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PETITIONER: COMMISSIONER OF INCOME-TAX,WEST BENGAL-II, CALCUTTA

       Vs.

RESPONDENT: HINDUSTAN HOUSING & LAND DEVELOPMENTTRUST LIMITED

DATE OF JUDGMENT29/07/1986

BENCH: PATHAK, R.S. BENCH: PATHAK, R.S. MUKHARJI, SABYASACHI (J)

CITATION:  1986 AIR 1805            1986 SCR  (3) 390  1986 SCC  (3) 641        JT 1986     2  1986 SCALE  (2)142

ACT:      Income-tax  Act,  1922  s.  4(1)(b)(i)/Income-tax  Act, 1961: s. 5(1)(b)-Acquisition of land-Additional compensation received-liability to  tax-Income whether could be deemed to have accrued or arisen during the relevant assessment year.

HEADNOTE:      During the  pendency of the appeal by the State against an arbitrator’s  award made  on July  29, 1955 enhancing the original amount of compensation the Government deposited the extra amount,  which the  assessee was permitted to withdraw on May 9, 1956 on furnishing security. During the assessment proceedings for  the relevant assessment year the Income-tax Officer  brought  that  amount  to  tax  as  the  assessee’s business income.  The Appellate  Tribunal, however, accepted the assessee’s  contention that the amount could not be said to have  accrued to  the assessee  as its  income during the relevant previous year, and therefore, was not liable to tax in the  particular assessment  year. The High Court answered the question  referred in favour of the assessee and against the Revenue.      Dismissing the appeal of the Revenue, this Court, ^      HELD: It  is only  on the  final determination  of  the amount of  compensation that the right to such income in the nature of compensation arises or accrues and till then there is no  liability in  praesenti in  respect of the additional amount of  compensation claimed  by the  owner of  the land. [396G]      There is  a clear  distinction between  cases where the right to  receive payment  is in  dispute and  it is  not  a question of  merely quantifying  the amount  to be received, and cases where the right to receive payment is admitted and the quantification  only of the amount payable is left to be determined  in   accordance   with   settled   or   accepted principles. [396H;397A-B] 391      In the instant case, although the award was made by the arbitrator  on   July  29,  1955  enhancing  the  amount  of compensation payable  to the assessee, the entire amount was in dispute  in the  appeal filed by the Goverment. There was

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no absolute  right to  receive the amount at that stage, for if the  appeal had been allowed in its entirety the right to payment of  the  enhanced  compensation  would  have  fallen altogether. The  sum, therefore,  could not  be said to have accrued or  arisen  during  the  relevant  assessment  year. [393G; 394A-B]      E.D. Sassoon  & Company Ltd. and others v. Commissioner of Income-tax,  Bombay City,  [1954] 26 ITR 27, Commissioner of Incometax  v. Jai  Parkash Om Parkash Co. Ltd., (1961) 41 ITR 718,  Pope The  King Match  Factory v.  Commissioner  of Income-tax, [1963]  50 ITR 495, Khan Bahadur Ahmed Alladin & Sons v.  Commissioner of  Income-tax,  [1969]  74  ITR  651, Topandas Kundanmal  v. Commissioner  of Income-tax, Gujarat, [1978] 114  ITR 237,  Harish Chandra Raj Singh v. The Deputy Land Acquisition  Officer &  Anr.,  [1962]  1  SCR  676  and Additional  Commissioner  of  Income-tax,  Gujarat,  v.  New Jehangir Vakil  Mills Co. Ltd., (1979) 117 ITR 849, referred to.      Kedarnath Jute Mfg. Co. Ltd. v. Commissioner of Income- Tax (Central), Calcutta, [1971] 82 ITR 363, distinguished.

