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PETITIONER: BIKRAM SINGH & ORS.

       Vs.

RESPONDENT: THE LAND ACQUISITION COLLECTOR & ORS.

DATE OF JUDGMENT:       11/09/1996

BENCH: K. RAMASWAMY, G.B. PATTANAIK

ACT:

HEADNOTE:

JUDGMENT:                          O R D E R      Leave granted.      We have heard learned counsel on both sides.      This appeal  by special  leave arises from the judgment of the  High Court  of Punjab  & Haryana  made in  CWP  Nos. 1558/91   for payment  of income-tax on the delayed interest amount recovered  under the  Land Acquisition Act, 1894 [for short, the  "LA Act"]. Calling that notice in question, they filed writ  petitions. The High Court relying upon decisions of this  Court dismissed  the petitions  with a  finding  as under:      "This   now   leads   us   to   the      consideration   of   the   question      whether interest paid on the amount      of  compensation   for   compulsory      acquisition  of  land  is  "income"      and, therefore,  taxable under  the      Act.   Matters  which  have  to  be      considered       for       awarding      compensation     for     compulsory      acquisition of  land are enumerated      in   section   23   of   the   Land      Acquisition Act.  While sub-section      (2) of  that section  provides  for      payment  of  certain  solatium  for      acquisition of  compulsory  nature,      interest is not included as an item      of compensation.  Instead, interest      is payable  by force  of section 34      of the  Act, if compensation is not      paid  or  depositor  before  taking      possession of the land. By force of      section 28  also provides  that the      court, on  a reference, shall award      interest on  the amount of enhanced      compensation. It  will thus  appear      from the  text of section 34 of the      Land Acquisition  Act that interest      is not  payable as compensation but      is paid  if the compensation is not

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    paid before  taking  possession  of      the land.  Interest is thus payable      because of  the deprivation  of the      possession  of   the  land   before      compensation     for     compulsory      acquisition of  that land  is paid.      This position  is now well-settled.      In Dr. Shamlal Narula V. CIT (1964)      53 ITR  151 SC  ; AIR 1964 SC 1878,      the observation  is  that  interest      has  to   be  paid  on  the  amount      awarded from the time the Collector      takes possession  until the  amount      is paid  deposited. Interest is not      an item  of compensation. Nor is it      consideration for  acquisition. Nor      is it consideration for acquisition      of land,  Payment of  interest  has      been provided  for separately under      section 34  of the Land Acquisition      Act. This is so because interest is      paid  after  the  compensation  has      been determined. It is something in      addition  to   the  capital  amount      thought it arises out of it. It has      expressly been  held that  interest      under  section   34  of   the  Land      Acquisition Act is not compensation      paid to the owner for depriving him      of his  right to  possession of the      land acquired,  but is given to him      for the  deprivation of  the use of      the    money    representing    the      compensation for the land acquired.      This interest  under section  34 of      the Land  Acquisition Act  is  thus      paid for the delayed payment of the      compensation amount and, therefore,      a revenue  receipt  liable  to  tax      under  the   Income-tax  Act.   The      Supreme    Court          expressly      distinguished the  decision of  the      Privy Council in Inglewood Pulp and      Paper  Co.Ltd.   v.  New  Brunswick      Electric Power Commission, AIR 1928      PC 287.  This decision of the Privy      Council as  also  the  decision  in      Abhay Singh  Surana  v.  Secretary,      Ministry of Communication, AIR 1987      SC 2177  are authorities  only  for      the proposition  that  interest  is      payable   on   the   amount      of      compensation   determined    either      under the  Land  Acquisition Act of      under    the     Requisition    and      Acquisition of  immovable  Property      Act,   1952.   Neither   of   these      authorities considered the question      of eligibility  of such interest to      income-tax.    This  principle   in      Narula’s case  (1964)  53  ITR  151      (SC) has  subsequently been applied      by the  Supreme Court  in  a  later      decision  in   T.N.K.   Govindaraju      Chetty v.  CIT (1967)  66  ITR  465

