THE COMNER OF INCOME TAX VIZAG V. V.SUBBA RAJU

ITTA/72/2000

AI Insights

The case revolves around the classification of interest received by the respondent, V. Subbaraju, from the government during the period between the taking over of his agricultural land and the passing of an award under the Land Acquisition Act, 1894. The primary legal question was whether this interest should be classified as a capital receipt or a revenue receipt for tax purposes. The Income Tax Appellate Tribunal had previously ruled the interest as a capital receipt, a decision upheld by the High Court based on Supreme Court precedents. The government appealed this decision, arguing for the classification of the interest as a revenue receipt.

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 719185 (HC-ANDHRA_PRADESH)
• Appeal Type: Others
• Pronouncement Date: 03-01-2012
• Assessment Year: misc
• Other Referred Cases: Commissioner of Income Tax v. Periyar and Pareekanni Rubbers Ltd., Dr. Shamlal Narula v. Commissioner of Income-Tax, Inglewood Pulp and Paper Co., Ltd. v. New Brunswick Electric Power Commission, Revenue Divisional officer, Trichinopally v. Venkatarama Ayyar, T.N.K. Govindrajulu Chetty v. Commissioner of Income Tax
• Laws Referred To: Income Tax Act, 1961, Land Acquisition Act, 1894
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: Y RATNAKAR
• Assessee Lawyers: S R ASHOK
• Keywords: Capital receipt; Interest on compensation; Land Acquisition; Revenue receipt
• Section: 260A

Judgement Text

"HON’BLE THE CHIEF JUSTICE SRI MADAN B. LOKUR AND THE HON’BLE SRI JUSTICE SANJAY KUMAR ITTA No.72 of 2000 3rd January, 2012 Between: The Commissioner of Income-Tax, Visakhapatnam … Appellant And V. Subbaraju Proprietor, Raja Trading Company, Kakinada. … Respondent Counsel for the appellant : Sri S.R. Ashok, Standing Counsel for Income-Tax Counsel for the respondent : Sri Y. Ratnakar THE HON’BLE THE CHIEF JUSTICE SHRI MADAN B. LOKUR AND THE HON’BLE SHRI JUSTICE SANJAY KUMAR I.T.T.A.NO.72 OF 2000 JUDGMENT: (per The Hon’ble the Chief Justice Shri Madan B. Lokur) *** 1. A substantial question of law was not framed while admitting this appeal filed under Section 260A of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’). Accordingly, after hearing the learned counsel for the parties, we frame the following substantial question of law:- Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was justified in holding that the interest received by the assessee from 1.11.1988 (the date of taking over possession of the assessee’s land) to 29.3.1992 (the date of passing an Award under the Land Acquisition Act, 1894) is liable to be treated as a capital receipt? 2 . The assessee is an individual doing business of trading in cycles and cycle parts. He also derives income from agricultural land owned by him. 3. A part of the assessee’s agricultural land was taken possession of by the Government on 31.10.1988 with his consent. While taking over possession, an agreement was entered into between the assessee and the Government that interest would not be payable to the assessee upto 30.10.1988 or till the date of the Award, whichever is earlier. At that time, although proceedings under the Land Acquisition Act, 1894 (hereinafter referred to as ‘the LA Act’) were contemplated, no proceedings had yet been initiated. 4. The Government then issued notifications under the provisions of the LA Act acquiring a part of the assessee’s agricultural land and an Award under the LA Act was passed on 29.3.1992. In terms of the agreement between the assessee and the Government, interest was paid to the assessee for the period 1.11.1988 upto 29.3.1992. 5. When the assessee filed his returns, the question that arose before the Assessing Officer was whether the interest received by the assessee was a capital receipt or a revenue receipt. The Assessing Officer took the view that the interest received was a revenue receipt. In an appeal filed by the assessee, the Commissioner of Income Tax (Appeals) took the view that the interest received was a capital receipt. This view was upheld by the Income Tax Appellate Tribunal (for short ‘the Tribunal’) by relying upon a decision of the Kerala High Court in Commissioner of Income Tax v. Periyar and Pareekanni Rubbers Ltd.[1] 6. Feeling aggrieved, the Revenue is in appeal before us. 7. The Government may take possession of a person’s land either under the provisions of the LA Act (or another statute) or by agreement with the land owner. When possession of land is taken over by the Government under the provisions of Section 16 or 17 of the LA Act, the property vests absolutely in the Government. Any compensation received by a person for such compulsory acquisition of land amounts to compensation paid for the deprivation of the property, while the interest paid is given to him for deprivation of the use of money representing compensation for the land acquired. This is the view taken by the Supreme Court in Dr. Shamlal Narula v. Commissioner of Income-Tax[2] wherein it was held: “… . in a case where title passes to the State, the statutory interest provided thereafter can only be regarded either as representing the profit which 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 s. 16 or s. 17 of the Act.” Under these circumstances, it was held that such interest on compensation would be a revenue receipt. 8. On the other hand, while dealing with Inglewood Pulp and Paper Co., Ltd., v. New Brunswick Electric Power Commission[3] a n d Revenue Divisional officer, Trichinopally v. Venkatarama Ayyar[4] the Supreme Court observed that title in the property had not passed on to the vendee (in the first case) or to the Government (in the second case), “it may be said that the owner was given interest in place of his right to retain possession of the property.” In such a case, the interest received would be a capital receipt. 9. Noting this distinction, the Kerala High Court held in Periyar and Pareekanni (following Dr. Shamlal Narula and T.N.K. Govindrajulu Chetty v. Commissionerof Income Tax[5]) that interest received by the land owner till the date of the Award is a capital receipt. In that case, possession of land was taken on agreement between the assessee and the Government on 29.11.1961. The Award under the LA Act was passed on 31.8.1962 and compensation with interest was paid on 6.9.1962. The Kerala High Court held for the period 29.11.1961 to 31.8.1962 the interest was a capital receipt in the hands of the assessee and for the period 1.9.1962 to 6.9.1962 it was revenue receipt. 10. We do not see any reason to express a different opinion particularly in view of the decisions of the Supreme Court. In the case that we are concerned with, possession of the assessee’s land was taken by agreement on 31.10.1988 and the Award was passed on 29.3.1992. Therefore for the period 1.11.1988 upto 29.3.1992 the interest given to the assessee must be treated as a capital receipt. 11. In the circumstances, we answer the substantial question of law in the affirmative, in favour of the assessee and against the Revenue. __________________ MADAN B. LOKUR, C.J. 3rd January, 2012 _______________ SANJAY KUMAR, J. Note: LR copy be marked. vtv [1] (1973) ITR 87 666 [2] [1964] 53 ITR 151 [3] AIR 1928 PC 287 [4] AIR 1936 Madras 199 [5] [1967] 66 ITR 465 "