Calcutta H.C : Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the sum of Rs. 26,983 received by the assessee by virtue of the order of the Calcutta Improvement Tribunal dt. 22nd Feb., 1962, was a capital receipt and, as such, not includible in the total income of the assessee ?

Suhas Sen, for the Revenue : R. N. Bajoria, for the Assessee

C. K. BANERJI, J.:

In this reference under s. 256(1) of the IT Act, 1961, the facts are shortly as follows:

2. Smt. Asrafi Devi Rajgharia, the assessee, had been the owner of premises No. 212, Bagmari Road, Calcutta, comprising of land measuring 16 bighas and 17 cottahs which was acquired under the Calcutta Improvement Trust Scheme No. VII (Manicktala). Declaration in respect of the said land under s. 6 of the Land Acquisition Act. 1894, was published on the 12th Aug., 1954, and general notice under s. 9(1) thereof was published on the 6th Jan., 1955. An award under s. 11 of the said Act was made on the 22nd Sept., 1959, whereunder Rs. 3,06,164.50 was determined to be payable as compensation. Possession of the said land was taken from the assessee on the 19th Jan.. 1960. The assessee being dissatisfied with the said award made a reference to the Calcutta Improvement Tribunal where she also claimed compensation for damage suffered due to delay in making the award under s. 48A of the said Act. Following an unreported decision of this Court in Appeal from Original Decree No. 173 of 1953 entitled Kedarnath Jute Manufacturing Co. Ltd. vs. State of West Bengal, the Calcutta Improvement Tribunal by its judgment and order dt. the 22nd Feb., 1960, awarded a further compensation to the assessee as follows : . 31,114.53 . Rs. (a) Compensation for damage 26,982.71 (b) Interest at 6 per cent on the above amount 3,507.75 (c) Cost 624.07

3. In her assessment for the asst. yr. 1963-64 for which the relevant previous year ended on the 27th Oct., 1962, the assessee claimed that the said sum of Rs. 31.114.53 was additional compensation for acquisition of her said land. The ITO, following an order of assessment in an earlier year in respect of the said initial compensation awarded to the assessee, held that Rs. 26,983 was taxable as capital gains and that the balance of Rs. 4,132 was taxable as income from other sources and levied tax accordingly.

4. In her appeal to the AAC the assessee contended that Rs. 26,983 was not extra price for the said land but compensation for damages suffered by her in consequence of the delay of three years, one month and nine days in making the award for compensation beyond the statutory period of two years, by way of loss of interest on the amount of the award assessable in the asst. yrs. 1957-58 to 1960-61 and not in the year in issue. The AAC held that the right of the assessee to receive the said amount arose out of the said order of the Calcutta Improvement Tribunal and was assessable in the year under appeal as interest income under the head “Other sources” and confirmed the order of the ITO with regard to Rs. 3,508 only.

5. The assessee preferred a further appeal to the Tribunal and, inter alia, urged that the sum awarded as compensation for the delay in making the award for compensation for the said acquisition was a receipt of a non- recurring nature and, as such, exempt from tax as a casual receipt. The Tribunal held that the said sum was not income by way of interest but was an additional compensation provided under the statute for a late award, originating from the acquisition of land and, as such, a capital receipt. The Tribunal also held that s. 2(47) r/w s. 43 of the IT Act, 1961, was not applicable in the facts and as s. 2B(1) of the Indian IT Act, 1922, did not cover compulsory acquisition the said sum was not taxable as capital gains.

6. On an application of the CIT, West Bengal. IV. Calcutta, under s. 256(1) of the IT Act, 1961, the Tribunal has drawn up a statement of case and has referred the following question of law for the opinion of this Court:

“Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the sum of Rs. 26,983 received by the assessee by virtue of the order of the Calcutta Improvement Tribunal dt. 22nd Feb., 1962, was a capital receipt and, as such, not includible in the total income of the assessee ?”

7. Mr. R. N. Bajoria, learned counsel for the assessee, submitted before us that the conclusions of the Tribunal that s. 12B(1) of the 1922 Act was not applicable and that no tax on capital gains was leviable on the said sum of Rs 26,983 were obiter. There was no appeal nor any cross-objection from the decision of the AAC on this aspect of the matter. The said findings of the Tribunal have not been challenged by the Revenue by raising an appropriate question and the same is not in issue in this reference.

8. Mr. Subas Sen, learned counsel for the Revenue, did not dispute such contention on behalf of the assessee.

9. Mr. Sen, however, contended that the observations of the Tribunal that s. 12B(1) of the 1922 Act did not cover compulsory acquisition and hence the said sum was not taxable as capital gains were erroneous. In this connection he cited Mangalore Electric Supply Co. Ltd. vs. CIT 1978 CTR (SC) 61 : (1978) 113 ITR 655, where the Supreme Court held that the word “transfer” in s. 12B(1) of the 1922 Act included compulsory acquisition of property.