JUDGMENT:      CIVIL APPELLATE  JURISDICTION: Civil  Appeal  No.  1126 (NT) of 1974      From the  Judgment Order dated 9th January, 1973 of the Calcutta High Court in Income Tax Reference No. 5 of 1967.      V.S. Desai, Dr. M.B. Rao and Miss A. Subhashini for the Appellant.      Nemo for the Respondent.      The Judgment of the Court was delivered by      PATHAK, J.  This appeal  by certificate  granted by the High Court  is directed against the judgment of the Calcutta High Court answering the following question in the negative:           "Whether on  the facts and in the circumstances of           the  case,   the  extra   amount  of  compensation           amounting to Rs. 392           7,24,914 was  income arising  or accruing  to  the           assessee during  the previous year relevant to the           assessment year 1956-57."      The assessee,  who is  the respondent  before us,  is a limited company  dealing in  land. It maintains its accounts on the  mercantile system.  By an  order dated June 21, 1946 under rule 75A(1) of the Defence of India Rules read with s. 19 of  the Defence  of India Act, 1939 certain plots of land measuring about  19.17 acres  in  village  Kankulia  in  the District of  24 Parganas and belonging to the assessee, were requisitioned by the Government of West Bengal. Subsequently the land  was acquired  permanently in  the State Government under s.5,  Requisition of Land (Continuance of Powers) Act, 1951 by  a notice  of acquisition  dated December  27,  1952 published in  the Gazette  dated January  8, 1953.  The Land Acquisition  Officer   awarded  a  sum  of  Rs.24,97,249  as compensation payable  to the  assessee. The assessee was not satisfied with  the amount of compensation, and preferred an appeal before  the Arbitrator,  24 Parganas,  Calcutta.  The Arbitrator made  an award  dated July  29, 1955  whereby  he fixed the  amount of compensation at Rs.30,10,873 on account of the permanent acquisition of the land, thus enhancing the original amount  of compensation  by Rs.5,13,624 on which he directed interest  at 5  per cent  per annum from January 8, 1953, the  date of  acquisition, to the date of payment. The Arbitrator also directed that further recurring compensation

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at Rs.6272/10/4  per mensem  should be paid to assessee from the date of requisition till the date of the acquisition.      The State Government now appealed to the High Court and during the  pendency of  the appeal  on April  25,  1956  it deposited Rs.7,36,691,  which the  assessee was permitted to withdraw on  May 9,  1956 on furnishing security. On receipt of the  amount the  assessee credited  it  in  its  suspense account on the same date.      During the  assessment proceedings  for the  assessment year 1956-57,  the relevant accounting period being the year ended March 31, 1956 the Income Tax Officer brought to tax a sum of  Rs.7,24,914 in  the assessee’s business income. This represented the  difference between  the sum  of Rs.7,37,190 payable to the assessee in terms of the award dated July 29, 1956 of  the Arbitrator  and a  sum of Rs.12,276 out of that amount which  had already  been assessed  to tax. The Income tax Officer  treated the  sum as liable to income-tax during that year  on the  basis that  the  income  accrued  to  the assessee on the date of the award. 393 The assessment  was confirmed  by  the  Appellate  Assistant Commissioner of Income-tax on first appeal. In second appeal by the  assessee before  the Income-tax  Appellate Tribunal, two contentions  were raised  by it.  It was  urged that the amount of  compensation received  by the  assessee was not a receipt of  a revenue  nature. It was also contended that in any event  the amount  did not accrue to the assessee as its income during  the relevant  previous year  ended March  31, 1956. The  Appellate Tribunal  rejected the first contention and held  that the  compensation received  by  the  assessee related to  the acquisition  of land which was the stock-in- trade of the assessee, and was, therefore, a trading receipt of the business carried on by the assessee, and therefore, a receipt of  a revenue  nature liable  to tax.  The Appellate Tribunal, however,  accepted the  other contention  that the sum of  Rs.7,24,914 was  not taxable  in the assessment year 1956-57. It  allowed the  appeal accordingly  by  its  order dated February  22, 1964. At the instance of the Revenue the Appellate Tribunal  referred the  question of  law  set  out earlier to  the Calcutta  High Court for its opinion, and by its judgment  dated January  9, 1973 the High Court answered the question  in favour  of the  assessee  and  against  the Revenue.      The question  raised in  this appeal  is limited to the point whether on the facts and circumstances of the case the Revenue can claim that the sum of Rs.7,24,914 payable to the assessee as  compensation can  be said to have accrued to it as income  during the  previous year  ended March  31,  1956 relevant to  the assessment year 1956-57. Now as long ago as E.D. Sassoon  & Company  Ltd. and  others v. Commissioner of Income-tax,  Bombay  City,  [1954]  26  ITR  27  this  Court considered the  question as  to the  point at  which  income could be  said to  accrue or  arise to  an assessee  for the purpose of  the Indian  Income  Tax  Act.  In  the  majority judgment delivered  by N.H.  Bhagwati, J.  it was  explained that the  words "arising  or accruing"  describe a  right to receive profits,  and that there must be a debt owed by some body. "Unless  and until  there is  created in favour of the assessee a debt due by somebody", it was observed "it cannot be said  that he  has acquired a right to receive the income or the  income has  accrued to  him". In  the present  case, although the  award was  made by  the Arbitrator on July 29, 1955 enhancing  the amount  of compensation  payable to  the assessee, the  entire amount  was in  dispute in  the appeal filed by  the State  Government.  Indeed,  the  dispute  was

