Mrs. Usma Wamanra Officer vs Commissioner of Income Tax

J.P. Devadhar J.

In these two applications filed u/s 256(2) of the Income Tax Act, 1961, the applicant-assessee seeks an order directing the Tribunal to forward the following questions of law for the opinion of this Court.

(1) Whether, on the facts and circumstances of the case, the Income Tax Appellate Tribunal erred in holding that the possession taken on 1-4-1979, was as per Section 16 of the Land Acquisition Act and the lands also vested in Government from 1-4-1979, and the amount of compensation became due on that very date ?

(2) Whether, on the facts and circumstances of the case, the Income Tax Appellate Tribunal was justified in holding that the amount received by the assessee by way of interest from 1-4-1979, on the enhanced amount of compensation till the award of the L.assessing officer was not a capital receipt ?

(3) Whether, on the facts and circumstances of the case, the Income Tax Appellate Tribunal erred in not holding that the amount of interest was compensation for deprivation of right of cultivation and was the agricultural income and in any case could not be taxed at all as capital receipt or otherwise ?

The assessment years involved herein are the assessment years 1981-82 and 1982-83.

In these cases, possession of agricultural land belonging to the assessee was taken over by the State Government for irrigation project by negotiations, even before initiating proceedings under the Land Acquisition Act. After taking over the possession of the agricultural lands, the land acquisition proceedings were initiated and on completion of the proceedings three awards were passed on July 31, 1981, 31-8-1981, and 19-5-1982, determining the compensation under the Land Acquisition Act.

Being aggrieved by the aforesaid order, the assessee filed reference u/s 18 of the Land Acquisition Act seeking enhancement of the compensation. By order dated 30-11-1985, the civil court enhanced the compensation and directed that the enhanced compensation be paid with interest with effect from taking possession of the agricultural land, i.e., on 1-4-1979. The assessee contended that since the possession of the lands were taken over even before initiating proceedings under the Land Acquisition Act, the enhanced compensation payable from 1-4-1979, till the date of the award would be agricultural income, and therefore, interest payable thereon would be capital receipt and not taxable. The assessee relied upon the decision of the Kerala High Court in the case of Commissioner of Income Tax Vs. Periyar and Pareekanni Rubbers Ltd., . The Assessing Officer held that interest received from April ''1, 1979, was revenue receipt and therefore taxable.

On appeal filed by the assessee before the Commissioner (Appeals), the Commissioner of Income Tax (Appeals) held that the interest from 1-4-1979, till the date of award is a capital receipt and the capital receipts have to be assessed as capital gains in accordance with the law.

Being aggrieved by the aforesaid order, the revenue filed appeal before the Income Tax Appellate Tribunal and the assessee filed cross-objection. The Tribunal held that the interest received was a revenue receipt and rejected the cross-objection filed by the assessee. On a reference application filed by the assessee the Tribunal relied upon the judgment of the Hon''ble apex court in the case of Dr. Shamlal Narula Vs. Commissioner of Income Tax, Punjab, and rejected the apposition filed by the assessee, hence the present application is filed by the assessee.

The questions in these cases is where the possession of the immovable property is taken by the State Government even before initiating the proceedings under the Land Acquisition Act, and thereafter enhanced compensation is paid with interest, whether the amount of interest received from the date of possession up to date of the award would be a capital receipt or revenue receipt ?

The decision of the Kerala High Court in the case of Commissioner of Income Tax Vs. Periyar and Pareekanni Rubbers Ltd., , which has distinguished the decision of the apex court in the case of Dr. Shamlal Narula Vs. Commissioner of Income Tax, Punjab, , has not been considered by the Tribunal. In this view of the matter, the reference applications filed by the assessee are allowed and the Tribunal is directed to forward statement of case for both the years raising the aforesaid questions of law for the opinion of this Court. Rule is made absolute in the aforesaid terms, with no order as to costs.