ORDER: A.A. ZUBERI, A.M.-- 1. These twenty nine appeals have been filed at the instance of an "individual" who is said to derive income from interest. The appeals impugned consolidated order dated 30th June, 1987 for the assessm ent years 1955-56 to 1964-65 passed by the learned AAC., Peshawar Range and order dated 15th November, 1985 for the assessment years 1965-66 to 1983-84 passed by the learned CIT (A), Peshawar.
2. In order to summarise the controversy it would be of advantage to set out the facts which form the background of the present appeals. The Appellant held 50% share in a property in the Peshawar City (near Hasht Nagri) which was acquired by the Government for construction of new GTS Bus Stand for which purpose the Collector of the District acquired the property on 6th September, 1954 through two Gazette Notifications issued on 27th February, 1954 and 19th December, 1954. Some portion in the revenue record in respect of this land had such entries on the basis of which the Collector held that the Appellant was not the owner and consequently not entitled to compensation. The Appellant, therefore, preferred appeals, both in respect of ownership of the entire land and also the rate at which compensation was fixed by the Collector. The matter dragged on through various legal forums and was finally settled by the Supreme Court of Pakistan in judgment reported as: Government of West Pakistan (now NWFP) and two others Vs. Mst. Asmatun Nisha (and six others) PLD 1983-SC-109. In their judgment the Supreme Court-- "(i)sealed the dispute pertaining to the ownership of the property; (ii)determined the rate of compensation; and (in addition)
(iii)ordered that the Appellant was "entitled to compound interest @ 8% per annum on the excess amount of compensation awarded...over and above the rate determined by the Collector from the date on which the possession of land was taken up to the date of payment."
When this final award came to the knowledge of the Income Tax Department, assessment proceedings were initiated for the years 1973-74 to 1982-83 on 20th August, 1983. When these were set aside in appeal, re-assessm ents were made adopting the amount of interest pertaining to each income year. These, assessm ents were upheld by the first appellate authority vide order dated 15th November, 1986 which is now impugned before us. Subsequently, proceedings for the assessm ent years 1955-56 to 1972-73 also were initiated on 15th May, 1984 through notice under section 56 in response to which returns were filed declaring "nil" income but the assessing officer framed the assessm ents on 20th October, 1985 by adopting the amount of interest (relatable to each year) as income. These too were upheld by the first appellate authority vide order dated 30th June, 1987 which also is impugned before us. Assessment for the year 1983-84 was framed on 22nd June, 1985 for which proceedings -re initiated through notice under section 56 in response to which return was filed but the figure of income as declared, was not accepted by the assessing officer who adhered to the method of subjecting to tax the amount of interest pertaining to each income year. This was confirmed by the learned CIT (A) vide consolidated order dated 15th November, 1986.
3. The learned counsel for the Appellant attempted a two pronged attack on the treatment meted out. One: the liability to 'tax of the quantum of income received as interest; Two: the initiation of proceedings through issuance of notice under section 56 for the years 1955-56 to 1972-73, and through notice under section 65 for the assessment years 1973-74 to 1982-83. We would first take up the illegality of the assessm ents and the alleged deficiency therein which has been raised by way of `additional grounds' for the reasons that these were not urged before the two authorities below nor formed part of the "grounds of appeal" initially filed before us.
4. Detailed arguments were addressed to contend that notice under section 56 of the Income Tax Ordinance can be issued only when the relevant assessment year is running as,, held by this Tribunal in decisions reported as (1987) 56-Tax-19 (Trib), (1986) 54-Tax-105-Trib. However, in (1988)
56-Tax-123 (Trib) it was held that though a notice under section 56 could be issued for earlier years it could not go beyond the assessm ent year 1979-80. The learned counsel built up the argument that in yet another decision reported as (1986) 55- Tax-105 (Trib) it was held that though a notice under section 56 could be issued for earlier years yet the period of limitation as prescribed under section 65 was to be adhered to and therefore, no such notice could be issued beyond 10 years from the end of the assessm ent year in which the income was first assessable. On this criterion it was asserted, assessm ent for the years 1955-56 to 1972-73 could not be taken up through issuance of notice under section 56 and thus the preceding years were beset with illegality ab-initio with the result that the entire super-structure must fall. As respects assessment years 1973-74 to 1982-83, in which .proceedings were initiated through issuance of notice under section 65, it was asserted that the returns of income were not filed in response to these notices and the assessing officer initially framed ex-parte assessm ent on 27th August, 1983 which were set aside whereafter fresh notices under section 65 (or 56) were not issued and the assessments were made on the basis of earlier notices (issued on 20th August, 1983) which were allegedly served on 21st August, 1983 but in fact no service was made as is evident from the fact that no returns were filed. For 1983-84, return was filed on 12th October, 1983 but it was alleged that notice issued under section 65 was never served but assessm ent was framed on 22nd June, 1985 hence this also was beset with illegality although a return of income was filed on 12th October, 1983.
5. The learned L.A. for the Department, Malik Muhammad Nawaz refuted the arguments by the learned counsel for the Appellant by submitting that notices under section 56 could be issued for earlier years as well, because no time limit is prescribed in this behalf nor has the legislature inserted such words as "subject to limitation under section 65 (etc.) so as to limit its operation to a number of years. In fact, the expression 'at any time' as obtaining in section 56 makes it perenial in operation by authorising issuance of notice under this section to 'any person' who is chargeable to tax but has not filed return of income and has not been assessed to tax for that `.year. For this assertion, the learned L.A. placed reliance on this Tribunal's decision reported as 1987 PTD-(Trib)-1.
The learned L.A., Malik Muhammad Nawaz was at pains to submit that even the issuance of a wrong notice did not vitiate the proceedings so long as the assessing officer had the authority and the jurisdiction, over the Appellant, who knew the purpose and consequences which flew from initiation of proceedings. In the present case" the learned L.A. emphasized, there is no dispute as to the jurisdiction of the assessing officer over the Appellant. In fact for certain years, voluntarily returns were filed with the same assessing officer and the Appellant joined the proceedings at the assessm ent stage which establishes that he consciously attempted to protect his interest and rights and, therefore, no invalidity can be said to have crept into the proceedings. It was prayed that in these circumstances even if notice under section 56 was not proper and (more appropriately) a notice under section 65 should have been issued (or vice versa), the notice should be deemed to have been issued under the proper section.
6. We have given our earnest consideration to the rival arguments addressed to us and are of the view that to properly understand the facts in this case it is necessary to keep in mind section 66(3) of the Income Tax Ordinance which is reproduced below for ready reference; "Notwithstanding anything contained in this Ordinance, where the ownership of any property the income from which is chargeable under this Ordinance is in dispute in any Civil Court in Pakistan, the assessm ent on any person in respect of such income may be made at any time within one year of the end of the financial year in which the decision of such Court is brought, or otherwise comes, to the notice of the Income Tax Officer."
It is manifest from the record that the Appellant's case inter alia involved a dispute about the ownership of the property. This was finally settled by the Supreme Court on 4th October, 1982 vide decision reported as PLD 1983 Supreme Court-109. Therefore, proceedings could validly be initiated on (or before) 30th June, 1984 i,e, within one year of the end of the financial year in which the decision came to the notice of the assessing officer. Again, the proceedings initiated under section 56 were to be completed before the expiration of two years from the end of the financial year in which such notice was served i,e, by 30th June, 1985 or 30th June, 1986. As respects notice under section 65 the consequential assessme nts were to be made within one year of the end of financial year in which such notice was served. Even if the Appellant's case was to fall under Clause (b) to ,sub-section (1) of section 66, the assessment could be completed on (or before) 30th June, 1986.