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regarded by  the Court  as real and substantial, because the assessee  was   not  permitted   to  withdraw   the  sum  of Rs.7,36,691 deposited  by the  State Government on April 25, 1956 without  furnishing a  security bond  for refunding the amount in 394 the event of the appeal being allowed. There was no absolute right to receive the amount at that stage. If the appeal was allowed in its entirety the right to payment of the enhanced compensation would  have fallen  altogether. This  is a case which must  be distinguished from that decided by this Court in Kedarnath  Jute Mfg.  Co.  Limited.  v.  Commissioner  of Income-Tax (Central), Calcutta., [1971] 82 ITR 363 where the liability  to  sales  tax  arose  immediately  on  a  dealer affecting sales  which were  subject to  sales tax  and what remained to  be done  was  a  mere  quantification  of  that liability. The  case compares  rather with  Commissioner  of Income-tax v.  Jai Parkash Om Parkash Co. Ltd. [1961] 41 ITR 718. The  very foundation  of the claim made by the assessee was in  serious jeopardy  and nothing  would be  due if  the appeal was  decided against  the assessee. Our attention has been drawn  by the Revenue to Pope The King Match Factory v. Commissioner of  Income-tax, [1963]  50 ITR  495. That case, however, proceeded on the basis that excise duty was payable and its  quantification alone  remained to be decided in the appeal. We may point out that the Andhra Pradesh High Court, dealing with  the taxability  of compensation received under the Land  Acquisition Act  in Khan  Bahadur Ahmed  Alladin & Sons. v.  Commissioner of Income-tax, [1969] 74 ITR 651 held that when land was taken over by the Government the right of the owner  to compensation  was an  inchoate right until the compensation had  been actually  determined and  had  become payable. It  was observed  that  the  enhanced  compensation accrued to  an assessee  only when  the Court  accepted  the claim  and   not  when  the  land  was  taken  over  by  the Government. Examining  the question  whether income could be said to  have accrued  to the  assessee  on  the  date  when possession of  the land  was taken by the Government for the purpose of  assessment to  tax in  the year of assessment P. Jaganmohan Reddy, C.J., speaking for the Court, said:           "If the actual amount of compensation has not been           fixed, no income could accrue to him. It cannot be           contended that  the mere  claim by  the  assessee,           after taking  of possession,  at a particular rate           or for  a certain  sum is  the compensation. It is           the amount  actually awarded  by the  Collector or           subsequently decreed by the court which accrues to           him, and  the respective  amounts, whether awarded           by the  Collector  or  the  court  accrue  on  the           respective dates  on which the award or the decree           is passed.  Income-tax is  not levied  on  a  mere           right  to  receive  compensation;  there  must  be           something tangible,  something in  the nature of a           debt, 395           something in the nature of an obligation to pay an           ascertained amount.  Till such time, no income can           be said  to have accrued ...................... On           the  date   when   the   Collector   awarded   the           compensation, it  is only  that amount  which  had           accrued or  deemed to accrue, whether in fact paid           or not.  But by no stretch of the words in section           4(1)(b)(i), could  it be  said that  the right  to           enhanced compensation,  which  has  not  yet  been           accepted by  the proper  forum, namely, the court,