10. Sec. 48A of the L.A. Act, 1894, as it stood before its amendment by the Calcutta Improvement (Amendment) Act, 1955, may be referred to all this stage : “48A. Compensation to be awarded when land not acquired within two years.—(1) If within a period of two years from the date of the issue of the public notice under sub-s. (1) of s. 9, in respect of any land, the Collector has not made an award under s. 11 with respect to such land, the owner of the land shall, unless he has been to a material extent responsible for the delay, be entitled to receive compensation for the damage suffered by him in consequence of the delay. (2) The provisions of Part III of this Act shall apply, so far as may be, to the determination of the compensation payable under this section.” Mr. Sen submitted that the specific case of the assessee before the Calcutta Improvement Tribunal was that she had suffered damage in consequence of the delay in making the award in the shape of loss of interest on the amount of the award and the said Tribunal, following an unreported decision of a Division Bench of this Court in Appeal from Original Decree No. 173 of 1953 entitled Kedarnath Jute Manufacturing Co. Ltd. vs. State of West Bengal, allowed the claim of the assessee on the basis of loss of interest on the sum awarded as compensation for the acquisition but deducted from such claim the income derived by the assessee from the said land under acquisition during the period of the delay. Mr. Sen submitted that what was claimed by the assessee and what was awarded to her was the loss of interest on the amount of compensation awarded on account of delay in making the said award which deprived her of the use or profitable use of the compensation awarded during the period of the delay. Mr. Sen contended that the said sum of Rs. 26,983 was, therefore, in the nature of a compensation for loss of interest and was thus a revenue receipt.

Mr. Sen also contended that even otherwise, if compensation under s. 48A was awarded for loss of income or profit arising out of the awarded amount for the period of the delay in making the award, the same would still be revenue receipt in the hands of the assessee. The law was settled so far as this Court was concerned in Kedarnath Jule Manufacturing Co. Ltd. (supra).

Mr. Sen also contended that the assessee had made a specific claim for loss of interest under s. 48A of the L.A. Act, before the Calcutta Improvement Tribunal and had obtained compensation on that basis. She was not entitled now to make out a different case or raise any contention contrary to her specific case.

Mr. Sen further urged that under s. 48A of the L.A. Act the claimant was required to prove the damage suffered. The only damage proved by the assessee in the instant case was loss of interest on the amount of compensation for acquisition of her land due to delay in making the award which was compensated by the award made under s. 48A.

In support of his contention Mr. Sen cited the following decisions i 1. An unreported decision of a Division Bench of this Court in Appeal from Original Decree No. 182 of 1953, entitled Mirza Nasir Ali vs. State of West Bengal. This was an appeal from a decision of the Calcutta Improvement Tribunal awarding compensation. The appellants contended that they were entitled to compensation under s. 48A of the L.A. Act for loss suffered by them for delay in making the award as the early receipt of the said compensation under the award could have been invested and would have earned interest. The respondents contended, on the other hand, that interest was specifically provided for in s. 34 of the said Act and not under s. 48A, which provided for damage suffered otherwise than by loss of interest. This Court observed as follows : “It is true that s. 34 of the L.A. Act provided that the interest will be paid from the time of taking possession until the amount of compensation awarded is deposited or paid. Bat the said section relates to a period which follows the making of an award. Sec. 48A, on the other hand, relates to a period which is prior to the making of an award. What is laid down in s. 48A is that the claimant would be entitled to damages suffered by him in consequence of the delay. If in law loss of interest can be legitimately claimed as damages suffered by a party, I do not see any reason why the same cannot be claimed under the said section. All that s. 34 lays down is that interest has to be paid by the Collector after possession is taken. But then that would not prevent a party from claiming such interest by way of damages. Sec. 48A makes a clear provision to the effect that all damages whatsoever suffered by him in consequence of the delay would be recoverable by the claimant. If loss of interest, as I have said, would be damage suffered by the claimant in consequence of the delay, it would be recoverable under s. 48A and a party would not be prevented from claiming the amount simply because there is a provision to the effect that the Collector is to pay interest after he has taken possession of the premises in question …… I do not see why the profitable use to which the money could have been put by the claimant cannot form the basis of such damages. In my opinion in spite of the provisions of s. 34 the claimant would be entitled to claim damages by way of loss of interest under s. 48A for a period of two years from the date of publication of declaration until the award is made.” 2. Kedarnath Jute Manufacturing Co. Ltd. (Appeal from Original Decree No. 173 of 1953). This was an appeal against a decision of the Calcutta Improvement Tribunal where a claim for compensation for damages under s. 48A had been rejected. A Division Bench of this Court observed as follows : “Sec. 48A, therefore, ought to be liberally construed in favour of the owner for whose benefit it was enacted. So construed the section presents no difficulty. Damage suffered in consequence of the delay would in this context undoubtedly include loss of interest which would or might have been earned by the owner but for such delay. The real point for enquiry would then be whether the owner would have been entitled to the compensation money immediately on the making of the award, for, in that event, he may reasonably be expected to derive income by investing the same and ordinarily interest is the measure of such income and compensation then would be for such loss of interest less, of course, the net income, if any, which the owner had derived from the property in the meantime. This deduction will be by way of mitigation of damages and the trust or the State is entitled to debit it under the law against damages claimed and in some cases it may even exceed the loss of interest and thus wipe off entirely the claim for damages under that head …… On the owner’s right to payment immediately on the making of the award, three sections are important, namely, s. 11, s. 12 and s. 31. Sec. 11 speaks of the making of the award. Sec. 12 enjoins that it should be filed and immediate notice thereof should be given to the persons interested. Under s. 31 it is the duty of the Collector to tender payment of the compensation to the persons interested, entitled thereto according to the award, and to pay it to them. It is clear, therefore, that the owner is entitled to the compensation money immediately on the making of the award which, on a proper reading of the three sections, ss. 11, 12 and 31, would mean its filing under s. 12(1), the award being really complete only on such filing. This view is also supported by the statutory r. 10 prescribed under s. 55 of the Act and the form of notice (Form No. 15) prescribed thereunder. In the view we have taken of the three sections, ss. 11, 12 and 31, no question arises of any inconsistency between the Act and the Rule and the Form referred to above. We cannot, therefore, accept the learned Advocate-General’s suggestions or his argument against the appellant’s contentions that they should be held entitled to compensation under s. 48A for loss of interest on the award money in consequence of the delay in the making thereof.” 3. Express Newspapers Ltd. vs. State of Madras, AIR 1961 Mad 59. In, this case acquisition proceedings were initiated by issue of notices under ss. 4(1) and 5A of the L.A. Act. Subsequently, a declaration under s. 6 was published and thereafter notices under ss. 9 and 10 of the said Act were issued. After six years the acquisition proceedings were dropped by a notification under s.48 (1) of the said Act. The owner claimed Rs. 81,871-4-0 as damages under several heads under s. 48 (2) of the said Act. The matter ultimately came up by way of appeal before the High Court of Madras, a Division Bench whereof observed as follows (at pp. 62, 63) : “The very conception of compensation for compulsory acquisition involves two elements (i) the value of the property, and (ii) as damages for injury …… The very fact that, under s. 48(1) of the Act, such withdrawal has to necessarily take place before possession is taken of the land is sufficient to dispose of the argument that the damages should really be related to concrete injuries sustained by actual acts of possession by authorities, or merely to incidental costs … The assessment of compensation would include conjectural claims through uses to which the property could have been put, and income derived therefrom, but from which the owner was prevented, by the pending acquisition. The principles applicable to compulsory acquisition, such as compensation for special adaptability, etc., will apply mutatis mutandis to a case of withdrawal also …… The claim must be founded upon realism, upon the hard core of fact, though it may be inevitably conjectural to a certain extent.” CIT vs. Shamsher Printing Press (1960) 39 ITR 90 (SC). In this case a premises with a printing press had been requisitioned by the Government for the duration of the war. The assessee, the owner of the press, had to shift its business elsewhere and recommenced its business sometime later. The assessee claimed compensation for the said requisition on various counts including for compulsory vacation of the premises, disturbance and loss of business and received Rs. 57,435 as compensation. The question arose whether the said sum was a capital receipt or a revenue receipt. The Supreme Court rejected the contention of the assessee that the said amount included compensation for loss of goodwill and held that it was compensation for loss of profits and thus a revenue receipt. 5. Senairam Doongarmall vs. CIT (1961) 42 ITR 392 (SC). In this case the factories and other buildings of a tea estate were requisitioned under the Defence of India Rules while the tea garden remained in the possession of the owner. The owner received compensation under the Defence of India Rules calculated on the basis of the out-turn of tea which could have been manufactured. The dispute was whether the amount of such compensation was a revenue receipt or not. The Supreme Court found that by the requisition, the business of the assessee had ceased and observed that it was the quality of the payment that was decisive of its character and not the method or measure of such payment. The Supreme Court concluded as follows (at p. 409) : “Though the payment in question was not made to fill a hole in the capital of the assessee as in Glenboig case (1922) 12 TC 427 (HL), no was it made to fill a hole in the profits of a going business as in Shamsher Printing Press case (supra), it cannot be treated as partaking the character of profits because business not having been done, no question of profits taxable under s. 10 arose.” 6. T. N. K. Govindarajulu Chetty vs. CIT (1967) 66 ITR 465 (SC). In this case a property was first requisitioned under the Defence of India Rules and was thereafter acquired under the Requisitioned Land (Continuance of Power) Act, 1947. The owner ultimately received by an order of the High Court Rs. 5,00,000 as compensation and Rs. 1,28,716 as interest. In the income-tax assessment of the owner the question arose, whether the amount received as interest was a revenue or a capital receipt. The Tribunal held the same to be a capital receipt. On a reference, the Madras High Court held that the same was a revenue receipt. The Supreme Court, in an appeal by the assessee, held that the amount was taxable as income.