Therefore, whichever way we look the assessments were framed within the prescribed time. It also is important that in respect of all the assessments, the assessment order clearly indicate, the Appellant (sooner or later) did file the returns of income. Therefore, by operation of the provisions of Section 154(6) of the Ordinance, the right to challenge the validity of notices does no longer exist as has already been held by this Tribunal in a decision reported as (1987) 55-Tax-7 (Trib) especially when (and it is important) the jurisdiction of the assessing officer, who completed the assessment, is not at all in controversy. The appeals on this issue thus stands rejected.
7. Now we turn to other limb of the argument relating to the liability to tax of the amount received as compound interest. It was argued by the learned Counsel that the assessments have been framed on accrual basis meaning thereby that interest pertaining to an income year has been adopted as the ,income for the relevant assessment year. The learned Counsel repeatedly referred to the Land Acquisition Act, particularly sections 28 and 34 thereof which deal with compensation and interest. It was emphatically pointed out that the Supreme Court had clearly ordered that the compound interest @ 8% was under section 28. This distinction, according to the learned Counsel, was necessary, to be kept in mind because under section 34 the payment of interest, is mandatory but under section 28 it is at the discretion of the Court. Therefore, the amount of interest was in the nature of a casual and non-recurring income which is not liable to tax. For this assertion the learned Counsel relied upon cases reported as (1941) 9-ITR-9 (Allahabad); (1978) 37-ITR-10 (Orisa); (1962) 46-ITR-288 (Kerala) and AIR 1975 Delhi 188. With the help of these cases the learned Counsel canvassed that interest order by the Supreme Court has the character of damages and compensation as against 'income' and, at best, it could be called an ex-gracia payment not liable to tax. It was further pleaded that interest in the present circumstances of the ease represented capital and not income liable to tax. The learned Counsel admitted that in a decision relied upon by the Department, which is reported as (1964) 10 - Tax 235 (SCI), the compensation by way of interest was held to be taxable but the set of circumstances there were materially different than those obtaining in the Appellant's case where the interest represents fall in the value of money which was with-held by the Government hence it could be called an accretion on capital. The learned Counsel drew our attention to the preamble of the Land Acquisition Act which proclaims that compensation is to be determined in respect of the land acquired. Thus whatever is paid under the Land Acquisition Act is compensation not liable to tax. Another novel argument advanced by the learned Counsel was that the interest, as was received, could not be classified under any of the 'heads of Income' mentioned in section 15 of the Income Tax Ordinance and, therefore, could not be brought to charge of tax.
8. The learned Legal Adviser Malik Muhammad Nawaz appearing for the Department contended that section 23 of the 'Land Acquisition Act deals with determination of compensation but does not include "interest". The interest awarded by the Court on the amount of compensation is thus interest simpliciter in addition to compensation. It was asserted, with vehemence, that nothing was brought on record by the Appellant to show as to when the compensation (or interest) was paid which was vital to calculate the amount of interest from the date of acquisition to the date of payment. It was, however, to be assessed on 'receipt basis' in the year in which it was received in accumulated form and bifurcation or splitting up over respective years was not called for. The learned Legal Adviser pointed out contradiction, in the stand taken by the Appellant at various stages of the assessm ent proceedings in different years of assessment, by submitting that at one stage. It was pleaded that interest was ex-gracia payment and could not be charged to tax and at the other was characterized as casual or non-recurring receipt. The learned Legal Adviser, contended that out of cases relied upon by the learned counsel for the Appellant the one reported as (1978) 31-Tax-64 was not applicable while in (1964)-10-Tax-235 (Allahabad) interest on deferred bonds were held to be revenue receipts. Malik Mohammad Nawaz was vemenous in his attack on Bihari Lal's case (1941) 9-ITR-9 (Allahabad) on which reliance was placed by the Appellant's counsel. He emphasized that this decision was dissented by the learned Judges of the Punjab High Court in Dr. Sham Lal Narula's case (1963) 50-ITR-513 which on its turn was affirmed by the Supreme Court of India in (1964) 53-ITR 151 (SC) = (1964) 10-Tax - 235 with the result that Bihari Lal's case was over-ruled by a specific mention and can no longer be called a correct annunciation of law hence reliance by the Appellant on this case was thoroughly misplaced. The learned Legal Adviser concluded by submitting that if the interest as awarded to compensate loss of income (or profit) arising out of the awarded amount for the period of delay in making the award, the same would still be a revenue receipt in the hand of the .Appellant.
9. We have given out earnest and industrious consideration to the arguments advanced by the two sides. It is a notorious fact that whenever there is a compulsory acquisition of assets under the Land Acquisition Act, the award of compensation (made in the first instance) is too meagre compelling the person whose asset is acquired to dispute its quantum. Very often the final arbitrator dealing with the dispute enhances the award considerably but the decision in this regard always comes years after the date of acquisition. This gives rise to the problem of capital gain (at the Provincial level) and of tax treatment on interest ( at the Federal level), if awarded on the enhanced value. An exhaustive survey of the case-law brings out that the judicial opinion on this issue is fairly divided, depending on the substitutely and circumstances in each case. With the foregoing realities obtaining on the ground we now examine the relevant provisions of the Land Acquisition Act and consequential effect as respects the taxation of income.
10. Three sections (viz: 11, 12 and 31) of the Land. Acquisition Act pertain to owner's right of payment immediately on making of the award. section 11 speaks of the making of the award. section 12 enjoys that it should be entered in the official record and immediate notice given to the owner.
Under section 31, it is the duty of the Collector to tender payment of compensation to the person entitled to it. As is obvious from the scheme of the Land Acquisition Act, compensation for acquisition of property becomes payable to the owner after he is divested of the right and title in the property by the act of the Government. It is, therefore, clear that the owner is entitled to the compensation money immediately on making of the award which is either paid to the owners or is deposited in the Court which is deemed to be payment to the owner. Thus compensation for damages due to delay in 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 but this is merely a means adopted for the purposes of determining the compensation. It is true that in a case of Indian jurisdiction, having relied upon by Malik Muhammad Nawaz, the learned Legal Adviser, reported as (1964) 10-Tax-235 Dr. Sham Lal Narula, the learned Judges ruled that interest is a revenue receipt liable to tax but in our view two significant factors make it distinguishable from the Appellant's case; First; decision in Narula's case related to statutory interest awarded under section 34 which forms part of Part-V of the Land Acquisition Act, under the head "payment" of which the learned judges took special cognizance. The facts in the case before us are distinguishable inasmuch as the interest here was awarded under section 28 at the `discretion of the Court' which falls in Chapter III under the head "Reference to Court and Procedure thereon". The reference to Court here is relatable to the holding of an enquiry into measurements, value and claims as awarded by the Collector in Part II of the Land Acquisition Act. It is beyond dispute that compensation under section 28 is at the 'discretion of the Court' who may (or may not) award the same being under no mandatory obligation, in contrast to section 34 where the interest is awarded statutorily.
