NASIRUL MULK, J.---The relevant facts leading to the filing of this Tax Reference are that Ghulam Siddique, the assessee, owned some land in Peshawar City which was compulsorily acquired under the Land Acquisition Act in the year 1954. The compensation awarded by the Collector was challenged by owners whose land was acquired and eventually the Supreme Court of Pakistan settled the question, of compensation in Government of Pakistan and two others v. Mst. Asmat-un- Nias and 6 others. Besides determining other issues the Honourable Supreme Court held that the owners whose land was acquired were entitled under section 28 of the Land Acquisition Act to compound interest at the rate of Rs.8 % per annum on the excess amount of compensation awarded to them over and above the rate determined by the Collector, from the date on which possession of the land was taken up to the date of payment of such excess. When this final award came to the notice of the Income Tax Department, assessment proceedings were initiated on 20- 8-1983 for the year 1973-74 to 1982-83. The assessee was assessed on the compound interest awarded to him under section 28 of the Land Acquisition Act as it was treated as revenue receipt.
The assessm ent was upheld in appeal by the Commissioner Income Tax (Appeals). Subsequently, proceedings were also initiated for the assessment years 1955-56 to 1972-73 through notice under section 56 of the Ordinance. The Assessing Officer made assessment on 20-10-1985 on the amount of interest relatable to each year as income of the assessee. These assessment were also upheld in appeal. The appellate orders of the Commissioner Income Tax (Appeals), dated 15-11-1986 and 30- 6-1987 were challenged in appeal before the Income Tax Appellate Tribunal. By majority of 2 to 1 the appeals were allowed and it was held that the compound interest received by the assessee under section 28 of the Land Acquisition Act was in the nature of a casual and non-recurring income which was not liable to tax.
2. The Income Tax Department moved an application to the Income tax Appellate Tribunal for making Reference for adjudication under section 136 (1) of the Income Tax Ordinance the following questions:-- (1)Whether under the facts and circumstances of the case the learned Tribunal was justified to cancel the assessm ent order on the ground that notice under section 56 can be issued only for the current assessm ent year and not for the previous year.
(a)Section 56 enables the Income Tax Officer to issue notice under section 56 for any income year at any, time if the assessee has not filed return voluntarily.
(b)If notice under section 56a could be issued only during the current assessment year there was no need to make additional provision for 'limitation of assessment under section 64 (3) as the matter have well been covered by section 64 (1) of the Income Tax Ordinance, 1979.
(2)Whether the Tribunal was justified to declare the interest awarded by the Supreme Court of Pakistan as a casual (or a Capital) receipt having non-recurring nature and thus not liable to tax.
3. The Income Tax Tribunal only allowed the application to the extent of question No.2 and thus the said question was referred to this Court for determination. The majority of the members of the Income Tax Tribunal relying upon the case-law from Indian Jurisdiction and the observation of the Supreme Court of Pakistan in Nishat Sarhad Textile Mills Limited v. Sher Ahmad Khan (PLD 1962 SC 269) drew a distinction between interest payable on compensation under section 34 and that paid under section 28 of the Land Acquisition Act, and held that the interest paid under the latter was in the form of Capital as it was compensation paid to the landowners for deprivation of the possession of the land. Thus, they concluded that being in the form of compensation assessed in the terms of interest for loss of possession of property it was not subject to payment of income tax.
The dissenting Honourable Member of the Tribunal in his dissenting opinion also referred to the same judgments from Indian jurisdiction relied upon the majority judgment but found that even according to Indian case law interest under section 28, like interest under section 34, of the Land Acquisition Act was subject to income tax.
4. The learned counsel representing the Income-tax Department and the assessee also cited and pressed into service the case law referred to in the judgment of the Tribunal. Before adverting to the contentions of the learned counsel, it will be appropriate to state the case law on which the parties have made reliance before the Tribunal and before us. The cases from our own jurisdiction are Nishat Sarhad Textile Mills Limited v. Sher Ahmad Khan (referred to above) and Ghulam Hussain v. Government of N.W.F.P. (1992 SCM R 2427). Those from the Indian jurisdiction are Behari Lal Bhargava v. Commissioner of Income Tax (1941) 9 ITR 9 (Allahabad High Court), P.V. Kurien v.
Commissioner of Income Tax, Kerala (1962) 46 ITR 288; Dr. Shamlal Narula v. Commissioner of Income Tax (1964) ITR 151 (Supreme Court), Rama Bai v. Commissioner of Income Tax (1990) 181 ITR 400 (Supreme Court) and Krishna Rao v. Commissioner of Income Tax (1991) Pakistan Tax Decision
(PTD) 286 (Supreme Court).
5. The learned counsel representing the Income Tax Department relied upon the case of Krishna Rao and submitted that the interest paid under section 28 of the Land Acquisition Act was not Additional Compensation but Revenue Receipt. The learned counsel representing the assessee, however, submitted that the judgment in Krishna Rao case was perincurian as it followed, without discussion, Narula's case as well as Rama Bai's case. It was pointed out that Narula's case dealt with interest awarded under section 34 and not under section 28 of the Land Acquisition Act whereas in Rama Bai's case, though it involved both the sections 28 and 34, the Supreme Court was only concerned with the point of time at which interest was paid on the enhanced amount.
The learned counsel relied upon Behari Lal and Kurien cases where the interest under section 28 was declared to represent Capital and not Income. Further, reliance was placed on the observation of the Supreme Court of Pakistan in Nishat Sarhad Textile Mills Limited. The learned counsel also referred to clause (29) of section 2 of the Income Tax Ordinance where "interest" has been defined and it was argued that since the award of interest under section 28 was discretionary, as opposed to mandatory under section 34, interest under section 28 was compensation for the loss of possession.