7. Chandroji Rao vs. CIT (1970) 77 ITR 743 (SC). In this case under s. 8(2) of the Madhya Bharat Abolition of Jagirs Act, 1951, a Jagir was resumed by the State Government and it was directed that the compensation payable would carry interest from the date of resumption to the date of payment of the compensation. On a dispute whether such interest would be a capital receipt or revenue receipt, it was ultimately held by the Supreme Court following its earlier decision in Dr. Shamlal Narula vs. CIT (1964) 53 ITR 151 (SC), that such interest would be a revenue receipt. 8. Vadilal Soda Ice Factory vs. CIT (1971) 80 ITR 711 (Guj). In this case the land leased to the assessee where it was running an ice factory was compulsorily acquired under the L. A. Act and the assessee had to shift to another site. The assessee received compensation for the acquisition of the factory and also the leasehold on the basis of market value. An additional sum, being 15 per cent of the market value, was also awarded under s. 23(2), of the L.A. Act. The assessee contended that such additional sum should be excluded in computing capital gains arising out of the acquisition as the same was a special compensation granted in consideration of the compulsory nature of the acquisition. The Gujarat High Court held that the said sum was a solatium by way of compensation for something other than property acquired which went to augment the compensation for the property acquired and formed part of the compensation received for the compulsory acquisition of the property and had to be taken into account in computing capital gains arising from such compulsory acquisition. 9. Mangalore Electric Supply Co. Ltd. vs. CIT (supra). Here the Supreme Court held that the expression “transfer” was comprehensive and included both voluntary and involuntary transfers and there was no reason for limiting the operation of the said word to voluntary acts of transfer only and to exclude compulsory acquisition of property.