In fact according to the pronouncement of the Lahore High Court reported as PLD-1978-Lah. 393 (at para 10, page 405), the award of interest under section 28 is due to the failure of the Land Acquisition Collector and the Civil Court to award "proper compensation". Be as it may, under section 28 the claim remains in the realm of uncertainty as the claimant is not entitled to it as of right under any rule of law.
Second; The learned Judges distinguished the finding of the Kerala High Court in re. P. V. Kurien (1962)46-ITR-288 where relying upon AIR 1928 PC-287 and AIR 1936Mad-199, it was ruled that interest on the enhanced amount of compensation directed to be paid by an appellate court is not liable to tax under the Income Tax law. It is important that the learned Judges of the Supreme Court in their wisdom and sagacity drew a fine line of distinction to deviate from the Kerala High Court decision because they had in mind that no right to retain possession remains with the owner after the Collector takes possession of the acquired land under section 16 (or 17) of the Land Acquisition Act. The learned Judges highlighted the fact that in the cases relied upon in Kurien's case, the possession was taken by the Government in circumstances falling outside the scope of sections 16 and 17 of the Land Acquisition Act, as the title did not pass to the State when possession was taken over by it. On these subtilities Dr. Narula's case was distinguished from Kurien's decision to finally hold that the owner was given interest in lieu of his right to retain possession of the property.
In the case of the Appellant before us, possession was taken over by the Collector on 6th September, 1954 after a notice under section 9 of the Land Acquisition Act while the award by the Land Acquisition Collector was given on 14th November, 1955. This was due to pendency of litigation regarding the title of the land.
11.The effect of the foregoing is that the distinguishing features which prompted the Indian Supreme Court to deviate from the ruling by the [Karachi] High Court no longer exist. On the contrary, the facts are more in line with those obtaining in the case relied upon by the learned Judges of the Kerala High Court in Kurien's case, to arrive at the conclusion that the interest paid on the enhanced amount of compensation ordered to be paid by the appellate court is not liable to tax under the provisions of the Income Tax law.
12.With the aforementioned analysis in mind, as also the fact that provisions of section 28 are discretionary and those of section 34 mandatory, we have reached the conclusion that hypothetical loss of interest on the amount of compensation might be a good measure for determination of compensation but the same cannot be said to have assumed the nature (or character) of a revenue receipt on the hands of the Appellant.Thus, like the amount of compensation, the amount of discre tionary interest also, being neither a loss of profit nor a loss of interest does not have the character of a revenue receipt. This amount, in our opinion, represents a casual receipt of non-recurring nature arising out of the discretion exercised at the violation of a statutory authority. Even otherwise, such like windfalls are more in the nature of capital receipt not having the character of income liable to tax. It would be appropriate here to refer to a decision of the Supreme Court of Pakistan in a judgment reported as PLD 1976-SC-531 where the learned Judges observed (page: 537 of the report refers): " interest awarded under section 28 is in the nature of compensation for damages, assessed in terms of interest, for loss of possession of property upto the date of the receipt of its consideration."
(here underlined for emphasis)
It is well-settled that even an obiter of the Supreme Court is binding on all lower judicial forums.
13. To conclude, we have formed the view that interest awarded to the Appellant at the rate fixed by the Supreme Court of Pakistan was a measure to work-out the quantum which was paid as compensation for the acquisition of his land by a competent authority, hence it is a casual (or. a capital) receipt having non-recurring nature thus not liable to tax. A However, after the date of the payment, whatever yield is obtained on the consolidated amount of compensation, would be interest income liable to tax in subsequent years but no tax is leviable upto the date of payment of compensation. The appeals succeed in consequence.
QADEER AHMAD SIDDIQUI, J.M.--1. Before I pro-ceed with the disposal of these appeals I must express my gratitude to my learned brother Mr. A.A. Zuberi for making available his judgment. I have the advantage of seeing the judgment and benefitting from the varied experience and subtle legal acuman of my learned brother. Although, I am in agreement with the ultimate conclusion drawn by my learned brother, yet I feel that since I have examined these appeals in certain details I should give my findings on various issues.
2. Briefly stated the facts of the case are that the assesse was a co-owner of certain piece of immovable property bearing Khasra Nos, 672-min/618/127/673/227/1617/127/128/129/ 120- min/665/668/116/858/669/118 measuring 34 Kanals and 10 marlas situated at Mahal Tukkra No, 1, Peshawar City. By Notification dated 19th December, 1954 and 27th December, 1954 issued under sections 4 and 6 of the Land Acquisition Act, 1894 the Government acquired the possession of the aforesaid land abandoning 5 marlas only. The Collector by his award dated 14th December, 1955 determined the compen-sation payable at the rate of Rs, 3/- per sq.ft. for 7 Kanals and at the rate1 of Rs, 1.25 per sq.ft for the remaining 27 Kanals and 5 marlas. The assessee made a reference under section 18 of the Land Acquisition Act, 1894 and the learned Senior Civil Judge, Peshawar, by his judgment dated 30th June, 1975 held that the owners were entitled to compensation at the rate of Rs, 7/- per sq.ft. plus Rs, 25,900 for super-structure in addition to interest @ 6% from 6th September, 1954 to 15th March 1969. He further ordered that as from 15th March, 1969 the interest shall be payable @ 8% per annum till payment of the entire compensation. The Judgment of the learned Senior Civil Judge was questioned by the Government of West Pakistan before the High Court. The owners also submitted cross objections. The High Court dismissed the cross objections on 2nd July, 1978 and partly allowed the Government's appeal holding that the owners were not entitled to compensation for an area measuring 4 Kanals which was declared to be an evacuee property.
Both the parties filed appeals before the Supreme Court. The Supreme Court dismissed Government's appeal and the owners were held entitled to receive the compensation for the entire area together with compound interest on the original award.
3. The assessm ent proceedings for 1955-56 to 1972-73 were initiated by the ITO by issuing notices under section 56 of the Income Tax Ordinance simultaneously upon the receipt of information that the assessee had received a sum of Rs, 82,05,980 for the period 1st January, 1956 to 28th February, 1983.
4. The crucial question which arises for determination in this case is whether a notice could at all be issued after 30th of June, 1983 in respect of the assessment years 1955-56 to 197273 which culminated into an order of assessme nt passed in October, 1958.
5. On behalf of the assessee it was contended that under section 166(2)(ii) only a notice under section 65 could have issued in respect of income which had escaped assessment under the Income Tax Act, 1922 within the period of limitation fixed by section 65(3). The Ordinance came into force on 1st July, 1979 and admittedly on that date there was no proceedings pending under the repealed Income Tax Act, 1922. The learned D.R. has in turn challenged the objection taken on behalf of the assessee and claims that the objection to the validity of the service of notice under section 56 is misconceived. He claims that the assessee had filed the returns for all these years and proceedings for its assessm ent were validly started and sections 5(5) and 154 of the Ordinance disentitle the assessee to object to the jurisdiction of the ITO or to challenge the validity of the notices under section 56 issued by the ITO.
6. In order to resolve the issue we shall first examine the provision of section 34 of the repealed Income Tax Act and repealed and saving clause in section 166 of the Income Tax Ordinance, 197.9 and the amendments of the Law of Limitation by section 65 of the Ordinance.