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    also,  where   the   property   was      acquired under  the Requisition and      Acquisition of  Immovable  Property      Act which did not make any specific      provision for the award of interest      on the  amount of compensation, the      application of  sections 28  and 34      of the  Land Acquisition Act, 1894,      dealing   with   the   payment   of      interest on  the amount  awarded as      compensation could not be deemed to      be  excluded.  When  the  owner  of      property was  dispossessed pursuant      to   an    order   for   compulsory      acquisition, an  agreement that the      acquiring   authority    will   pay      interest   on    the   amount    of      compensation was  implied.  It  has      been expressly  held that  the view      in Shamlal  Narula’s case (1964) 53      ITR 151  (SC),  that  the  interest      received is  chargeable to  tax  as      income, will  apply if  interest is      payable  under   the  terms  of  an      agreement, express  or implied, and      the court  or the  arbitrator gives      effect  to   the   terms   of   the      agreement and awards interest which      has been  agreed to  bee  paid.  It      has, therefore,  to e held that the      amount received  as interest on the      amount  of   compensation  assessed      under the  Land Acquisition  Act or      under    the     Requisition    and      Acquisition of  Immovable  Property      Act is  income  taxable  under  the      Income Tax  Act. Certainly,  it  is      not agricultural  income  since  it      is      neither  rent  nor  revenue      derived from   the  land  used  for      agricultural   purposes.   It   is,      therefore, not exempt from  income-      tax  under  section  10(1)  of  the      Income-tax Act  as     agricultural      income.   The    Land   Acquisition      Collector is,  therefore, perfectly      justified     in     retaining  the      amount   of interest payable to the      holders   of   agricultural   lands      compulsorily acquired  in terms  of      section 194A  of the  Act. The Land      Acquisition   Collector   is   also      justified in    demanding  the  sum      paid on  account of  interest under      section  194A   of  the   Act.  The      notices issued  and  challenged  in      these  petitions   are,  therefore,      valid and perfectly justified."      The question  for consideration is: whether the delayed interest on the compensation paid under the Land Acquisition Act is  chargeable to  income tax under Section 4 & 5 of the Income Tax  Act, 1961 (for short the "Act"). It is contended for the  appellants that  "interest" has  been defined under Section 2 [28A] as:      "Interest" means  interest  payable

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    in any  manner in  respect  of  any      moneys borrowed  or  debt  incurred      (including  a   deposit,  claim  or      other similar  right or obligation)      and includes  any  service  fee  or      other  charge  in  respect  of  the      moneys borrowed or debt incurred or      in respect  of any  credit facility      which has not been utilised." Under Section  194A dealing  with "interest  on  securities" provides as under:      "194.(1) Any  person, not  being an      individual  or  a  Hindu  undivided      family,  who   is  responsible  for      paying to  a resident any income by      way  of   interest  on  securities)      shall, at  the time  of  credit  of      such income  to the  account of the      payee or  at the  time  of  payment      thereof in  cash or  by issue  of a      cheque or  draft or  by  any  other      mode, whichever  is earlier, deduct      income-tax thereon  at the rates in      force.      Explanation-For  the   purposes  of      this section,  where any  income by      way of  interest  as  aforesaid  is      credited to  any  account,  whether      called "Interest  payable  account"      or "Suspense  account"  or  by  any      other name, in the books of account      of the p liable to pay such income,      such crediting  shall be  deemed to      be credit  of such  income  to  the      account  of   the  payee   and  the      provisions of  this  section  shall      apply accordingly."      In the  circular issued  by the  Board of Direct Taxes, the concept  of "interest"  defined under Section 2(28A) has been explained with the added explanation as under:-      "The  term   "interest   has   been      defined 1 new clause (28A) inserted      in Section  2 of the Income-Tax Act      with  a  view  to  removing  doubts      about the true character of fees or      other charges  paid in  respect  of      moneys borrowed  or in  respect  of      the credit  facilities  which  have      not been  utilised. The  definition      is very  wide and  covers  interest      payable in any manner in respect of      loans, debts,  deposits, claims and      other     similar     rights     or      obligations. It  is  also  includes      any service  fees or  other charges      in respect  of such  loans,  debts,      deposits, etc.  as also fees in the      nature  of  commitment  charges  on      unutilised   portion    of   credit      facilities. This definition will be      applicable for  all purposes of the      Income-tax Act."      Relying upon  these three  provision, it  is  contended that the definition of "interest" is confined only to money- lending business  between debtor and the creditor and if the

