http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 4  

PETITIONER: CHANDROJI RAO

       Vs.

RESPONDENT: COMMISSIONER OF INCOME-TAX, M.P. NAGPUR

DATE OF JUDGMENT: 28/04/1970

BENCH: GROVER, A.N. BENCH: GROVER, A.N. SHAH, J.C. HEGDE, K.S.

CITATION:  1970 AIR 1582            1971 SCR  (1) 422  1970 SCC  (2)  23  CITATOR INFO :  D          1972 SC 260  (23)  RF         1992 SC1495  (20,33)

ACT: Indian    Income-tax   Act,   1922-Caipital   and    Revenue Compensation Payable     itnder   s.  8  of  Madhya   Bharat Abolition of Jagir Act, 1951--Payable   in   10   years   in annual instalments-Interest on compensation whether  taxable as revenue receipt-Marginal notes, value  of.

HEADNOTE: The  appellant was a Jagirdar of the erstwhile Gwalior State which marged   in  the  State of Madhya Bharat  (now  Madhya Pradesh).The  Madhya  Bharat  Abolition of  Jagir  Act  1951 abolished  Jagirs with effect from December 4, 1952.   Under s. 8 of the Act compensation was payable in accordance  with the  principles  laid down in Schedule 1 of the  Act,  Under sub-section  (2)  of that section the  compensation  payable became due as from the date of the resumption of the  Jagir. Simple interest was payable at 2 1/2 per cent per annum from that  date  up  to  the date of payment  of  the  amount  of compensation  which was payable within a period of 10  years in   annual  instalments.  The appellant claimed before  the income-tax  Officer that the amount of interest formed  part of the compensation and constituted a capital receipt.  Tile claim was disallowed by the Income-tax Officer as well as by the   Appellate  Assistant  Commissioner.    The   Tribunal, however,  held  that the amount of interest  was  a  capital receipt  which  could  not be  included  in  the  assessee’s income.   In  reference,  the High Court  held  against  the appellant.  In appeal to this Court by special leave. HELD  : Under S. 8 of the Jagir Act the compensation  amount is determined in accordance with the principles laid down in Schedule  I  became  due to the Jagirdar from  the  date  of resumption.   Since the entire amount was not to be paid  on the date of the resumption but was to be paid by instalments extending over 10 years, a provision had to be made for  the payment  of interest in sub-s. (2).  The amount of  interest was   thus  given  to  the  Jagirdar  for  being  kept   out of  the compensation amount for the aforesaid  period.   The

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 4  

legislature  being  well aware of  the  distinction  between compensation  and  interest, employed clear  language  which leaves no room for doubt that, under sub-s. (2) interest was payable  in a well understood sense and it could never  form part of the compensation. [425 E-H] The fact that the marginal heading of s. 8 was ’Duty to  pay compensation’ could not lead to a different conclusion.  The marginal  heading  cannot control the words  of  a  section, particularly,  when the language is clear  and  unambiguous. [425 C] Dr.  Sham Lal Narula v. Commissioner- of Income-tax,  Punjab Jammu  &  Kashmir, Himachal Pradesh and Patiala,  53  I.T.R. 151, applied.

JUDGMENT: CIVIL APPELLATE JURISDICTION : Civil Appeals Nos. 505 to 508 of 1967. 4 2 3 Appeals by special leave from the judgment and order  ’dated April  20,  1965 of the Madhya Pradesh High Court  in  Misc. Civil Case No. 89 of 1964. N.   D.   Karkhanis,   P.  W.  Sahasrabuddhe   and   A.   G. Ratnaparkhi, for the appellant (in all the appeals). Gobind  Das and R. N. Sachthey, for the respondent  (in  all the appeals). The Judgment of the Court was delivered by Grover,  J.  These appeals by special leave  from  a  common judgment  of the Madhya Pradesh High Court arise out of  re- ferences made by the Income-tax Appellate Tribunal  relating to the assessment years 1956-57, 1957-58, 1958-59 and  1961- 62. The  appellant  who is the assessee was a  jagirdar  of  the erstwhile Gwalior State.  By the Madhya Bharat Abolition  of Jagir  Act  1951, hereinafter called the "Act",  the  jagirs were abolished with effect from December 4, 1952.  Under  s. 8  of the Act compensation was payable to him in  accordance with  the principles laid down in Schedule 1.  Under  sub-s. (2)  of that section the compensation payable became due  as from  ’the  date  of the resumption of  the  jagir.   Simple interest was payable at the rate of 2 1/2 %  per annum  from that  date  upto  the  date of payment  oil  the  amount  of compensation which was payable within a period of ten  years in  annual  instalments.  The assessee maintained  that  the amount  of  interest  formed part of  the  compensation  and constituted a capital receipt.  The Income-tax Officer  held against  the  assessee  and included  the  interest  in  his income.  The Appellate Assistant Commissioner took the  same view.  The appellate tribunal, however, held that the amount of interest was a capital receipt and could not be  included in  the  assessee’s  income.   The  following  question  was referred to the High Court by the tribunal               "Whether on the facts and in the circumstances               of the case the interest that was received  on               the   amount   of   compensation   ’paid   for               resumption  of  the  assessee’s  jagir  was  a               capital receipt ?" The  High  Court answered the question in the  negative  and against the assessee. The relevant provisions of the Act may be noticed.   Section 3(1)  provided that the Government shall,  by  notification, appoint a date for the resumption of all jagir lands in  the State.  Section 4 424