7. Section 34 of the repealed Act in so far as it is relevant reads as under:-- "34. (1) If for any reason income, profits or gains chargeable to income tax have escaped assessm ent in any year, or have under-assessed, or have been assessed at too low a rate, or have been the subject of excessive relief or refund under this Act, the ITO may, serve on the person liable to pay tax on such income, profits or gains, or in the case of a company, on the principal officer thereof a notice obtaining all or any of the requirements which may be included in a notice under sub-section (2) of section 22, and may proceed to assess or re-assess such income, profits or gains, and the provisions of this Act shall, so far as may be apply accordingly as if the notice were a notice issued under that sub-section: (I-A)-- Notice under sub-section (1) may be served by the Income Tax Officer--
(a) in any case in which he has reason to believe that assesse or any other person, on his behalf has not filed any return under sub-section (1) or sub-section (2) of section 22, at any time;"
8. Section 166 of the Income Tax Ordinance in so far as it is relevant reads as under:-- "166.--Repeal and savings.
(1)The Income Tax Act, 1922 (XI of 1922) is hereby repealed.
(2)Notwithstanding the repeal of the Income Tax Act, 1922 (XI of 1922) and without prejudice to the provisions of section 6 or section 24 of the General Clauses Act, 1897 (X of 1897); (c)where in respect of any assessm ent year, (ii) any income chargeable to tax had escaped assessm ent, or had been under assessed or assessed at too low a rate, or had been the subject of excessive relief or refund or the total income or the total world income and the tax payable had been determined under sub-section (1) of section 23 of the repealed Act and no proceedings under section 34 of the said Act in respect of any such income are pending at the commencement of this Ordinance a notice under section 65 may be issued with respect that assessment year and all the provisions of this Ordinance shall apply accordingly;"
9. A careful examination of the provisions of section 34 of the repealed Act shows that the assessm ent of income of persons who had not filed any return of total income under section 22(1) or (2) fell within the purview of section 34(IA) and proceedings against such persons could be started to assess the income which had "escaped assessment" at any time without reference to any limitation. However, after 1st July, 1979 proceedings for assessment in cases where income had "escaped assessm ent" but no proceedings under section 34 were started before the said date the law requires action to be taken under section 65. Section 166(2)(c) (ii) leave no option to the learned ITO for issue of a notice under section 56.
10. The income from interest for 1955-56 to 1972-73 admittedly escaped assessment when the Income Tax Act, 1922 was in force and could have been assessed under section 34 along. We are unable to agree that the category of income which had "escaped assessment" would fall back into the current assessm ent work under section 56 of the Income Tax Ordinance, 1979 which came into force on 1st July, 1979 and has no retrospective operation.
11.Although section 34(IA) of the Income Tax Act, 1922 did not prescribe any period of limitation for concealment case and cases where the assessee had never filed return under section 22(1) or under section 34, such category of cases is not saved by section 166(2)(ii) of the Ordinance which is applicable to cases of income escaping assessment, under assessment or assessment at too low a rate and even cases where returned income was accepted under section 23(1) but the category of assessee who did not file his return under section 22(1) or (2) is not saved. The assessm ents in all cases of income escaping assessment came to be governed by the uniform rule of limitation laid down by section 65(3) of the Ordinance.
12.The limitation for starting proceedings for assessment under section 65 was five years only from the end of assessm ent year in which the income was "first assessable". The income for 1955- 56 was first assessable in the year ended on 30th June, 1956 and that for the last of those years, namely, 1972-73 was assessable in the year ended on 30th June, 1973. It does not apply to closed transactions and of course does not revive extinguished rights.
13.The law of limitation is undoubtedly a branch of procedural law and applies retrospectively to all transactions including pending matters. The new rule of limitation laid down in section 65 seems to preclude the issuance of any notice under section 65 in respect of the years 1955-56 to 1972-73.
14.As for the question of validity of notice under section 56 this appears to be wholly untenable for the clear language used in sub-clause (ii) of clause (c) of section 166 which contemplates a notice under section 65 alone. After the 30th June, 1983 the ITO could not have lawfully started proceedings for assessm ent for any of these years. The proceedings under section 65 and not under section 56 could be started within the period of limitation of ten years. The proceedings under section 56 were void ab initio.
15.There is no dearth of authorities for the proposition that after the expiry of the period of limitation mentioned in the statute the assessee acquires a valuable right of escaping the assessm ent. In Nagina Silk Mill vs. I.T.O. (P.L.D. 1963 SC 322) the Supreme Court of Pakistan made the following observation at page 332:-- "The appellant herein had already acquired the vested right of escaping assessment, by lapse of time when the 1960 Ordinance was enforced."
In Crescent Board vs. I.TO (1984)-49-TAX-122, the Lahore High Court had dealt with the effect of insertion of sub-section (3A) in section 65 which was inserted by the Finance Ordinance, 1982 and gave the Department one year's time from the end of the financial year in which notice under section 65 was served. This provision was , held to be retrospective following the Judgment of the Supreme Court in Kolzi Noor Textile Mills vs. C.I.T. (Pr,D 1974-SC-284) and the C.LT. vs. Eastern Federal Union Insurance Company Ltd. (1982) 46-TAX 6, holding the provision relating to limitation embodies in section 65 as procedural and the amendments as having retrospective effect. In another case reported as CIT vs. Syeda Sarwat Sultana (1986) 56-TAX-46, the Lahore High Court had the occasion to interpret the new rule of limitation of 90 days as against the earlier period of 60 days under the provision of section 66(1) of the Income Tax Ordinance, 1979. The Court observed:- "It is a settled principle of law that law of limitation is part of procedural law and no one can claim substantive right in procedure."
And further observed that since the reference applications were filed long after the enforcement of the Ordinance, the question that they were required to be continued and disposed of under the old Act did not arise.
16.For the foregoing reasons, we hold that all these assessments were barred by limitation after 30th June, 1983 and the issuance of notice under section 56 and even a notice under section 65 would be barred by limitation, illegal and void and would not confer any jurisdiction on the ITO to commence any proceedings on or after 31st July, 1983. No assessment proceedings could be commenced under section 56 and even notice under section 65 would be barred by limitation on or after 1st July, 1983.
17.This brings us to the objection on by the learned Counsel for the respondent that jurisdiction of the ITO cannot be called into question under section 5(5) after the assessee submits to his jurisdiction. Section 5 deals with the allocation of the work among the Offices of the Department, and where the ITO claims to have jurisdiction over an assessee whether upon allocation on territorial, personwise, or class-wise basis, and an assessee has submitted to his jurisdiction cannot possibly dispute his jurisdiction later on. But where as in this case, the ITO lacks inherit jurisdiction and his jurisdiction is shown to be barred by limitation he cannot by deciding facts wrongly give to himself jurisdiction which he does not possess. We have no doubt that ITO lacked inherent jurisdiction to issue any notice under section 56 in respect of the years 195657 to 1972-73 and his jurisdiction to issue a notice under section 65 read with section 166(2)(ii) was also controlled by section 65(3). With the afflux of the period of ten years he could not have issued a valid notice under section 65 even. We are convinced that the rule in sections 5 and 154 would not enable ITO to assume jurisdiction to issue notice in all cases and complete assessment in all cases in which the assessee is traped into submitting a return. We are of the view that the action of the ITO in issuing notice under section 56 was illegal, an act without jurisdiction barred by the Scheme of the Income Tax Ordinance, 1979 and a nullity in the eyes of law. We are unable to read into sub- section (5) of section 5 any thing which would cure the defect of inherent lack of jurisdiction in any notice. At the most it prevents the assessee who has submitted to an ITO's having jurisdiction to later or question his notices on the ground that he lacked jurisdiction over the case. We are unable to agree that every illegal or unlawful acts and transactions which are per se illegal and without jurisdiction and forbidden by law would become lawful and every mandatory and prohibitory provision in the Ordinance would be set at naught only because the assessee has filed a return.