Mr. R. N. Bajoria, on the other hand, contended on behalf of the assessee that compensation under s. 48A of the L.A. Act for delay in making the award was a compensation for dereliction of duty by the Collector under the L.A. Act, a quasi-judicial authority, in determining the compensation and making the award within the statutory period. He referred to various sections of the L.A. Act, 1894, to show the scheme of the Act and the nature of compensation and interest payable thereunder at various stages.

Mr. Bajoria submitted that in the L.A. Act elaborate provisions have been made for payment of compensation at different stages on different grounds and specific provisions have also been made under ss. 28 and 34 of the Act for payment of interest and the two items have been distinguished in the Act itself. Until possession was taken the property acquired did not vest in the Government and the owner continued to be entitled to receive the rents, issues and profits thereof. At that stage the Government also continued to be entitled to release the property from the acquisition. The owners or the persons interested became entitled to receive compensation for the acquisition only after possession was taken when the property would vest in the Government free from all encumbrances under s. 16 of the Act. Till possession was taken, the owner continued to be entitled to deal with or dispose of the property except that the value of the property under acquisition in case of a transfer or the rent or premium therefor in case of a lease would be adversely affected. The Act provided for compensation for acquisition and not for a proposed acquisition.

Mr. Bajoria next urged that the compensation for damages under s. 48A of the said Act could not be loss of interest on the compensation money which was not quantified till the award was made. Interest could be claimed or paid only on a quantified and ascertained sum and not on money which might become payable at a future date. Such compensation for damages might be calculated on the basis of loss of interest on the amount of compensation receivable by the owner but that was merely a rough and ready method for a determination of such compensation. Such basis or method for quantification of the compensation for damages could not decide the character of the compensation. Such compensation for damages could not also be for loss of income from the property under acquisition inasmuch as in determining such compensation the income actually derived or which could have been derived by the owner, had he been diligent, were allowed to be deducted as would appear from the said two unreported Bench decisions of this Court in Mirza Nazir Ali (Appeal from Original Decree No. 182 of 1953) and Kedarnath Jute Manufacturing Co. Ltd. (Appeal from Original Decree No. 173 of 1953). Mr. Bajoria further submitted that, in the above two unreported decisions, this Court was concerned with what should be the measure of such damages and how the same was to be determined and although the Court adopted the measure of loss of interest on the amount of compensation for acquisition as the basis for determination of such compensation still what was granted by the Court was compensation for damages. The Court had no occasion to and did not consider the nature or character of the said compensation or of the receipt thereunder in the hands of the owner for the purposes of taxation.

Mr. Bajoria further contended that possession of the said property was taken by the Collector on 19th Jan., 1960, and, therefore, transfer of the said property took place on that date. Under s. 12B of the Indian IT Act, 1922, capital gains, if any, resulting from the transfer including the said compensation for damages was taxable in the asst. yr. 1960-61 when the transfer was effected and not in the instant assessment year. He further contended that the compensation under s. 48A of the said Act was not dependent upon either acquisition of the property or on making of any award for compensation. The owner was entitled to compensation under s. 48A only upon proof of damages suffered by him on account of delay in making the award resulting in harassment to the owner.

Compensation for acquisition could be received by the owner only when he was divested of his ownership by possession being taken, and interest, if any, on such compensation could be paid only after that date. Under s. 48A, the owner was entitled to compensation for damages for delay in making the award. Under several provisions of the L. A. Act, interest was payable only so long as possession was taken but compensation for damages under s. 48A was payable only after an award was made. Interest at the rate of 6 per cent per annum was allowed on the compensation awarded under s. 48A but if the said compensation itself was interest then the Act would be deemed to have provided for interest upon interest which would be absurd. The interest allowed to the assessee on the amount of compensation awarded under s. 48A has been taxed as income of the assessee and there is no dispute with regard to the same. The L. A. Act makes a clear distinction between interest and compensation and provides for different methods for computation thereof and the two should not and cannot be equated. The statutory compensation allowed under s. 48A is not referable in any manner to the property under acquisition and does not arise out of any injury thereto or interference therewith. The expressions “interest” and “compensation” appear in different sections of the L.A. Act and each should be given the same meaning wherever they occur.

Mr. Bajoria next contended that the compensation under s. 48A could not be income of the assessee as the same did not arise out of any business of the assessee and even if it could be said to be casual or non-recurring income, it would not be taxable in the relevant year.

For the meaning and definition of the expression “interest”, Mr. Bajoria referred to the following passages from law dictionaries which are set out below : (a) Black’s Law Dictionary (revised fourth edition, 1968), p. 950. “Interest : For Money. Interest is the compensation allowed by law or fixed by the parties for the use or forbearance or detention of money…” (b) Jowitt’s Dictionary of English Law (2nd Edn., 1977), p. 996. Interest : … Interest also signifies a sum payable in respect of the use of another sum of money, called the principal. Interest is calculated at a rate proportionate to the amount of the principal and to the time during which non-payment continues : Interest is of two kinds, namely, that which is agreed to be paid on a loan, and that payable as damages for the non-payment of a debt or other sum of money on the proper day. In equity, interest seems to have been allowed as damages in all cases where there was a wrongful detention of money which ought to have been paid (Hyde vs. Price (1837) Coop Pr. Cas 193).

