' NASIM SIKANDAR, J.---Through this single judgment we intend to dispose of I.T.A. Nos.198, 199, 200 and 201 of 1998.
2. In these appeals under section 136 of the late Income Tax Ordinance, 1979 and order of the Lahore Bench of the Income Tax Appellate Tribunal, dated 19-3-1998 is assailed. Although through our order, dated 17-1-2002 all questions stated in para. 16 of the appeal were admitted for regular hearing yet at the time of hearing learned counsel for the appellant has pressed only question No,1 which reads as under:--- "Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was justified to hold that interest received by the appellant from L.D.A. On the delayed payment had been rightly charged to tax?
3. The. Petitioner is a Co-operative Society registered under the Cooperative Societies Act, 1925. The main object for its incorporation is to promote the economic and social interest of its members and more particularly. To lay out, establish and maintain a Garden Town commonly known as "Model Town" Lahore. In the year 1975-76 the Lahore Development Authority established under the Lahore Development Authority Act, 1975 framed a housing scheme known as "Model Town Extension Scheme" and acquired an open area belonging to the petitioner Model Town Society measuring approximately 482.98 acres. . On fulfillment of usual formalities under the Land Acquisition Act, the possession of the land was taken over by the Lahore Development Authority. The petitioner Model Town Society challenged these proceedings through a Constitutional petition before this Court.
However, during the pendency of that Constitutional petition on 6-2-1980 the parties struck a deal to end the litigation. According to that agreement which was got registered with sub-Registrar, Lahore on 14-2-1980, the Lahore Development Authority was to pay Rs,20,000 per acre as compensation for 338.086 acres of land which represented 70% of the area acquired from the Model Town Society for implementation of the said Model Town Extension Scheme. Also the Model Town Society agreed to sell and surrender in favour of the Lahore Development Authority all the rights and Interest in the remaining 30% of the acquired Land measuring 144.894 acres to be exempted by way of developed plots. In consideration thereof the Lahore Development Authority agreed to pay the petitioner Society a sum of Rs,7,32,38,280. While the sum of Rs,32,38,280 was to be paid immediately on completion and execution of the agreement, the remaining amount of Rs,7,00,00,000 was to be paid in instalments which was again subject to certain other conditions.
Para. 4 of the agreement relevant to the controversy reads as under:-- ' The balance amount (Rs,7,00,00,000) shall be payable to the second party in five half yearly equal instalments alongwith simple interest at the bank rate prevailing on the date of execution of this agreement including interest on aforesaid retained amount. First instalment shall be payable by 31st August, 1980" (Emphasis supplied).
4. It appears that in the year 1980-81 the assessee was required to file return for the relevant period.
The petitioner-Society filed returns for two years 1979-80 and 1980-81 declaring loss respectively at a sum of Rs,2,51,039 and Rs,10,24,033. In the assessment year 1980-81 the Assessing Officer through an assessm ent order framed on 31-5-1983 assessed the income of the. Society at Rs,8,03,71,885 which included a sum of Rs, 7,97,54,370 brought to tax as difference between the cost and sale price of the aforesaid land acquired by the Lahore Development Authority. The submission of the petitioner-Society that being causal and otherwise not being in nature of a adventure in trade the surplus was not liable to tax was not accepted by the Assessing Officer. The assessment order so framed was maintained by Commissioner appeals.
5. The petitioner however, succeeded in second appeal before the Tribunal. Through their order, dated 5-5-1986 the Tribunal found that the transaction between the petitioner and Lahore Development Authority was not in the ordinary course of business of the society and that the Revenue failed to establish that it was an adventure in the nature of trade. Therefore, the surplus accrued to the petitioner-Society was found to be a capital receipt and not liable to tax.
6. Subsequently the case of the petitioner-Society for the assessment years 1980-81 to 1983-84 was re-opened by the Revenue on the ground that during that period it was in receipt of interest in terms of the aforesaid agreement, dated 6-2-1980 at Rs,27,08,904, Rs,42,79,837, Rs,37,82,120 and Rs,11,75,461. The claim of the assessee that the interest was settled as compensation for delayed payment of the sale price and therefore, it necessarily formed part of the price of the land was not acceptable by the Revenue.
7. The petitioner-Society failed before the First Appellate Authority and as observed earlier, also before the Tribunal. A Division Bench whereof comprising Mr. Shariq Mehmood, Accountant Member and Mr, Muhammad Taqueer Afzal, Judicial Member accepted the view of the Revenue that the amount at which the property was sold was a capital receipt but the interest for delayed payment was liable to tax as a revenue receipt.