18.Section 154 of the Ordinance save all proceedings initiated under the Ordinance. We are convinced that proceedings initiated under section 56 after 1st July, 1979 or at all proceedings under the Ordinance and such notice cannot for that reason be saved. It is difficult to accept that section 66(3) of the Income Tax Ordinance could be pressed into service in favour of the Department. The section applies to disputed ownership of any property income wherefrom is chargeable under the Ordinance, is in dispute in any civil Court in Pakistan. In this case admittedly the land was barren land which was taken into possession by the Land Acquisition Collector. It is nobody's case that the land was yielding any income. It is not the Department's case that they wanted to assess the income arising from land. Section 66(3) could be pressed into service if the Income Tax Officer wanted to assess the income from property in the hands of the rightful owner, and it is for the limited purpose of assessment of income arising from such property that a special period of limitation of one year from the date of discovery of the decree of the Civil Court resolving the ownership of the property is available as extended period of limitation. The special period of limitation could not have possibly applied to the assessment of the income from any other source whatsoever. Section 66(3) is therefore, of no avail to the Department.
19.We would now take up in question whether the amount awarded and received by the applicant as interest was compensation and received on capital account or was income and liable to tax. The learned counsel for the appellant relies on the preamble to claim that the object of the Act is to award compensation. He claimed that the award of interest under section 28 was discretionary but the interest awarded under section 34 was mandatory. It is urged that the amount paid was in the nature of casual or non-recurring income not liable to tax.
20.In support of his assertions he relied on Behari Lal Bhargava vs. CIT (1941) 9-ITR-9, P.V.Khurion vs. CIT (1962) 46-ITR 288; and Umrao Singh Vs. Union of India; AIR 1975 S.C. 188 and argued that the interest eventually awarded by the Supreme Court was of the nature of compensation for loss of land which was compulsorily acquired by the Government under the provision of the Land Acquisition Act, 1894. He claimed that both the amount eventually determined as payable to the appellant as well as the sum total of interest was to the nature of damages/compensation awarded for loss of land and capital receipt and not income liable to tax.
21.The learned Counsel admitted that in the case reported as Dr. Sham Lal Narula vs. CIT (1964) 10 Tax-235 the Supreme Court of India held that the interest awarded under section 28 of the Land Acquisition Act was liable to tax as income from interest and tried to distinguish the case from the instant case where the amount awarded had been withheld and claimed that it represented discretionary damages for fall in the value of money and the amount was a capital receipt and claimed the interest could not be classified under any of the head of income mentioned in section 15 of the Inome Tax Ordinance, 1979.
22.The learned Legal Adviser for the Department Malik Muhammad Nawaz, in reply draw our attention to section 23 of the Land Acquisition Act, 1894 to contend that in the whole process of determination of compensation dealt with by that section 'interest' does not at all figure. The learned counsel contended that interest was chargeable on receipt basis meaning thereby that the Department could charge the entire amount of interest in one assessment as income of the year of receipts and it was not necessary to allocate it to various years. He vehemently argued that Behari Lal Bhargava's case (1941)- 9-1TR-9 was dissented by Punjab High Court in Dr. Sham Lal Narula's case (1963) 50-ITR-513 which was later affirmed by the Supreme Court of India in (1964)
10-TAX-235 and could not be regarded as correct law in India and reliance thereon was misplaced.
The learned Counsel claimed that the interest was awarded to compensate the appellant for the period of delay in making the award to compensate him for loss of profit and was a revenue receipt liable to tax.
23.We have given our anxious consideration to the arguments advanced on behalf of the parties and have applied our mind to the cases cited at the bar and have further analysed other relevant case law.
24.The law governing the tax liability of interest awarded under section 28 of the Land Acquisition Act, 1894 was considered as settled by the judgment of the Allahabad High Court in Behari Lal Bhargava vs. CIT (1941) 9--ITR--9, in which the learned Judges upon a thorough review of the law on the subject came to the conclusion that interest awarded under section 28 of the Land Acquisition Act was in the nature of compensation for loss of the assessee's right to retain possession of the property acquired. The learned Judges expressed the view that it was damages assessed in terms of interest for loan of possession of property upto the date of receipt of its consideration. It was not income and was not assessable as such to tax.
25.We would presently examine other cases having a bearing on the issue in CIT vs. Fletcher (1937) 5-ITR-428 the court had to decide whether voluntary payment made to the employees of a Company on retirement from a fund which the Company had constituted was liable to income tax.
The Court recorded the finding that the amount paid were not in the nature of salary for current services but merely the measure of a sum which the Company voluntared to pay to him on the termination of his services and this same when paid was not "income" and therefore not taxable.
26.In re: National Bank of Wales Ltd. (1894) 2 Ch. D 629 in the winding up of a Company, it was found that an ex-director of the Company had improperly paid out certain dividends. Lord Wright observed at Page 645 that the respondent must he held liable to repay the amount of dividend plus interest "as in the case of fraud" at 5% from the dates on which dividends were paid.
Subsequently, the question arose as to whether from the amount payable by the respondent there should be deducted income tax on interest mentioned in the judgment and Lord Wright at Pages 650-657 said that he did not see his way to allowing such deduction. He observed-- "If the Company has suffered those damages, I can see no reason why it should not get the whole of the damages back. It is called interest but it is really damages for with-holding its capital from the Company'.
27.In Schulse Vs. S.W. Bensted 7 S.T.C. 30, Lord Johston made the following Observations:-- "The question is whether a sum paid under decree so nomins as interest on principal sum recovered by the pursuers in an action was interest in their hand_ which fell to be assessed to income tax. Where pursuer recovered damages with interest from the date of decree I do not think that interest is chargeable. It is a part of damages..."
28.In C.I.R. vs. Ballantine 8 T.C. 595 Lord observed at page 611-- "But an interest calculation is a natural and legitimate guide to be used by an arbiter in arriving at what the thinks would be a fair amount. In most cases in which such an allowance is a constituent of an award it does not separately appear, but is slumped alongwith other elements in the gross sum discerned for; but there is nothing to prevent an arbiter, if he thinks it just and reasonable in a particular case, to make the allowance in the form of an actual interest calculation from a past date until the sum fixed as at that date is paid. In all such cases, however, whether the allowance is wrapped up in a.slum award or is separately stated in the decree the interest calculation is used in modum aesdmationis only. The interest is such merely in name, for it truly constitutes aim part of the compensation discerned for which is attributable to the fact that the claimant has been kept out of his due for a long period of time."
29.Similarly in Simpson vs. Executors of Bonner Maurice on Executors of Maurice Kay 14. T.C. ,580 Rawlat .1. at Page 993 observed:-- "The Treaty gave compensation, and the Tribunal which assessed the principal sum has assessed it on the basis of interest. I think this sum first came into existence by the award, and no previous history or enterior character can be attributed to it. It is exactly like damages for detent on of a chattel, and unless it can be said that damages for detention of a chattel can be called rent or hire for the chattel during the period of detection, I do not think this compensation can be called interest".
