lokur) *** 1. A substantial question of law was not framed while admitting thisappeal filed under Section 260A of the Income Tax Act, 1961(hereinafter referred to as ‘the Act’). Accordingly, after hearing thelearned counsel for the parties, we frame the following substantial question of law:- Whether on the facts and in the circumstances of thecase, the Income Tax Appellate Tribunal was justified inholding that the interest received by the assessee from1.11.1988 (the date of taking over possession of theassessee’s land) to 29.3.1992 (the date of passing anAward under the Land Acquisition Act, 1894) is liable tobe treated as a capital receipt? 2 . The assessee is an individual doing business of trading incycles and cycle parts. He also derives income from agricultural landowned by him. 3. A part of the assessee’s agricultural land was taken possessionof by the Government on 31.10.1988 with his consent. While takingover possession, an agreement was entered into between theassessee and the Government that interest would not be payable tothe assessee upto 30.10.1988 or till the date of the Award, whicheveris earlier. At that time, although proceedings under the LandAcquisition Act, 1894 (hereinafter referred to as ‘the LA Act’) werecontemplated, no proceedings had yet been initiated. 4. The Government then issued notifications under the provisionsof the LA Act acquiring a part of the assessee’s agricultural land andan Award under the LA Act was passed on 29.3.1992. In terms of theagreement between the assessee and the Government, interest waspaid to the assessee for the period 1.11.1988 upto 29.3.1992. 5. When the assessee filed his returns, the question that arosebefore the Assessing Officer was whether the interest received by theassessee was a capital receipt or a revenue receipt. The AssessingOfficer took the view that the interest received was a revenue receipt.In an appeal filed by the assessee, the Commissioner of Income Tax(Appeals) took the view that the interest received was a capitalreceipt. This view was upheld by the Income Tax Appellate Tribunal(for short ‘the Tribunal’) by relying upon a decision of the Kerala HighCourt in Commissioner of Income Tax v. Periyar and Pareekanni Rubbers Ltd.[[1]] 6. Feeling aggrieved, the Revenue is in appeal before us. 7. The Government may take possession of a person’s land eitherunder the provisions of the LA Act (or another statute) or by agreementwith the land owner. When possession of land is taken over by theGovernment under the provisions of Section 16 or 17 of the LA Act, theproperty vests absolutely in the Government. Any compensationreceived by a person for such compulsory acquisition of land amountsto compensation paid for the deprivation of the property, while theinterest paid is given to him for deprivation of the use of moneyrepresenting compensation for the land acquired. This is the viewtaken by the Supreme Court in Dr. Shamlal Narula v. Commissioner of Income-Tax[[2]]wherein it was held: Rubbers Ltd.[[1]] 6. Feeling aggrieved, the Revenue is in appeal before us. 7. The Government may take possession of a person’s land eitherunder the provisions of the LA Act (or another statute) or by agreementwith the land owner. When possession of land is taken over by theGovernment under the provisions of Section 16 or 17 of the LA Act, theproperty vests absolutely in the Government. Any compensationreceived by a person for such compulsory acquisition of land amountsto compensation paid for the deprivation of the property, while theinterest paid is given to him for deprivation of the use of moneyrepresenting compensation for the land acquired. This is the viewtaken by the Supreme Court in Dr. Shamlal Narula v. Commissioner of Income-Tax[[2]]wherein it was held: “… . in a case where title passes to the State, thestatutory interest provided thereafter can only beregarded either as representing the profit which ownerof the land might have made if he had the use of themoney or the loss he suffered because he had not thatuse. In no sense of the term can it be described asdamages or compensation for the owner's right to retainpossession, for he has no right to retain possessionafter possession was taken under s. 16or s. 17of theAct.” Under these circumstances, it was held that such interest oncompensation would be a revenue receipt. 8. On the other hand, while dealing with Inglewood Pulp and Paper Co., Ltd., v. New Brunswick Electric Power Commission[[3]]a n d Revenue Divisional officer, Trichinopally v. Venkatarama Ayyar[[4]]the Supreme Court observed that title in the property had notpassed on to the vendee (in the first case) or to the Government (in thesecond case), “it may be said that the owner was given interest inplace of his right to retain possession of the property.” In such a case,the interest received would be a capital receipt. 9. Noting this distinction, the Kerala High Court held in Periyar andPareekanni (following Dr. Shamlal Narula and T.N.K. Govindrajulu Chetty v. Commissionerof Income Tax[[5]]) that interest received bythe land owner till the date of the Award is a capital receipt. In thatcase, possession of land was taken on agreement between theassessee and the Government on 29.11.1961. The Award under theLA Act was passed on 31.8.1962 and compensation with interest waspaid on 6.9.1962. The Kerala High Court held for the period29.11.1961 to 31.8.1962 the interest was a capital receipt in the handsof the assessee and for the period 1.9.1962 to 6.9.1962 it was revenuereceipt. 10. We do not see any reason to express a different opinionparticularly in view of the decisions of the Supreme Court. In the casethat we are concerned with, possession of the assessee’s land wastaken by agreement on 31.10.1988 and the Award was passed on29.3.1992. Therefore for the period 1.11.1988 upto 29.3.1992 theinterest given to the assessee must be treated as a capital receipt.11. In the circumstances, we answer the substantial question of lawin the affirmative, in favour of the assessee and against the Revenue. __________________ MADAN B. LOKUR, C.J. 3[rd] January, 2012 _______________ SANJAY KUMAR, J. Note: LR copy be marked. vtv [1](1973) ITR 87 666 [2][1964] 53 ITR 151 [3]AIR 1928 PC 287 [4]AIR 1936 Madras 199 [5][1967] 66 ITR 465