8. The learned Members of the Tribunal held the view that the payment. Of the additional amount otherwise called interest always remained a compensation which a person received for having surrendered use and enjoyment of money either by option or by compulsion for a certain period of time. They were also of the view that no provision of law or principle of accounting was quoted to support the rule, as alleged by the assessee-Society, that the nature of payment, capital or revenue, must remain the same both in the hands of the payer as well as the receiver. In the view of the learned Members, for the payer the amount at which property was transacted was capital cost (price of land) which included interest for delayed payment but in the hands of the receiver the capital cost compromised only of the sale price received in respect of the land. They continued that whatever was received over and above the actual price of land settled between the parties was not a part of the price of land but compensation for not receiving the price of land on the signing of the agreement. Therefore, they held that the provision for payment of interest was neither a part of the price settled nor it had any nexus or relevance to the proprietary interest of the assessee-Society. In forming the opinion that interest on compensation for land was liable to tax learned Member accepted the relianceof the Revenue on two judgments of the Supreme Court of India re: Dr. Shamlal Narula v. Commissioner of Income-tax , 1965 PTD 61 and re: T.N.K. Govindaraju Chetty v. CIT, Madras, (1967) 66 ITR 465. A reference was also made to another two judgments of the Supreme Court of India to accept the proposition in re: Chandroji Rao v. CIT, M.P. (1970) 77 ITR 743 and re: Bikram Singh and others v. Land Acquisition Collector and others (1997 PTD 2018). In all these cases it was held that interest received on delayed payment of compensation under the Land Acquisition Act was a revenue receipt exigible to income. The learned Members accordingly observed that the assessee had not been able to effectively distinguish its case and therefore, the principle settled in the aforesaid judgments of the Supreme Court of India particularly in re: Dr. Shamlal (surpa) and TNK (supra) applied to the facts in hand. The reliance of the assessee in re: CIT Kerala v. Periyar and Pareekanni Rubbers Limited, (1973) 87 ITR 666 was in the process found untenable in view of the very findings of the Court in that case that interest paid from the date of award to the date of payment of compensation was a revenue receipt.
9. Before us the case of the Revenue has remained the same. However, the learned counsel for the appellant besides repeating his reliance, on the judgment of the Kerala High Court re: CIT Kerala v.
Periyar and Pareekanni Rubbers Ltd. (supra) further attempts to explain that the learned Members did not appreciate the real significance of the judgment of the Kerala High Court. According to the learned counsel in all cases of acquisition of land the primary fact remains that of transfer of title.
In his view irrespective of the delivery of possession of the land acquired, all payments made till the actual transfer of title in the land all sums received as compensation form part of the price of land and therefore, remain a capital receipt. It is claimed that till today the title in the land in question vests in the Model Town Society and having not been transferred to Lahore Development Authority the price settled and witnessed by clause-4 of the agreement as reproduced above coupled with the interest paid on late payments must form part of the price of the land and accordingly a capital receipt.
10. Learned counsel for the Revenue, however, repeats the submissions earlier made before the Tribunal and supports the findings of the learned members recorded in that regard.
11. Having heard the parties we will agree with the Revenue that the learned Members of the Tribunal rightly distinguished the judgment of the Keralla High Court in re: CIT v. Periyar and Pareekanni Rubbers Ltd. (supra). Also they were right in maintaining that the principle applicable to the facts in hand was the one as settled by the Hon'ble Supreme Court of India in at least four cases referred to in para-8 of this order.
12. Although the facts do not appear to have been properly placed before the Revenue as well as the Tribunal yet the fact remains that Lahore Development Authority took over the possession of the land in question as a result of acquisition proceedings. Second para of the agreement, dated 6th of February, 1980 sufficiently supports that fact. The contention that title of that land still vests in the appellant-Society however, cannot be accepted as correct. In the first place we can take notice of the fact that the housing scheme known as Model Town Extension stands completed more than a decade ago and the allottees of the land were allowed proprietary rights therein whereafter they constructed houses and markets on that land. Even if nothing else will do the aforesaid agreement, dated 6-2-1980 between the Lahore Development Authority and the Model Town Society registered with the Sub-Registrar Lahore on 14-2-1980 by itself can safely be treated as a document effecting transfer of property from the appellant-Model Town Society to the Lahore Development Authority.
13. Even if for arguments sake the factual position as alleged by the appellant-Model Town Society is accepted as correct that title in the subject-matter of land in official record still vests in the Society, the legal position as far the taxability of the interest received as compensation on the delayed payment of price settled with respect to 30% of the land acquired does not change at all.