In support of his contentions, Mr. Bajoria cited the following decisions : 1. Glenboig Union Fireclay Co. Ltd. vs. IRC (supra). In this case the Glenboing Union Fireclay Company Ltd., the appellant, had rights for mining fireclay in certain properties, over a part of which lines of a railway company were laid, the latter having a right over the surface of the land. Litigations ensued between the appellant and the railway company whereunder the railway company paid a certain sum as damages to the appellant for preventing the latter from working the fireclay under the railway lines. In its income-tax assessment the appellant claimed the amount received as damages as trading receipts which was rejected by the Revenue. The matter ultimately came up before the House of Lords which considered the nature of the said receipt and Lord Buckmaster made the following observation (p. 463) :”In truth the sum of money is the sum paid to prevent the fireclay company obtaining the full benefit of the capital value of that part of the mines which they are prevented from working by the railway company. It appears to me to make no difference whether it be regarded as a sale of the asset out and out, or whether it be treated merely as a means of preventing the acquisition of profit that would otherwise be gained. In either case the capital asset of the company to that extent has been sterilised and destroyed, and it is in respect of that action that the sum of pounds 15,316 was paid. It is unsound to consider the fact that the measure, adopted for the purpose of seeing what the total amount should be, was based on considering what are the profits that would have been earned. That, no doubt, is a perfectly exact and accurate way of determining the compensation, for it is now well settled that the compensation payable in such circumstances is the full value of the minerals that are to be left unworked, less the cost of working, and that is, of course, the profit that would be obtained were they in fact worked. But there is no relation between the measure that is used for the purpose of calculating a particular result and the quality of the figure that is arrived at by means of the application of that test. I am unable to regard this sum of money as anything but capital money.” 2. Simpson (H.M. Inspector of Taxes) vs. Executors of Bonner Maurice as Executors of Edward Kay (1929) 14 TC 580 (CA). In this case a person domiciled and ordinarily resident in the United Kingdom during his lifetime deposited diverse securities, stocks and shares in safe custody with four banks in Germany with instructions to collect the interest and dividends in respect thereof and credit the same to his account. At the out-break of the Great War considerable balance stood to his credit in the said banks. He died during the war. After the end of the war the executors of his estate recovered certain amounts from the Anglo- German Mixed Arbitral Tribunal. The money so recovered fell into five categories which included capital, dividend and interest paid by the banks to the custodian of enemy property in Germany together with compensation for damage or injury to property, right of interest, etc. The taxing authorities in England sought to tax the said receipts as income. One of the questions was as to what was the nature of the compensation received by the estate. Lord Hanworth M.R. observed as follows (p. 602) : “For withholding this sum, for preventing Mr. Kay, or his executors, exercising the power of disposition over his property, the Germans have been compelled to pay compensation. The way to estimate that compensation or damages-the sensible way no doubt-would be by calculating, a sum in terms of what interest it would have earned. That has been done, but the sum that was paid has not been turned into interest so as to attach income tax to it. It remains compensation …… ..” and Lawrence L.J. observed as follows (p. 605): “It seems clear to me that such money was paid, in the words of the Peace Treaty, as ‘compensation in respect of damage or injury inflicted upon’ the property of Mr. Kay and of the respondents, which property was restored to the respondents under Para (a) of the same article. The damage or injury inflicted upon the property was the application by Germany of exceptional war measures which had the effect of removing from Mr. Kay and the respondents the power of disposition over that property without affecting its ownership. Article 297 of the Treaty says nothing about the payment of interest and the money paid under the direction of the Mixed Arbitral Tribunal was paid as compensation and not as interest. Neither the fact that the compensation was measured by the amount of the interest, which but for the embargo placed upon the money by the German Government could have been earned by the respondents, nor the fact that part of the compensation was described as ‘interest ‘ in the decision of the Mixed Arbitral Tribunal, in my judgment, has the effect of altering the character of the compensation paid to the respondents.” 3. Vats den Berghs Ltd. vs. Clark (H. M. Inspector of Taxes) (1935) 19 TC 390, also reported in (1935) 3 ITR (Eng Cas) 17 (HL) : This was cited for the following observation of Lord Macmillan in the leading judgment (p. 431) :

“But even if a payment is measured by annual receipts, it is not necessarily in itself an item of income.” 4. IRC vs. Barnato (1936) 20 TC 455 (CA): In this case the assessee, under the will of his father, was bequeathed certain amounts payable by a firm, Barnato Brothers, and was also entitled to be inducted as a partner in the said firm upon attaining majority.

The assessee was also bequeathed certain amounts from the firm under the will of his cousin. The assessee received part of the said amounts and upon attaining majority also became a partner in the firm. Subsequently, at the instance of the assessee, the firm was dissolved and the other partners agreed to pay a further amount to the assessee subject to accounting. The latter amount not having been paid, the assessee obtained a decree for the amounts in a suit and ultimately recovered several amounts from time to time. In the income-tax assessment of the assessee the question arose as to what was the nature of the said receipts in the hands of the assessee. Lord Wright observed as under (p. 512) : “If Captain Woolf Barnato as the beneficiary had been paid the proper sum at the time when he ought to have been paid the proper sum if the accounts had been kept in due order … he would have had that money in his hands and the beneficial use of it at the proper time, and it was owing, not to any fraud, as the case has proceeded on the part of the defendants, but owing to their negligence and improper accounting, that he