In appeal Lord Hanworth , M.R., said-- "But is it interest? Is that its quality, or is it compensation estimated and measured in terms of interest?"
Further on he says: "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."
30.The nature of interest awarded under section 28 was examined by the Supreme Court in Nighat Textile Mills Limited vs. Sher Ahmad Khan PLD 1975 SC 531 where the following observations appear at page 536-537.
"15. As regards the second contention ordering payment of interest under section 28 of the Act, it seems to me plain and unambiguous that it gives discretion to the Court to direct payment of interest on the excess."
Section 28 reads as under:-- "If the sum which in the opinion of the Court the Collector ought to have awarded compensation, is in excess of the sum which the Collector did award as compensation, the award of the Court may direct that the Collector shall pay interest on such excess at the rate of six per cent per annum from the date of which he took possession of the land to the date of payment of such excess into Court."
31.It has been observed in some cases that interest awarded under section 28 is in the nature of compensation of damages assessed in terms of interest for loss of possession of property upto the date of receipt of its consideration.
32.In India following the judgment of Allahabad High Court in Be/sari Lal Bhargava vs. CIT (1941) 9 - ITR-9 the Kerala High Court also held in 46-ITR-288 that interest paid on enhanced amount of compensation directed to be paid by an appellate Court in an appeal against an award of compensation for compulsory acquisition of land under the Land Acquisition Act represents capital and not income liable to tax under the Income Tax Act, 1922. In that case the Court followed the judgment in Inglewood Pulp & Paper Co. Ltd. vs. New Burnswick Elec. Power Commission AIR 1928 P.C. 287, where it was observed that it is well established that on a contract for sale and purchases of land it is the practice to require the purchaser to pay interest on his purchase money from the date he took possession, that the position is the same when acquisition is compulsory as the owner is deprived of his property in that case as such as in the other and that "the right to receive interest takes the place of the right to retain possession and is within the rule."
33.In revenue Divisional Officer vs. Vankatarama Ayyar AIR 1936 Mad. 199; the Government took urgent possession of certain lands before the award under the Land Acquisition Act, 1894. The Court held that even though the case did not exactly fall under Schemes 16 and 17 of the Act interest on the amount awarded can be given for the period between the date on which the Government took possession and the date on which compensation money was paid on the principal that the right to receive interest takes the place of right to retain possession.
34.Before judgment of the Supreme Court of India in Dr. Sham Lal Narula's case trend of the authorised as discussed above was to regard award of interest as payment of compensation for the right to retain possession. The observation made by the Privy Council in Inglewood Pulp and Paper Co. Ltd. vs. New Burnwick Elec. Power Commission AIR 1928 P.C. 287; appear to clearly support the view. In Dr. Sham Lal Narula's case (1964) 10-TAX-235; the interest was awarded under section 34 of the Land Acquisition Act, 1894 while in the present case the interest was awarded under section 28 is discretionary. While the award of interest under section 34 is mandatory meaning thereby that the owner is entitled to interest as of right while award of interest under section 28 is in the discretion of the Court which was earlier held as a part of the award of compensation.
35.The following extract for the judgment in Dr. Sham Lal Narula's case (1964)-10-TAX-235; at 238- 239 makes an interesting reading-- "Section 23 provides for the matters to be considered in determining compensation; section 24 describes the matters to be neglected in determining the compensation. A perusal-of the provision of section 23 shows that interest is not an item included in the compensation for any of the matters mentioned therein; nor is it mentioned as a consideration for the acquisition of the land. Under clause (2) of section 23, the legislature in express terms states that in addition to the market value of the land the Court shall in every case award a sum of 15 per cent of such market valve in consideration of the compulsory nature of the acquisition. If interest on the amount of compensation determined under section 23 is considered to be a part of the compensation or given in consideration of the compulsory nature of the acquisition, the legislature would have provided for it in section 23 itself. But instead. payment of interest is 'provided for separately under section 34 in Part V of the Act under the heading "payment". It is so done. because interest pertains to the domain of payment after the compensation has been ascertained. It is a consideration paid either for the use of the money or for forbearance from demanding it after it has fallen due.
Therefore, the Act itself makes a clear distinction between the compensation payable for the land acquired and the interest payable on the compensation awarded."
It is further observed:-- "Under both the sections the land acquired vests absolutely in the Government after the Collector has taken possession in one case after the making of award 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 the 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, through the ascertainment thereof may be postponed, from the date 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 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."
36.The passages clearly show that the judgment in Dr. Sham Lal Narula's case provided on the footing that what was received by way of interest was awarded under section 34 and was dealt with by the learned Judges on that footing. In the present case there is not doubt the interest has been awarded under section 28 and the argument advanced by the learned Judges of the- Supreme Court of India are no longer attracted.
37.The compulsory acquisition of the land by the Land Acquisition Collector whereupon the owner is divested of his title as owner may be disposed forthwith would be followed by award of compensation followed by its payment. In case the amount is deposited in Court it would be deemed to have been paid to the owner. We are not inclined to subscribe to the view that the amount awarded for delay in the making of the award could be regarded as accruing upon the amount of compensation.
38.The Privy Council in the case of Commissioner of Income Tax, Bengal vs. Shaw Wallace & Co, (59 Cal. 1342, 1352); while attempting to define the term "income" said:-- "Income, their Lordships think, in the Indian Income Tax Act, connotes a periodical monetary return 'coming in' with some sort of regularity, or expected regularity from definite sources. The source is not necessarily one which expected to be continuously productive but it must be one whose object is the production of a definite result excluding anything in the nature of a mere wind-fall. Dealing with definition of total income Kanga & Palkhivalas in the 7th Edition on their work of the Law and Practice of Income Tax at Page 72 state that:-- "The definition of total income in the sub-section involves two ingredients (a) the income must comprise the total amount of income, profits and gains referred to in section 5 and (b) it must be computed in the manner laid down in the Act. The manner of computation laid down by the Act forms as integral part of the definition of 'total income'. The correct method of approach is to treat nothing as being charged to tax by the process of computation laid down by the Act the status of income, profits and gains emerges."
Section 11 which has to be read with the charging section 9 also refers to 'income from whatever source derive'. It was for the Department to establish that there existed a source the income from which accrued by way of interest and the Department has not been able to discharge that onus.
39.For the foregoing reasons the interest awarded under section 28 of the Land Acquisition Act, 1894 was not liable to B tax as income from interest. These appeals are accordingly accepted.