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 4  

gave  the  consequences of the resumption  of  jagir  land., ChapterIII headed   "compensation" commenced with s. 8 which reads               "(1)  Duty  to  pay  compensation.-Subject  to               other  provisions of this Act  the  Government               shall be liable to pay to every Jagirdar whose               Jagirland has been resumed under Sec. 3,  such               compensation   as  shall  be   determined   in                             accordance  with  the principles laid  down  in               Schedule 1.                (2)Compensation  payable under  this  section               shall  be due as from the date  of  resumption               and  shall carry simple interest at’ the  rate               of 2 1/2.% per annum from that date up to  the               date of payment :               Provided that no interest shall be payable  on               any  amount  of  compensation  which   remains               unpaid  for any default of the  Jagirdar,  his               Agent or his representative-in-interest. Under s. 12 every jagirdar whose jagir land had been resumed under s. 3 had to file in the prescribed form a statement of claim for compensation before the Jagir Commissioner  within two  months  from the date of resumption.  On receipt  of  a statement  of claim the Jagir Commissioner was to  determine the amount of compensation payable to the Jagirdar under  s. 8  as also the amounts recoverable from him under s. 4 (1  ) (e) and other matters mentioned in the section 13.  Under s. 14  the  :amount  recoverable  from a  Jagirdar  was  to  be deducted  from the compensation payable to him under  s.  8. Section  15  provided  for payment  of  compensation  money. According   to   sub-section  (1)  after   the   amount   of compensation  payable  to   Jagirdar under  s.  8  had  been determined and the amount deducted from it under s. 14,  the balance was to be payable in maximum ten annual instalments. Under sub-s. (4) payment of compensation money to a Jagirdar etc.  was to be a full discharge of the Government from  the liability  to pay compensation in lieu of resumption of  the jagir lands. The argument on behalf of the assessee was based principally on  the  marginal  heading of s. 8 which  is  "Duty  to  pay compensation".   It  has been contended  that  the  interest payable  formed  part  of the compensation  money.   It  has further been pointed ,out that ss. 13, 14 and 15 of the  Act did not make any distinction between the payment dealt  with by  sub-s.  (1) and sub-s. (2) of s. 8  and  described  both these  payments  as  compensation  Payable  to  a  jagirdar. Similarly under s. 15(4) it was the payment of  compensation money  which  included  interest that  operated  as  a  full discharge of the liability of the Government 425 to pay compensation.  In our opinion the High Court  rightly rejected these contentions.  Section 8(2) clearly,  provided that  compensation  shall  be  due  as  from  the  date   of resumption.    Thus  the  amount  of   compensation   became ascertained  and payable from the date of  resumption.   The provision   for  interest  was  made  simply   because   the compensation  was to be paid in ten annual  instalments.   A clear  distinction  has been made between  the  compensation payable  under sub-s. (1) and the interest which is  payable under sub-s. (2).  The compensation has to be determined  in accordance with the principles laid down in Schedule 1. That Schedule  indicates that the determination  of  compensation had  nothing  to  do  with the  payment  of  interest.   The marginal  heading cannot control the interpretation  of  the

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 4  

words  of the section particularly when the language of  the section  is clear and unambiguous.  This Court has  held  in Dr.  Sham Lal Narula v. Commissioner of Income-tax,  Punjab, Jammu  &  Kashmir, Himachal Pradesh & Patiala(1),  that  the statutory interest paid under s. 34 of the Land  Acquisition Act  1894  on  the amount of compensation  awarded  for  the period  from the date the Collector has taken possession  of the  land  compulsorily acquired is interest  paid  for  the delayed  payment  of the compensation and is,  therefore,  a revenue receipt liable to tax under the Income-tax Act.   As has  been pointed out in that decision the  legislature  has expressly  used  the  word  interest  with  its  well  known ’Connotation  in the relevant statutory provision and it  is therefore  reasonable  to give that expression  the  natural meaning it bears.  The same principle would be applicable to the present case.  It is apparent that under s. 8 of the Act the compensation amount as determined in accordance with the principles  laid  down  in  Schedule I  became  due  to  the jagirdar  from  the date of resumption.   Since  the  entire amount was not to be paid on the date of the resumption  but was  to  be paid by instalments extending over ten  years  a provision had to be made for the payment of interest in sub- s.  (2).   The  amount of interest was  thus  given  to  the jagirdar  for being kept out of the compensation amount  for the aforesaid period.  The. legislature being well aware  of the  distinction between compensation and  interest  thereon employed clear language which leaves no room for doubt  that under  sub s.(2) interest was payable in its well known  and well understood sense and it could never form a part of, the compensation money. There is no merit in these appeals which are dismissed with costs.  One hearing fee Appeals dismissed- G.C. (1)  53 I.T.R. 151. 426