was deprived of that money for all that time, and he was entitled, according to the ordinary law, either to the profits or to interest and I see no reason at all why the appropriate sums payable under the admissions embodied in the consent order of Romer J. should not be treated as interest here in the ordinary sense.” 5. London & Thames Haven Oil Wharves Ltd. vs. Attwooll (H. M. inspector of Taxes) (1966) 43 TC 491, 493; (1968) 70 ITR 460 (CA): Here the assessee owned a jetty which was damaged by the negligent navigation of a tanker. The jetty was repaired at a cost of £ 83,168. The assessee also lost the use thereof for 380 days which was quantified at £32,450. The owners of the tanker admitted liability but paid only £ 77,876. The jetty was insured against physical damage and the assessee entered into an agreement with the underwriters to the effect that the sum recovered from the owners of the tanker would be apportioned rateably as between the said physical damage and consequential damage and that the underwriter should pay the uncovered balance of the physical damage. The assessee thus recovered the amount of the physical damage in full, £ 21,404 towards consequential damage and £ 2,325 by way of interest. The question arose in the income-tax assessment of the assessee whether the sum of £ 21,404 recovered from the owner of the tanker in part satisfaction of the claim for loss of use of the jetty was taxable as a trading receipt in the hands of the assessee. In the Court of Appeal Wilmer L.J. observed as under (p. 513): “I am left in no doubt that in this case the damages recovered in respect of the physical injury to the jetty are quite separate from, and governed by quite different considerations from, the damages which were recovered in respect of the loss of profitable use of the jetty. It appears to me that both on principle and on the authorities to some of which I have referred, the sum recovered for loss of use of the jetty must be treated as a revenue receipt, and, therefore, properly taxable.” and Diplock L.J. observed as under (p. 515): “Where, pursuant to a legal right, a trader receives from another person compensation for the trader’s failure to receive a sum of money which, if it had been received, would have been credited to the amount of profits (if any) arising in any year from the trade carried on by him at the time when the compensation is so received, the compensation is to be treated for incometax purposes in the same way as that sum of money would have been treated if it had been received instead of the compensation. The rule is applicable whatever the source of the legal right of the trader to recover the compensation. It may arise from a primary obligation under a contract, such as a contract of insurance, from a secondary obligation arising out of non-performance of a contract, such as a right to damages, either liquidt., as under the demurrage clause in a charter-party, or unliquidt., from an obligation to pay damages for tort, as is the present case, from a statutory obligation, or in any other way in which legal obligations arise. But the source of a legal right is relevant to the first problem involved in the application of the rule to the particular case, namely, to identify what the compensation was paid for. If the solution to the first problem is that the compensation was paid for the failure of the trader to receive a sum of money, the second problem involved is to decide whether, if that sum of money had been received by the trader, it would have been credited to the amount of profits (if any) arising in any year from the trade carried on by him at the date of receipt, that is, would have been what I shall call for brevity an income receipt of that trade, The source of the legal right to the compensation is irrelevant to the second problem. The method by which compensation has been assessed in the particular case does not identify what it was paid for; it is no more than a factor which may assist in the solution of the problem of identification.”

6. Dr.Shamlal Narula vs.CIT (1964) 53 ITR 151(SC):In this case lands in the town of Patiala owned by an HUF was acquired. The proceedings were initiated by the Patiala State which merged with the Union of Pepsu which ultimately merged in the State of Punjab. Under an award made by the Collector of Patiala under the L.A. Act, 1894, the assessee received Rs. 2,81,822 which included Rs. 48,660 as interest up to the date of the award. The ITO assessed the interest as income of the HUF rejecting the contention that the same was a capital receipt.

Ultimately the matter came up before the Supreme Court which considered the various provisions of the L.A. Act, 1894, including ss. 16, 17 and 34 thereof and observed as under (at pp. 153, 154, 155, 156): “The section (s. 34) itself makes a distinction between the amount awarded as compensation and the interest payable on the amount so awarded. The interest shall be paid on the amount awarded from the time the Collector takes possession until the amount is paid or deposited ……

Under both the sections (ss. 16 and 17) the land acquired vests absolutely in the Government after the Collector has taken possession, in one case, after the making of the award and in the other, even before the making of the award.

In either case, some time may lapse between the taking of possession of the acquired land by the Collector and payment or deposit of the compensation to the person interested in the land acquired. As the land acquired vests absolutely in the Government only after the Collector has taken possession of it, no interest therein will be outstanding in the claimant after the taking of such possession; he is divested of his title to the land and his right to possession thereof, and both of them vest thereafter in the Government.

Thereafter he will be entitled only to be paid compensation that has been or will be awarded to him.

He will be entitled to compensation, though the ascertainment thereof may be postponed, from the date of his title to the land and the right to possession thereof have been divested and vested in the Government.

It is as it were that from that date the Government withheld the compensation amount which the claimant would be entitled to under the provisions of the Act. Therefore, a statutory liability has been imposed upon the Collector to pay interest on the amount awarded from the time of his taking possession until the amount is paid or deposited. This amount is not, therefore, compensation for the land acquired or for depriving the claimant of his right to possession, but is that paid to the claimant for the use of his money by the State. In this view there cannot be any difference in the legal position between a case where possession has been taken before and that where possession has been taken after the award, for in either case the title vests in the Government only after the possession has been taken.

The legislature expressly used the word ‘interest’ with its well-known connotation under s. 34 of the Act. It is, therefore, reasonable to give that expression the natural meaning it bears …… 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.

Under s. 34 of the Act when the legislature designedly used the word ‘ interest ‘ in contradistinction to the amount awarded, we do not see any reason why the expression should not be given the natural meaning it bears.