ABRAR HUSSAIN NAQVI, J. M.--1. I have carefully gone through the proposed order of my learned brother, the Accountant Member (A.A. Zuberi). I agree with his reasons and conclusions so far as the legal objections of the assessee in regard to the time barred assessments and reopening of the assessm ent is concerned. However, I have not been able to persuade myself to agree with my learned brother that the interest awarded to the assessee is a casual or a capital receipt and thus not exigible to Income Tax. My reasons for taking the different view are as follows:
2. Here I need not reiterate the detailed facts which have already been elaborately given by my learned brother, the Accountant Member. In brief the crucial facts are that a certain urban property was acquired by the Government and its possession was taken over by the Government. An award was given by the Land Acquisition Collector at a certain figure. The award as well as the title of the property remained disputed and finally decided by the Supreme Court where not only the amount of award has been increased but interest is also directed to be paid to the assessee from the date of taking over the possession of the property. Now question for determination before us is as to whether the interest paid to the assessee with retrospective effect from the date of the taking over the possession of the property, is liable to be taxed as income of the respective assessment years or the interest is a casual or a capital receipt and thus not liable to tax. A distinction has been made between the interest awarded under section 28 and under section 34 of the Land Acquisition Act. Under section 34 of the same Act, interest has to be awarded and there is no discretion with the Land Acquisition Collector. However, under section 28 of the same Act the Court has ostensibly a discretion to award the interest. But the purpose of awarding the interest under both these sections is the same i,e, the retention of the proper amount of compensation after dispossessing the assessee. On acquisition of a property taken over by the Land Acquisition Collector, the owner ceases to have any title or right of possession to the property and the owner receives the compensation on both the accounts. Therefore, the interest allowed to be given to the owner is neither a compensation nor damages for the loss of the right to possess the property because that right has already been taken over under the statutory provisions. The interest is awarded in order to compensate the owner for retaining the proper amount of compensation payable to the owner at the time of the taking over of the possession of the property and this is the crucial point on which the whole question revolves. The assessee is under the impression that the amount of interest allowed to the assessee on account of compensation is part of the compensation and has been awarded to the assessee by way of damages for loss of earning out of the property. If an interest is to be taken as part of the loss of the property then it would be a capital amount and therefore not taxable. However, in case, as I have manifested, the amount of interest awarded to the assessee is not part of the award on account of acquisition of the property, it cannot be said as part of the capital amount. The learned counsel for the assessee vehemently argued that the amount of interest awarded to the assessee by the orders of the Supreme Court, was in fact by way of damages for loss of the property for keeping the assessee out of the possession of the property.
The contention of the learned counsel for the assessee is completely mis-conceived. As has been stated above, the moment the assessee is dispossessed from the property from that date onwards under the law, the assessee no longer holds any right or interest therein. His only interest in the subject of litigation is the proper amount of compensation. Now the assessee has been litigating in the Superior Courts, apart from the question of title, also on the proper amount of compensation for the acquisition of land. The superior Courts have increased the amount of compensation. It may here be stated that section 23 of the Land Acquisition Act has enumerated the matters which may be considered in determining the compensation of the property acquired. The relevant portion of section 23 may here be reproduced: "Section 23. Matters to be considered in determining compensation.--(1) In determining the amount of compensation to be awarded for land acquired under this Act, the Court shall take into considerations: First, the market value of the land at the publication of the notification under section 4, sub-section (1); Fourthly, the damage (if any) sustained by the person interested, at the time of the Collector's taking possession of the land, by reason of the acquisition injuriously affecting his other property, movable or immovable in any other manner; or his earnings; It would be seen from reading of clause fourthly above hat any earning out of the property acquired has to be given due consideration while determining the proper value of compensation of the property. Therefore, whatever amount had been awarded by way of compensation on account of acquisition of the property by the Supreme Court that amount includes the loss of earning out of the property. It therefore follows that the interest awarded by the Court is not on account of loss of earning out of the property acquired but it is the loss of income out of the compensation. Since, the interest awarded is not loss of earning out of the property, therefore it cannot be said to be part of the compensation amount which includes any part of the earning out of the property. Whatever interest has been awarded to the assessee that is for the loss of income out of the proper compensation which has been finally awarded by the Supreme Court and therefore it is a revenue receipt and is taxable.
4. As for the distinction between interest awarded under section 28 and under section 34, again the argument of the learned counsel for the assessee is misconceived. Under section 34 of the Land Acquisition Act, the word 'shall' has been used because the moment Collector awards the compensation he is bound to give the interest from the date of dispossession of the property.
Under section 28 of the same Act the word may has been used in regard to the payment of interest because it is yet to be determined by the Court as to whether the amount of compensation is to be increased or not. Since the interest to be awarded is subject to the condition of increase in the award of compensation it is for this reason that the word 'may' has been used. For reference section 28 may be reproduced below: "Section 28. If the sum which, in the opinion of the Court, the Collector ought to have awarded as compensation is in excess of the sum which the Collector did award as compensation, the award of the Court may direct that the Collector shall pay interest on such excess at the rate of eight percent per annum from the date on which he took possession of the land to the date of payment of such excess into Court."
If the Court decides to increase the compensation, then the word 'may' used in section 28 has to be read as 'shall'. Therefore, there is no distinction between the interest awarded under section 34 or under section 28. Under section 34 the Land Acquisition Collector has to award the compensation and therefore has also to allow the interest and the Legislature has used the word 'shall'. Under section 28, since, it is yet to be decided by the Court as to whether the amount of compensation has to be increased or not the word 'may' has been used by the Legislature.
5. In a recently reported judgment in case Commissioner of Income Tax versus A.B. V. Gowda reported as 1989 PTD 315 the Karnataka High Court of India observed at page 318 as under:- "It is necessary to remember that there is only one compensation to be awarded in respect of the land acquired and there are no two separate rights thereto. The right to receive compensation and the right to receive enhanced compensation are not two different rights. Both relate to the right to receive proper compensation in respect of the land acquired".
6. In another recent judgment the Supreme Court of India in case Khorthed Shapoor Chenai versus Asstt. C.E.D. reported as (1980) 122-ITR 21 observed as under:-- "Upon acquisition of his lands under the Land Acquisition Act, the claimant has only one right which is to receive compensation for the lands at their market value on the date of the relevant notification and it is this right which is quantified by the Collector under section 11 and by the Civil Court under section 26 of the Land Acquisition Act. It is true that under section 11, the Collector after holding the necessary inquiry determines the quantum of compensation by fixing the market value of the land and in doing so is guided by the provisions contained in sections 23 and 24 of the Act-- the very provisions by reference to which the Civil Court fixes the valuation"
The leading case on this issue was decided by the House of Lords in West minister Bank Ltd. versus Riches reported as 28- TC-159. What happened in that case was that a decree for an amount of lbs 36,255/- for the debt due was passed by the Court and an interest for sum of lbs 10,028/- was also awarded and question in that case was whether the interest awarded was taxable or not. The counsel for the Bank contended in that case that the interest amount in fact was by way of damages and therefore, not taxable. Rebutting this contention the Court observed as under:-- "The real question, for the purpose of deciding whether the Income tax Acts apply, is whether the added sum is capital or income, not whether the sum is damages or interest ... if damages are increased by adding interest upon a principal sum, that does not prove that such interest is not liable to tax".
Subsequently, most of the Courts in India had consistently followed this principle. In the present case it was argued by the learned counsel for the assessee that the interest finally awarded by the Supreme Court is either a casual income or non-recurring in nature or part of the capital amount of the assessee for non-payment of the proper amount of compensation. It has been manifested above that even if the amount of interest is by way of damages, even then the amount of interest is a separate amount and is not part and parcel of the capital amount and therefore is taxable income. The argument that this interest amount is casual and of non-recurring nature is factually incorrect which is obvious from the fact that the interest amount has been awarded from the date of the dispossession of the assessee and has been accruing to the assessee every year since that date, till the date of payment. How an income accruing every year, can be said to be casual and of non-recurring nature? Under section 4 of the repealed Income Tax Act, 1922 the income includes all income from whatever source either received or receivable by the assessee or accrues or arises or is deemed to accrue or arise to the assessee. There is no dispute that under the order of the Supreme Court interest has been awarded to the assessee with retrospective effect from the date of dispossession. Thus by the very order of the Supreme Court the interest is deemed to accrue to the assessee from the date of dispossession of the property. Therefore, it cannot be said that this is an amount which is either casual or non-recurring in nature. Obviously, under the order of the Supreme Court the interest has to be calculated for the each year successively till the date of payment of the proper compensation. Thus how can it be said that this is an income of non- recurring nature? The question as to when the income is said to accrue to the assessee was discussed by the Supreme Court of India in case of E.D. Sasoon & Company Limited versus Commissioner of Income Tax reported as (1954)-26-ITR-27. At page 51 of the report the Supreme Court observed:-- "It is clear, therefore that income may accrue to assessee without the actual receipt of the same. If the assessee acquires a right to receive the income, the income can be said to have accrued to him though it may be received later on its being ascertained. The basic conception is that he must have acquired a right to receive the income. There must be a debt owed to him by somebody.