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creditor receives  any amount  by way  of interest  from the debtor, it  is in  the nature  of a  receipt of  income on a charge paid  in respect  of money  borrowed or in respect of the credit  facility given  which have  been  utilised  and, therefore, the  definition would be applicable only when the money is lent by a creditor and received by the debtor. Then only interest  is chargeable to income-tax. When interest is paid either  under Section  34 or Section 28 of  the LA Act, it in  only  a payment in consideration of loss of enjoyment of the  possession by  the owner.  It is  not by  way of any charge  on  compensation  determined  under  Section  23(1). Therefore, it  is not  eligible to  income tax.  We find  no force in the contention. The controversy  is no longer res integra. This question was considered elaborately  by this  Court in Dr. Shamlal Narula vs. Commissioner of Income-tax, Jammu [51 ITR 151]. Therein, K. Subba  Rao, J.,  as he  then was,  considered the earlier case law on the concept of "interest" laid down by the Privy Council and  all other  cases and  had held  at page  158 as under:      "In a  case where  title passes  to      the State,  the statutory  interest      provided  thereafter  can  only  be      regarded either as representing the      profit which  the owner of the land      might have  made if  he had the use      of  the   money  or   the  loss  he      suffered because  he had  not  that      use. In no sense of the term can it      be     described  as   damages   or      compensation for  the owner’s right      to   retain possession,  for he has      no right to retain possession after      possession was  taken under Section      16 or  Section   17 of the Act. We,      therefore, hold  that the statutory      interest paid  under Section  34 of      the Act  is interest  paid for  the      delayed payment of the compensation      amount and, therefore, is a revenue      receipt liable  to  tax  under  the      Income-tax Act."      This   position of law has been consistently reiterated by this  Court in  the case  of TMK  Govindaraju Chetty  vs. Commissioner of  Income-tax, Madras [66 ITR 465], Rama Rai & Ors. vs.  CIT, Andhra  Pradesh    [181  ITR  400]  and  K.S. Krishna Rao vs.  CIT, A.P. [181 ITR 408]. Thus by  a  catena of judicial  pronouncements,   it  is settled  law  that the interest   received on delayed payment   of the compensation is a  revenue receipt eligible to  income tax.   It  is true that in  amending the   definition  of "interest" in Section 2(28A) interest was  defined to mean interest   payable   in any manner  in   respect  of  any  money  borrowed  or  debt incurred including  a deposit,  claim or other similar right or obligation and includes any service, fee or other charges in respect  of the  moneys borrowed  or debt  incurred or in respect of  any credit facility which has not been utilised. It is  seen that  the word "interest" for the purpose of the Act was  interpreted by  the inclusive definition. A literal construction may  lead to  the conclusion  that the interest received or  payable in  any manner in respect of any moneys borrowed  or   a  debt   incurred  or  enumerated  analogous transaction would  be deemed interest. That was explained by the Board in the circular referred to hereinbefore.      But the  question is:  whether the  interest on delayed

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payment on  the acquisition  of the immovable property under the Acquisition  Act would not be eligible to income-tax? It is seen that this Court has consistently taken the view that it  is   a  revenue   receipt,  The  amended  definition  of "interest" was  not intended  to exclude the revenue receipt of  interest   on  delayed   payment  of  compensation  from taxability. Once  it is  construed to  be a revenue receipt, necessarily,  unless   there  is   an  exemption  under  the appropriate provisions  of the  Act, the  revenue receipt is eligible to  tax. The  amendment is only to bring within its tax net,  income received from the transaction covered under the definition  of interest. It would mean that the interest received  as   income  on   the  delayed   payment  of   the compensation determined  under  Section  28  or  31  of  the Acquisition Act  is a taxable event. Therefore, we hold that it is  a revenue  receipt eligible to tax under Section 4 of the  Income-Tax   Act.  Section  194A  of  the  Act  has  no application for  the purpose  of this case as it encompasses deduction  of   the  income  at  thee  source.  However  the appellants are  entitled to  spread over  the income for the period for  which payment  came to  be made so as to compute the income  for assessing  tax for  the relevant  accounting year.      Under these  circumstances, we  do not think that there is any  error of  law committed  by the   High Court  in the judgment under appeal  warranting interference.      The appeals are accordingly dismissed. But in  the circumstances without costs.