No legal provision authoritative pronouncement or an accounting standard has been brought to our notice to support the proposition. The case of Kerala High Court in re: CIT,. Kerala v. Periyar and Pareekanni Rubbers Ltd. (Supra) on which the learned counsel for the appellant heavily relies rather supports the case of the Revenue.
14. Before the Hon'ble Court in that case the question of law framed was if the Tribunal was justified in holding that amount received by a Company by way of interest till the date of award was a capital receipt. According to the facts the assessee-company in that case received a sum of Rs,24,103,33, as compensation by way of interest on the compensation amount payable to the assessee on compulsory acquisition of land under the Land Acquisition Act 1894. The possession of land was taken by the Government not under the provisions of the Land Acquisition Act but on account of agreement between the assessee and the Government. The possession was taken on November 29, 1961 and the award was made on August 31, 1962. The aforesaid' amount of Rs,24,103,33 represented the interest on the amount of compensation awarded for the period from November, 29, 1961 to September 6, 1962 the date of payment. The learned Tribunal found that the interest paid upto the date of award i,e, August 31, 1962 partook the character of capital receipt.
However, the proportionate interest from September 1, 1962 to September 6, 1962 i,e, interest from the date of award upto date of payment of compensation was a revenue receipt and accordingly liable to tax. The Hon'ble Judges of Kerala High Court maintained that findings of the Tribunal and from the judgment of the Hon'ble Court we do not find a supporting hint or even a passing remark in favour of the proposition being put forth by the appellant-Society.
15. The case in hand was a case of both acquisition as well as sale of land because during the proceedings on acquisition and challenge to award the parties on 6th February, 1980 came to an agreement for transfer of land and the amount of consideration for such .Transfer. For 70% of the acquired area the appellant was to be paid Rs,20,000 per acre immediately subject to the other conditions in para-9 of that agreement. As far the remaining 30% of the land a total sum of Rs,7,32,38,280 was fixed as price out of which a sum of Rs,7,00,00,000 was to be paid in five half yearly. Equal instalments alongwith interest while the remaining amount at Rs,32,38,280 was payable on execution of agreement.. The price of land therefore, remained settled at Rs,7,32,38,280 for all legal practical purposes. The payment of interest was not a part of the sale price or a compensation for an injury to the capital asset as rightly held by the learned Members of the Tribunal. It was a compensation for depriving the owner of the sale price of the land for some period. The amount of interest could not be held as part of the sale price for another two reasons as well. Firstly, the amount of interest was not fixed as such because it was to decrease after payment of every instalment and secondly, the transferee Messrs Lahore Development Authority could always avoid the payment of interest by paying the remaining sale price in lump sum at any time after the execution of the agreement. In cases of such nature the recitals of the transfer deed are crucial. The relevant portion of the agreement as reproduced above does not support the proposition that the interest for delayed payment was in any manner directly or indirectly related to the proprietary interest of the seller or the price of the land earlier settled between the parties at Rs,7,32,38,280. It was not a compensation for an injury to the capital asset either. It is only the actual value of the capital asset that forms a capital receipts. The learned Members therefore, correctly stated the law that any payment made either as disturbance for earlier vacation of land or as compensation for postponement of the payment of price not being itself a capital asset the amount received in lieu thereof will also not be a capital receipt. The view so held finds support from a number of precedents of the Courts. In re: CIT Bengal Muffassil v. Burdhan Kuti Wards' Estate (1960)
2. Tax (Suppl-1) 285 the Hon'ble Supreme Court of India held that compensation paid for compulsory vacation of premises after acquisition of building by the Government for disturbance and loss of business was a revenue and not a capital receipt.
16. Learned Members of the Tribunal also made a correct distinction between a capital and a revenue receipt by rejecting the arguments that a receipt, capital or revenue has to maintain a consistent character both in hands of the payer and the payee. The principle expounded by the Supreme Court of India in re: CIT West Bengal II v. Kamal, Beharilal Singha (1971) 82 ITR 460 needs to be reproduced to clinch the issue:--- "it is now well-settled that in order to find out whether a receipt is a capital receipt or a revenue receipt one has to see what it is in the hands of the receiver and not its nature in the hands of the payer. In other words, the nature of the receipt is determined entirely by its character in the hands of the receiver and the source from which the payment is made has no bearing on the question.
Where an amount is paid which, so far as the payer is concerned, is paid wholly or partly out of capital, and the receiver receives it as income on his part, the entire receipt is taxable in the hands of the receiver."
17. For these and other reasons stated above, we will return an affirmative answer to the question.