There must be as is otherwise expressed Mahon in praesenti, solvendum in future".
The income had accrued to the assessee in the respective past years but it has been ascertained by the order of the Supreme Court.
7. In case commission of Income Tax versus A.B.V. Gowda (supra) the Court observed: "It is only when such a claim for higher compensation is adjudicated by the Court and followed by an undisputed enforceable decree that it can be the basis for calculating the interest "accrued" within the scope of section 5(1)(b) of the Income Tax Act".
Then in case CIT versus Janardlzan Reddy reported as (1983)- 145-1TR-303 the Andra Pradesh High Court held that interest that is awarded on the compensation will have to be assessed from year to year right from the date on which the assessee was dispossessed of the land. In Gowda's case at page 322 of the report the Court observed as under:-- "When once the interest is awarded, it is payable to the assessee like any other interest as debt.
Such an interest does not accrue from date of the decree of the Court. It falls to be calculated and paid from the date of dispossession till payment. It is payable in each successive year and is liable to be postponed till it is actually paid to the assessee".
At page 323 in the same case it was further observed by the Court as under:-- "The assessee gets a right to receive/recover the interest on the enhanced amount from time to time as and when there is an order or decree for enhancement of the compensation but the said accrual is to be reckoned for purposes of bringing to charge that income under the Income Tax Act, from the date of dispossession".
At the same page it was further observed by the Court:-- "Under the Land Acquisition Act, the assessee gets a right to receive the interest on the compensation from the date the possession is taken, though its quantification may take place long after the dispossession, when the Land Acquisition Officer makes an award or the civil Court passes a decree enhancing the compensation".
8. A similar view was taken by the Karnataka High Court in the leading case of Sampangiramaish reported as (1968)-69- ITR-159. In that case it was observed that this interest is deemed to have accrued to the assessee year after year and the accrual of interest which dates back to the date of dispossession and any interest on further enhanced interest by the subsequent decisions of the Courts also becomes payable to the assessee from the date of dispossession. As a matter of fact the contention of the assessee that the interest did not accrue to the assessee for the purposes of Income Tax from the date of dispossession is contradictory in nature inasmuch as at one hand under the order of the Supreme Court the assessee is also to be entitled to receive the interest from the date of dispossession. But at the same time when the question of taxability comes in the assessee claims that the interest income did not accrue to the assessee from year after year but it is claimed to be casual income of non-recurring nature.
9. The Authors of commentary on Income tax Kanga and Pakhivala in seventh Edition volume 1 at page 141 have also observed the same view and I quote: "Where interest is payable under a rule of law, e.g. under the Land . Acquisition Act or on bonds under Zamindari or Jagir Abolition Laws, it is income".
The learned Authors in making this observation have relied upon the case of Shamlal Narula (supra) and it has been quoted in many other cases of the Indian Supreme Court. A particular mention has been made to the case of Behari Lal Bhargave versus Commissioner of Income Tax reported as (1941)-9-ITR-9 (relied upon by the learned counsel for the assessee) which has been over-ruled by the Supreme Court.
10.In Shamlal Narula's case reported as (1964)-10-Tax--235 the Supreme Court of India has specifically over-rulled the Behari Lars case and has held that interest awarded on account of delayed payment of the acquired property under the Land Acquisition Act is a revenue receipt. I would like to reproduce the relevant portion of the Supreme Court's order which is as under:-- "(i)Under the Scheme of Land Acquisition Act, Land acquired compulsorily rests absolutely in the Government if the Collector has taken possession of the land, whether before or after making his award determining the compensation. The statutory liability has been imposed upon the Collector to pay interest on the compensation awarded from the time of his taking possession until it is paid or deposited. This amount is not compensation for the land acquired or for the deprivity the claimant of his right to possession but is paid to the claimant for the use of his money by the State and (ii)Admittedly (interest paid under the Land Acquisition Act on the amount of compensation awarded for the period from the date, the Collector has taken possession of land compulsorily acquired, is interest paid for the delayed payment of compensation and it is therefore, a revenue receipt liable to tax under the Income Tax Act)".
11.Here I would like to make some reference to Behari Lal's case which is the main plank of argument of the learned counsel for the assessee. Apart from the fact that this case has been over-ruled subsequently by the Supreme Court of India in Shamlars case, even in Behari Lal's case the learned Judges have based their order on the assumption which was basically incorrect. They have held that the interest awarded "was compensation or damages for loss of the right to take possession". I have demonstrated above that amount of interest awarded to the assessee by the Supreme Court is not for the loss of the possession of the property but it is for the loss of the proper amount of compensation. Secondly, the learned Judges of the High Court in Behari lid's case were themselves in doubt about the view they were taking. Consequently, towards the conclusion of the order they observed: "It was not without considerable doubt and hesitation that we have arrived at this decision, for there is much to be said on the other side...".
Another judgment on which the reliance has been placed by the learned counsel for the assessee is P.V. Kurien versus Commissioner of Income Tax (1962)-46-ITR-288. However, this case need not be discussed as learned Judges of the Kerala High Court have mainly relied upon the case of Behari Lal. Since, Behari lal's case has been subsequently over-ruled, by implication this case also stands over-ruled by the Supreme Court of India.
12.The learned Accountant Member has observed that the Shamlal Narula's case is distinguishable. It has been held that Narula's case is related to the statutory interest awarded under section 34 while in the present case the interest has been awarded under section 28 of the Land Acquisition Act where the interest allowed is in the discretion of the Court. Now this distinction is inapt inasmuch as it has been manifested above that there is no distinction between the interest awarded under section 28 or under section 34 of the Land Acquisition Act. Under section 34 the interest has to be awarded by the Land Acquisition Collector while under section 28 it has to be awarded by the Court. In Gowda's case (supra) the High Court at page 318 observed:-- "If we read closely sections 28 and 34, it will be clear that the interest awarded under section 28 is not quite different from the interest awarded under section 34. The purpose of granting interest under both the sections appears to be the same, that is if the State wants to take possession of the land without simultaneously paying compensation to the owner, then the State must pay interest on the amount of compensation due to the owner."
13.For the foregoing reasons, I will hold that the interest awarded to the assessee at the rate fixed by the Supreme Court of Pakistan was an income of the each respective assessment years under which it fell and is thus a taxable income. Thus the assessee's appeals fail and are therefore, rejected.
ORDER BY THE BENCH By a majority of two to one the appeals are accepted as the majority conclusion is that the interest awarded to the Appellant by the Supreme Court of Pakistan is a casual (or a capital) receipt having non-recurring nature and thus not liable to tax. It should be "Kerala".