” 7. S. R. Y. Sivaram Prasad Bahadur vs. CIT (1971) 82 ITR 527 (SC): Here certain estates of an HUF vested in the State under the Madras Estates (Abolition and Conversion into Ryotwari) Act, 1948, for which the family received compensation. In its income-tax assessment, the HUF contended that such compensation was capital receipt and not taxable. This claim was rejected by the ITO and such rejection was sustained by the Madras High Court. The Supreme Court, however, held that the said compensation was a capital receipt not liable to tax and observed as follows (at p. 532) : “While it is true that the terminology used by the legislature in respect of a payment is not conclusive of the true character of that payment, it would be proper to proceed on the basis that the legislature knew what it was saying. The word ‘compensation’ is a well-known expression in law. When the legislature says that all payments made under the Act are in respect of the compensation payable to the former holders unless there are clear and convincing circumstances to show that one or more items of payment do not form part of the compensation payable, we must hold that those payments are what they are said to be by the statute. We must give the word ‘compensation’ its normal and natural meaning.”

8. CIT vs. Periyar and Pareekanni Rubbers Ltd. (1973) 87 ITR 666 (Ker) i Here, the assessee received a certain amount as interest on compensation paid under the L.A. Act for the period from the date of taking of possession of the land by the Government under an agreement between the parties up to the date of payment of the compensation. The Income-tax Tribunal held that the bulk of the said amount represented compensation for deprivation of property and was a capital receipt not taxable and directed deletion of the amount paid. In a reference before the Kerala High Court, the Revenue contended that there was no distinction between interest payable under s. 28 or s. 34 of the Land Acquisition Act or otherwise. Interest under s. 28 or s. 34 of the said Act was payable although possession was taken outside the said Act. The High Court held (at p. 668): “A distinction has been drawn in relation to possession assumed under the provisions of the Act and possession otherwise taken. In the former case, ss. 16 and 17 of the Land Acquisition Act stipulate that on possession being taken, the property will vest in the Government. In the absence of any such statutory provision, even when possession is assumed by the Government, whether under some provision of law or by agreement or even sometimes unauthorisedly, the view is that there has been deprivation of property and the interest paid by the Government is merely compensation for deprivation of such property. The fact that compensation that is payable for such deprivation is calculated on a percentage of interest on that amount does not affect the question. It is still compensation for deprivation of property.”

24. Mr. Suhas Sen submitted in reply that in none of the English authorities cited by Mr. Bajoria compensation was given for loss of profit or interest but the measure of damages or compensation was determined on the basis of interest. Mr. Sen referred to a decision of the House of Lords in Riches vs. Westminster Bank (1947) 15 ITR (Suppl) 86, where the decision in Executors of Bonner Maurice as Executors of Edward Kay (supra), was not followed and the Supreme Court in Dr. Shamlal Narula’s case (supra) cited with approval the said decision of the House of Lords in Westminster Batik Ltd. Mr. Sen next referred to the decision of the Privy Council in Raja’s Commercial College vs. Gian Singh & Co. Ltd. (1976) 2 All ER 801, where the Privy Council observed that Bonner Maurice’s case was of a very special and unusual nature and approved the dictum of Diplock L.J. in London & Thames Haven Oil Wharves Ltd. (supra). The Privy Council further held that a lump sum damage estimated by reference to lost income was not necessarily or even usually a capital receipt and if Bonner Maurice’s case laid down any such proposition their Lordships of the Privy Council were not disposed to follow the same and held that damages received in lieu of lost income fall to be treated as “income” for income-tax purposes. The scheme of the L.A. Act, 1894, appears to be that after a declaration under s. 6 thereof that a land is needed for a public purpose or for a company, is made and published, an order is made by the Collector under s 7 for acquisition thereof. Under s. 8 the land is demarcated and measured and thereafter a plan is prepared, if required. The Collector next gives a public notice under s. 9 to persons interested in such land. When the objections, if any, submitted by such persons are disposed of, the Collector makes an award. All these, however, do not divest” the persons interested of their right, title and interest in the land as the State Govt. under s. 48(1) of the Act may withdraw the land from the acquisition if possession has not been taken. The divesting of the right, title and interest of the persons interested in the land and vesting thereof in the State Govt. takes place only after possession has been taken by or on behalf of the Government as will appear from ss. 11 and 17 of the Act and so long possession is not taken, the right, title and interest in the land and possession thereof remain vested in persons interested therein and they are entitled to the rents, issues, profits and other usufructs thereof including the right to transfer or otherwise encumber the same. The only prejudice to such persons is that because of the pendency of the acquisition proceedings, any transfer or encumbrances of such land may not fetch a normal return. The compensation for acquisition of the land is payable to the persons interested only after they are divested of their interest in such land. The Act, however, provides for compensation to such persons also when the Government withdraws the land from the acquisition and for temporary use of occupation of the land by or on behalf of the Government in the course of the acquisition proceedings under ss. 35 and 48 of the Act, respectively.

The observations of the Division Bench of this Court in Kedarnath Jute Manufacturing Co. Ltd. (Appeal from Original Decree No. 173 of 1953) that the owner is normally entitled to the compensation for the property as it exists on the date of publication of the declaration under s. 6 has to be read in the above context. What their Lordships meant was that when acquisition has been completed and possession has been taken by the Government divesting the persons interested of their right, title and interest in the property, the persons interested would be entitled to compensation for the property from the date of publication of the declaration under s. 6 and not from any anterior date. Their Lordships did not lay down that as soon as a declaration under s. 6 has been made irrespective of whether the land is subsequently acquired and possession is taken or not or the land is withdrawn from the acquisition and possession is never taken, the persons interested would in all cases be entitled to compensation for acquisition of the property from the date of publication of the declaration under s. 6. The several provisions of the Act as noted above clearly show that no right to compensation accrues to the persons interested in the property as soon as a declaration under s. 6 of the Act is published. The award is made under s. 11 of the Act and after an award has been made and possession of the land is taken by the Government under s. 16 of the Act except in case of an emergency when possession may be taken under s. 17 of the Act before the award is made. The provisions for payment of compensation are contained in Pt. V of the Act which contains ss. 31 to 34 after an award has been made. Under s. 31 the Collector tenders payment of the compensation to persons interested. Compensation under s. 11 of the Act is paid for acquisition of the property and so long as possession is not taken by the Government the acquisition is not complete. A person so long as he continues to be the owner of the property cannot receive compensation for acquisition of such property which is paid for loss of such ownership and other interest.

