High Court Of Andhra Pradesh
CIT vs. J.D. Italia
Asst. Year 1969-70
Jeevan Reddy & Mrs. Amareswari, JJ.
Case Refd. Nos. 48 of 1977 & 272 of 1978
11th August, 1982
M. Suryanarayana Murthy, for the Revenue : Y.V. Anjaneyulu, for the Petitioner .
(a) For land under suit 80,000
(b) Legal expenses 5,000
(c) Interest up to 13-7-64 24,000
(d) Interest from 13-7-64 to hereof 16,000
(e) For balance land (approximately I acre 30 gts) 20,000
JEEVAN REDDY, J. :
An identical question is referred in both these referred cases. The assessee is Sri J. D. Italia, who owned a certain extent of land in Lakshmipur Village in Warangal District. The land was said to have been unauthorisedly occupied by Azam Jahi Mills Ltd. The assessee filed a suit, O.S. No. 1 of 1956, on the file of the learned District judge, Warangal, for recovery of possession of the said land, which was ultimately decreed on January 22, 1963. The Azam Jahi Mills Ltd. filed an appeal in this Court , being A.S. No. 167 of 1963. In this appeal, a compromise was entered into between the parties which was recorded by this Court on July 8, 1968, in CMP No. 9839/68. According to this compromise, the Azam Jahi Mills agreed to pay a total sum of Rs. 1,45,000 to the legal representatives of the plaintiff (plaintiff died pending the proceedings) comprised of the following items :
2. For the asst. yr. 1969-70, the assessing authority held that the sum of Rs. 40,000 covered by items (c) and (d) in the above table is not taxable as revenue receipt. It did not also hold that the amount so received under the compromise or any part thereof was liable to capital gains tax. When the assessment order came to the notice of the CIT, he found it to be prejudicial to the interest of the Revenue and invoking his powers under s. 263 of the IT Act, issued a notice to the assessee calling upon him to show cause why the assessment order made by the ITO should not be set aside. After hearing the assessee, the CIT passed the following order: “For the reasons stated above, I am of the view that the assessment made by the ITO for 1969-70 on February 11, 1972, was erroneous inasmuch as the interest of Rs. 40,000 or in the alternative the capital gain on the sale of land treating the sale price as Rs. 1,45,000 has not been brought to tax, As the assessment made on February 11, 1972, for the asst. yr. 1969-70 is prejudicial to the interest of the Revenue, I set it aside with a direction to the ITO to redo the same after proper enquiries in regard to the correct nature of the transaction, the nature of the receipt in the hands of the assessee and other relevant factors.” (only the operative portion extracted).
3. Against the orders of the Addl. CIT, the assessee filed an appeal to the Tribunal. A preliminary objection was raised before the Tribunal on behalf of the Department to the effect that the appeal itself was not maintainable for the reason that the CIT’s orders are not final orders but are merely orders of remand directing further enquiry. This preliminary objection was overruled by the Tribunal. On merits, the Tribunal held that the sum of Rs. 40,000 was not a revenue receipt. It was of the opinion that since it was an interest paid otherwise than under the provisions of the statute, it was not taxable as a revenue receipt. But so far as the other direction of the Addl. CIT, viz., that the ITO should look into the character of the receipt of the entire amount of Rs. 1,45,000 to find out whether it was a capital receipt attracting capital gains tax, was concerned, the Tribunal confirmed the orders of the Addl. commissioner. In other words, the appeal was allowed in part. In so far as the assessee contended that the sum of Rs. 40,000 was not taxable as a revenue receipt, be succeeded; but so far as he sought to attack the CIT’s order directing further enquiry to find out whether the amount of Rs. 1,45,000 represented a capital receipt or not, the appeal was dismissed. Thereupon, the Department asked for and obtained a reference which is numbered as R.C. No. 48 of 1977.
In pursuance of the Addl. CIT’s orders, the ITO held that a sum of Rs. 1,20,000 out of the sum of Rs. 1,45,000 was a capital receipt attracting capital gains tax. Simultaneously, he made another assessment in the nature of an alternative or protective assessment, as it may be called, treating the sum of Rs. 40,000 as a revenue receipt and taxable as such in the said assessment order.
We are told by Mr. Y. V. Anjaneyulu that in so far as the ITO held that the sum of Rs. 1,20,000 was a capital receipt, the assessee did not file any appeal and that order had become final. But in so far as the other assessment which is called ” alternative” or “protective assessment”, as the case may be, is concerned, the assessee filed an appeal before the AAC which was dismissed. A further appeal was preferred to the Tribunal which held, following its earlier order, that it was not a revenue receipt. Thereupon, another reference was asked for and made which is numbered as R.C. No. 272 of 1978. Thus, it would be seen that R.C. No. 48 of 1977 is the substantive reference and the other one is merely consequential.