6. The specific question whether interest awarded under section 28 of the Land Acquisition Act was Revenue Receipt and thus, subject to income tax or whether Capital and, therefore, excluded from the charge came before the Indian Court. In Behari Lal's case, there was a clear pronouncement that such interest was in the nature of compensation for the loss of right to retain possession of the property acquired and, therefore, being damages assessed in terms of interest for the loss of possession it was not income and not assessable to tax. This ruling of the Allahabad High Court was followed by the Kerala High Court in Kurien's case in the year 1962, the Court holding that such interest represented capital and not income liable to tax. It is true that Narula's case was essentially concerned with interest under section 34 of the Land Acquisition Act but both Behari Lal and Kurien cases, for their interpretation of the interest awarded under section 28 of the Act for the purpose of Income Tax, were discussed and Behari Lal's case was over--ruled. The Supreme Court held:--- "As soon as the Collector has taken possession of the land either before or after the award the title absolutely, vests in the Government and thereafter, the owner of the land so acquired ceases to have any title or right of possession to the land acquired. Under the award he gets compensation for both the rights. Therefore, the interest awarded under section 28 of the Act, just like under section 34 thereof, cannot be a compensation or damages for the loss of the right to retain possession but only compensation payable by the State for keeping back the amount payable to the owner."
7. The Supreme Court of India distinguished the Kurien's case on the ground that the two authorities relied upon by the Kerala High Court, besides Behari Lal's case, were those in which the title did not pass to the vendee in one case and to the State in the other when possession was taken by them and, therefore, it may be said that the owner was given interest in place of his right to retain possession of the property. The Supreme Court went on to add: --- "But in a case were title passes to the State, the statutory interest provided thereafter can only be regarded either as representing the profit which the owner of the land might have made if he had the use of the money or the loss he suffered because he had not that use. In no sense of the term can it be described as damages or compensation for the owner right to retain possession, for he had no right to retain possession after possession was taken under section 16 or 17 (Land Acquisition Act)."
8. Nurula's case, therefore, in unambiguous terms had declared that interest awarded whether under section 28 or under section 34 of the Land Acquisition Act cannot be compensation or damages for the loss or right and, therefore, not a capital but revenue receipt liable to Income Tax.
Narula's case, decided by the Supreme Court of India was referred to in Rama Bai's case and followed by the same Court in Krishna Rao's case. Thus, the rule in Narula's case that interest awarded under section 28 of the Land Acquisition Act is subject to Income Tax, holds the field.
9. In the judgment cited at the Bar from our own jurisdiction the only reference to the nature of the interest under section 28 has been made in the case of Nishat Sarhad Textile Mills. The question before the august Supreme Court as regards section 28 of the Land Acquisition Act was whether interest had been rightly granted by the High Court under section 28 to the climants whose land had been compulsorily acquired. The question whether the interest was capital or recurring revenue for the purpose of income tax was b before the Supreme Court. Reliance by the Counsel for the assessee is played on the following observation of the Supreme Court:-- "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 up to the date of receipt of its consideration."
10. The Supreme Court made these remarks without commenting upon them. Let alone it being ratio decidendi it was not even obiter dicta as the Supreme Court did not express its own opinion on the issue. Thus, the above passage from Nishat Sarhad Textile Mills Limited cannot be stated to have laid down any proposition of law.
11. The distinction between the interests under section 34 and section 28 of the Land Acquisition Act is that the former is mandatory, to be paid by the Collector on the compensation awarded whereas the interest under section 28 is discretionary granted by the Court in a Reference under section 18 of the Act on the amount of compensation awarded in excess of that granted by the Collector. But under both sections interest is granted at the annual rate from the date the Collector takes possession of the land till payment. An argument was advanced that as the interest under section 28 is discretionary with the Courts it be considered as compensation. In this context it was pointed out' that 'Interest' according to section 2(29) of the Income Tax Ordinance means "interest payable on money borrowed or debt incurred." It was thus, argued that being discretionary, interest under section 28 was not a debt incurred.
12. Now the discretionary aspect of the interest under section 28 does not make it different from interest under section 34 of the Act for determining its nature as receipt. It is a recognised principle of law that though discretionary, interest under section 28 is ordinarily to be granted and refused for only good reasons. Such interest also becomes debt under section 2(29) once awarded by the Court. It is no longer left to the discretion of the Collector. This interest is only on the excess amount awarded by the Court in a Reference under section 18 and not on the entire compensation amount, whereas the interest on the original compensation amount is supposed to have been paid or deposited by the Collector alongwith the compensation. Both these interest are payable for the same period, namely, from dispossession till payment of compensation. Thus, if the interest under section 34 is to be treated as revenue receipt there is no reason to hold interest under section 28 as compensation for loss of possession of the land. As has been stated in Narula's case that as soon as the Collector takes possession of the land the title in it vests in the Government and there is no right left in the owners to retain its possession. The interest under section 28 like the interest under section 34, is to compensate the owners for the retention by the Government of the money payable to the owners, in the latter case of the amount originally awarded by Collector and in the former the excess compensation granted by the Court.
13. To conclude, the interest under section 28 of the Land Acquisition Act is interest in form and substance and, therefore, a revenue receipt and do not a capital receipt. It is thus, liable to tax.
The answer to the Reference is in the negative.