The compensation under s. 48A of the Act is a compensation for damage suffered by the owner in consequence of the delay in making the award under s.11. The statute contains specific provisions for payment of interest in ss. 28 and 34 of the Act. The expression “compensation” has been used in the Act whenever compensation is given. Reference may be made in this connection to ss. 11, 36, 48 and 48A of the Act. The legislature has advisedly used the two expressions “interest” and “compensation” in different sections and same meaning to each of the said expressions should, therefore, be given wherever they occur. Thus the expression “interest” cannot be understood to mean compensation and vice versa.

We accept the contention of Mr. Bajoria that no one is entitled to payment of interest unless the amount on which interest is claimed is quantified and is payable to him. As noticed earlier, the compensation for acquisition of property becomes payable to the owner or persons interested only after they are divested of their right, title and interest in the property by the act of taking possession thereof by the Government. Thus the compensation for damage due to delay in the making of the award cannot be said to be loss of interest accruing or deemed to be accruing on the amount of compensation. Such compensation may be measured in a rough and ready manner on the basis of loss of interest on the ultimate amount of compensation for acquisition but that is merely a measure adopted for the purpose of determining such compensation.

28. The two unreported decisions of the Division Bench of this Court in Mirza Nasir Ali (Appeal from Original Decree No. 182 of 1953) and Kedarnath Jute Manufacturing Co. Ltd. (Appeal from Original Decree No. 173 of 1953) in our opinion do not lay down that the compensation for damages under s. 48A of the Act was or could be loss of interest suffered by the owner for delay in making the award. In those cases claims for compensation for damages due to delay in making the award were made on the basis of loss of interest on the amount of compensation. Arguments were accordingly advanced on behalf of the claimant that the compensation under s. 48A should be determined on the basis of loss of interest suffered by the claimant on the amount of compensation.

The Court, therefore, allowed compensation under s. 48A on that basis. In the said cases the Court neither considered nor decided the nature or character of the compensation paid by the Government and received by the claimant nor was it called upon to do so.

29. That the compensation payable under s. 48A could not be interest, also finds support from the section itself which provides that the principles contained in ss. 23 and 24 of the Act for determination of compensation should also be applied in determining compensation under s. 48A. The Supreme Court observed in Dr. Shyamlal Narula (supra), that the Act itself makes a clear distinction between compensation payable for the land acquired and interest payable on the compensation awarded and that the persons interested would receive such compensation only after possession of the land would be taken by the Government divesting the former of their right, title and interest therein although ascertainment of the amount of compensation payable may be postponed or delayed. In view of such distinction the two decisions in Mirza Nasir Ali (AFOD No. 182 of 1953) and Kedarnath Jute Manufacturing Co. Ltd. (AFOD No. 173 of 1953) to the extent they hold that the owner becomes entitled to the amount of compensation immediately on the making of the award no longer appear to be good law. In Dr. Shyamlal Narula (supra), the Supreme Court referred to the decision of the House of Lords in Westminster Bank Ltd. (supra) for a limited purpose, only to construe the meaning of the expression “interest”. In its later decision in S. R. Y. Sivaram Prasad Bahadur (supra) the Supreme Court quoted With approval the observations of the House of Lords in Bonner Maurice’s case (supra). Even the obiter of the Supreme Court is binding and must be held to override the view of the Privy Council expressed in Raja’s Commercial College (supra) about Bonner Maurice’s case (supra).

The contention of Mr. Sen that the compensation payable under s. 48A of the Act is loss of profit is not

sustainable on the very authority of Mirza Nasir Ali and Kedarnath Jute Manufacturing Co. Ltd. relied on by him where this Court in awarding compensation under s. 48A also directed deduction of the rents, issues and profits realised or which could have been realised if the owner was diligent. The said contention cannot also be sustained as, under the scheme of the Act, so long as possession of the property was not taken by the Collector, the property remained vested in the owner or the persons interested and they remained free to realise the rents, issues, profits and usufructs of the property sought to be acquired.

No right to receive the compensation money having accrued to the assessee during the period of the delay contemplated under s. 48A of the said Act, nor any amount of compensation being ascertained, the compensation paid to the assessee under the said section could not be loss of interest suffered by the assessee for deprivation of profitable use of the compensation money. In our view, a hypothetical loss of interest on the amount of compensation might be a good measure for a determination of the compensation under s. 48A but the same could not affect the nature or character of the receipt of such compensation in the hands of the assessee. Thus the amount of compensation under s. 48A being neither loss of profit nor loss of interest the receipt thereof in the hands of the assessee does not appear to have the character of a revenue receipt. Such an amount appears to be of the nature of a casual receipt of a non-recurring character arising out of a particular statutory provision. Even otherwise, such a receipt is more in the nature of a capital receipt and does not have the characteristic of income.

32. For the above reasons the question referred is answered in the affirmative and in favour of the assessee. There will be no order as to costs.

DIPAK KUMAR SEN, J.:

I agree.

[Citation : 142 ITR 380]