Mr. M. Suryanarayana Murthy, the learned standing counsel for the Department, contended that the distinction made by the Tribunal, viz., whether the interest was received under a statutory provision or otherwise than under a statutory provision was unsustainable in law. He submitted further that when the assessee himself chose to call the sum of Rs. 40,000 as interest, there was no reason not to treat it as interest ; and once it is called interest, it must follow that the sum of Rs. 80,000 mentioned under cl. (a) in the memorandum of compromise as the basic cost, should be treated as the price at which the land was sold on the date the encroachment had taken place or at any rate on the date of the suit. In other words, his contention is that the compromise must be understood as effecting the sale of the suit land on the date of the encroachment by the defendant or on the date of the institution of the suit, for a consideration of Rs. 80,000 and it must, therefore, be deemed that the said sum of Rs. 80,000 became due on that date. It is, accordingly, argued that the sum of Rs. 40,000 under items (c) and (d) represents interest on this amount which remained unpaid till the date of compromise. He, therefore, submits that this sum of Rs. 40,000 represents a revenue receipt and, therefore, the Tribunal was in error in treating it as not a revenue receipt.
We are in agreement with Mr. Suryanarayana Murthy that the distinction made by the Tribunal between the interest received under a statutory provision and the interest received otherwise than under a statutory provision, is unsustainable. It matters little whether interest is received under a statute or otherwise than under a statute. If a certain amount had fallen due and is not paid to the person entitled thereto and the person who is liable to pay the said amount is made liable to pay interest to compensate the other person for the deprivation of the use of money which he suffered, it is interest and a revenue receipt, whether this happens under a statute or under an agreement or otherwise. This position is clear from the observations of the Supreme Court in two decisions. In Dr. Shamlal Narula vs. CIT (1964) 53 ITR 151 (SC), the Supreme Court observed inter alia thus : “interest, whether it is statutory or contractual, represents the profit the creditor might have made if he had the use of the money or the loss he suffered because he had not that use. It is something in addition to the capital amount though it arises out of it.”
Similarly in T. N. K. Govindaraju Chetty vs. CIT (1967) 66 ITR 465 (SC), at p. 471, the Supreme Court observed that the principle which is applicable in the case of interest payable under statutory provisions will equally apply even if the interest was payable under the terms of an agreement and the Court or the arbitrator gives effect to the terms of the agreement, and awards interest which has been agreed to be paid.
But the more important question in this case is whether the sum of Rs. 40,000 can be called, in truth and substance, an ” interest”. On this aspect it is well to remember that the name or label given by a party to a particular amount is not conclusive. For instance, an assessee by giving a convenient label cannot escape the true incidence of tax under law. Similarly, merely because an assessee uses a wrong or inappropriate expression, he should not be made liable on that account if, in law, he is not so liable. Therefore, merely because the word “interest” is used in the memorandum of compromise under items (c) and (d), it does not follow automatically that it is interest because the question that would then immediately arise, on what amount, from what date and at what rate ? The memorandum of compromise does not make it clear whether the amount of interest is agreed to be paid from the date of encroachment or from the date of the suit, or from any other date. The contention of the assessee is that though styled as ” interest”, the amount covered by items (c) and (d) in the memorandum of compromise is damages for use and occupation; or, in other words, compensation for the deprivation of possession of the assessee over the suit land. Now it is not disputed that the amount paid by way of damages for use and occupation or paid by way of compensation for depriving the true owner of his use and enjoyment of the land is not taxable as revenue receipt. Therefore, the question is whether the said sum represents interest and if so on what amount ? For this purpose, Mr. Suryanarayana Murthy evolved an ingenious argument to the effect that the sale must be deemed to have taken place on the date the encroachment was made by the defendant. This theory is sought to be culled out from the use of the word “interest” in items (c) and (d) of the memorandum of compromise. We are, however, of the opinion that the inference so sought to be drawn is too farfetched. The assesseeplaintiff claimed to be the owner of the land and obtained a decree. In appeal, the parties entered into a compromise and in lieu of a sum of Rs. 1,45,000, the plaintiff gave up all his rights and claims in the said land and also a piece of adjoining land in favour of the defendant in the suit. If we ignore the words “interest” in items (c) and (d) it is conceded that there is nothing in the memo of compromise from which it can be held that the transfer had taken place on the date of encroachment. The question then is would it be reasonable to hold merely on account of the use of the word ” interest” that the sale had taken place at an anterior point of time. We must also observe that even the learned counsel for the Department could not definitely indicate, on what date must the sale be deemed to have taken place. He suggested two alternative dates, viz., the date of encroachment and the date of suit. But as observed by us above, this is too farfetched an inference to be drawn from the use of a single word which, in all probability, appears to be an inaccuracy of language. Once we reject this theory of sale at an anterior point of time, the argument that the sum of Rs. 40,000 represents interest falls to the ground. If no amount was due at an anterior point of time, there is no question of paying any interest at all. We are, therefore, of the opinion that the Tribunal was right in holding that the said sum of Rs. 40,000 was not a revenue receipt and is not includible as such in the taxable income of the assessee for the asst. yr. 1969-70. The question referred is accordingly answered in the affirmative and in favour of the assessee. The same answer shall also be recorded in R. C. No. 272 of 1978.
[Citation : 141 ITR 948]