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         has become  payable on  the date when the original           compensation become payable, for being included in           that year of assessment. The enhanced compensation           accrues only  when it  becomes payable, i.e., when           the court  accepts the  claim. As  has been stated           earlier, a  mere  claim  by  the  assessee,  after           taking of  possession of the land, at a particular           rate or  for a certain sum is not compensation. It           must not  be forgotten  that, even  if a court was           awarded enhanced compensation, there is a right of           appeal by  the Government  to the  High Court, and           the High  Court may  either disallow that claim or           reduce the compensation. As against that judgment,           there is  further right  of appeal  to the Supreme           Court. The  assessee also  can appeal  against the           insufficiency of the enhanced compensation. Can it           be  said  that  the  final  determination  by  the           highest court  of the  compensation would  entitle           the Income-tax Officer, notwithstanding the period           of limitation  fixed under  the Income-tax Act, to           reopen the assessment in which he had included the           initial compensation  awarded by the Collector and           recompute the  entire income  on the  basis of the           final compensation?  We do  not think there can be           any justification  for such  a proposition.  On  a           proper  construction  of  the  terms  ’accrue’  or           ’arise’,  we   are  of   the  view  that  such  an           interpretation    cannot     be    placed.     The           interpretation given  by us  does not  affect  the           interests of  the revenue.  At the  same time,  it           safeguards the  assessee and  prevents harassment.           To  hold   otherwise  would  be  contrary  to  the           provisions of law." The legal  position was  explained in  further detail by the Gujarat High  Court in Topandas Kundanmal v. Commissioner of Income-tax, Gujarat,  [1978] 114 ITR 237. The High Court was called upon  to decide  without the  right  to  receive  the enhanced compensation under the Land Acquisition Act accrued or arose to the assessee when he sought 396 a reference  under s.  18 of  the Act  or when the award was made by  the Civil  Judge although  an  appeal  was  pending against that  award. The  learned  Judges  referred  to  the nature of  an award  made by the Collector, and adverting to the opinion of this Court in Harish Chandra Raj Singh v. The Deputy Land  Acquisition Officer  & Anr.,  [1962] 1  SCR 676 that the  award made by the Collector was merely an offer or tender of  the compensation  determined by  the Collector to the onwer of the property on the acquisition, the High Court observed:           "...the legal position which emerges is that there           is no  liability in  praesenti to  pay an enhanced           compensation till  it is  judicially determined by           the final court since the entire question, namely,           whether the  offer made  by the  Land  Acquisition           Officer is inadequate and the claimant is entitled           to an  additional compensation and if yes, at what           rate is  in flux  till the question is set at rest           finally, we  do not  think  that  any  enforceable           right  to  a  particular  amount  of  compensation           arises.  The   offer  made   by  Land  Acquisition           Officer, by  his  award,  if  not  accepted  by  a           claimant  would  not  result  automatically  in  a           liability  to   pay  additional   compensation  as           claimed by  party aggrieved.  There is  no doubt a

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         liability to  pay compensation  as offered  by the           Land Acquisition  Officer. But  that is  far  from           saying  that  liability  is  a  liability  to  pay           additional compensation  or enhanced  compensation           as claimed  by a  party aggrieved.  If there is an           existing liability, the mere fact that the payment           is postponed  to the future would not detract that           liability from  becoming a  debt but the liability           to  pay   unliquidated   damages   or   additional           compensation  which  are  inchoate  or  contingent           would not create a debt." Khan Bahadur  Ahmed Alladin  &  Sons  (supra)  and  Topandas Kundanmal (supra)  were relied  on by the Gujarat High Court in Additional  Commissioner of  Income-tax, Gujarat  v.  New Jehangir Vakil  Mills Co.  Ltd., [1979]  117 I.T.R.  849 for reaffirming that  it was  on the  final determination of the amount of  compensation that the right to such income in the nature of  compensation would  arise or accrue and till then there was  no liability  in  praesenti  in  respect  of  the additional amount  of compensation  claimed by  the owner of the land.      It is  unnecessary to  refer to  all  the  cases  cited before us.  It is  sufficient to  point out  that there is a clear distinction between cases 397 such as  the present one, where the right to receive payment is in dispute and it is not a question of merely quantifying the amount  to be  received, and  cases where  the right  to receive payment  is admitted  and the quantification only of the amount  payable is  left to  be determined in accordance with settled  or accepted principles. We are of opinion that the High  Court is  right in  the  view  taken  by  it  and, therefore, this appeal must be dismissed.      The appeal is dismissed. There is no order as to costs. P.S.S.                                     Appeal dismissed. 398