Appeal No 503 of 1963
Appeal from the judgment and order dated January 31 1962 of the Punjab High Court in ITR No 28 of 1960
B N Kripal and A N Kripal for the appellant
Gopal Singh and R N Sachthey for the respondent
April 9 1964
The judgment of the Court was delivered by SUBBA RAO J
This appeal by certificate granted by the High Court of Punjab raises the question whether interest paid under section 34 of the Land Acquisition Act 1894 herein after called the Act is of the nature of a capital receipt or of a revenue receipt
The relevant facts are not in dispute and they may be briefly stated
The appellant Dr Shamlal Narula is the Manager of a Hindu undivided family which owned inter alia 40 bighas and 11 biswas of land in the town of Patiala
The Patiala State Government initiated land acquisition proceedings for acquiring the said land under Regulation then prevailing in the Patiala State
It is common case that the State Regulations are in pari materia with the provisions of the Act
The State of Patiala first merged into the Union of Pepsu and later the Union of Pepsu merged into the State of Punjab
It is also common case that there was a Land Acquisition Act in the Union of Pepsu containing provisions similar to those obtaining in the Act
On October 6 1953 the Act was extended to the Union of Pepsu
On September 30 1955 the Collector of Patiala made an award under the Act as a result of which the appellant received on December 1 1955 a sum of Rs 281822  which included a sum of 48660 as interest up to the date of the award
For the year 1956 57 the Income tax Officer included the said interest in the income of the Hindu undivided family of which the appellant is the manager and assessed the same to income tax after overruling the appellant s contention that the said interest was a capital receipt and therefore not liable to tax
On June 14 1957 the Appellate Assistant Commissioner confirmed the order of the Income tax Officer
The Appellant preferred an appeal to the Income tax Appellate Tribunal
The said Tribunal by its order dated July 9 1957 held that 670 the said amount representing the interest was a capital re ceipt and on that finding the said amount was excluded from the total income of the assessee
At the instance of the Commissioner of Income tax the said Tribunal referred the following question to the High Court of Punjab under section 66 1 of the Income tax Act 1922 Whether on a true interpretation of section 34 of the Land Acquisition Act and the Award given by the Collector of Pepsu on the 30th September 1955 the sum of Rs 48660  was captital receipt not liable to tax under the Indian Income tax Act The said reference was heard by a Division Bench of the High Court and it held that the said amount was not a capital but a revenue receipt and as such liable to tax under the Indian Income tax Act
Hence the present appeal
Learned counsel for the appellant raised before us two contentions namely i the sum of Rs 48660 received by the appellant under the award was compensation for deprivinl7 him of his right to possession of his property and was therefore a capital receipt not liable to tax and ii whatever may be the character of the amount awarded under section 34 of the Act by way of interest in a case where possession of the land has been taken by the State after the award in a case where possession of the land acquired has been taken before the award it would be a capital receipt for it is said that in the latter the interest necessarily takes the character of compensation for depriving the owner of the land his right to possession
On behalf of the Revenue the order of the High Court is sought to be sustained for the reasons stated therein
The question raised turns upon the true meaning of the provisions of section 34 of the Act
It reads When the amount of such compensation is not paid or deposited on or before taking possession of the land the Collector shall pay the amount awarded with interest thereon at the rate of six per centum per annum from the time of so takin possession until it should have been so paid or deposited
The section itself makes a distinction between the amount awarded as compensation and the interest payable on the amount so awarded
The interest shall be paid on the amount awarded from the time the Collector takes possession until the amount is paid or deposited
To appreciate the scope of the section it is necessary to notice briefly the scope of an award and the manner in which possession is taken under the Act
After the statutory notifications are issued and the 671 requisite notice is given to the persons interested in the land so acquired the Collector after holding the necessary enquiry makes an award inter alia determining the amount of compensation payable for the land so acquired
Section 15 in of the Act says that in determining the amount of compensation the Collector shall be guided by the provisions contained in sections 23 and 24
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 provisions 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 cl
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 value 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 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 24 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 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
Another approach to the problem leads to the same result
Under section 16 of the Act when the Collector has made an award under section 11 he may take possession of the land which shall thereupon vest absolutely in the Government free from all encumbrances
Under section 17 thereof In cases of urgency whenever the appropriate Government so directs the Collector though no such award has been made may on the expiration of fifteen days from the publication of the notice mentioned in section 9 sub section 1 take possession of any waste land or arable land needed for public purposes or for a Company
Such land shall thereupon vest absolutely in the Government free from all encumbrances
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 the award and in the other even 672 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 com pensation 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 though 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 the taking possession until the amount is paid or deposited
This amount is not therefore compensation for the land acquired or for deprivin 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 possession has been taken
The Legislature expressly used the word interest with its well konwn connotation under section 34 of the Act
It is therefore reasonable to give that expression the natural meaning it bears
There is an illuminating exposition of the expression interest by the House of Lords in Westminster Batik Ltd vs Riches1
The question there was whettier where in an action for recovery of any debt or damages the court exercises its discretionary power under a statute and orders that there shall be included in the sum for which the judgment is given interest on the debt or damages the sum of interest so included is taxable under the Income tax Acts
If the said amount was interest of money within Schedule D and the General Rule 21 of the All Schedules Rules of the Income Tax Act 1918 income tax was payable thereon
that context it was contended that money awarded as damages for the detention of money was not interest and bad not the quality of interest
Lord Wright observed The general idea is that he is entitled to compensation for the deprivation
From that point of view 1  189
673 it would seem immaterial whether the money was due to him under a contract express or implied or a statute or whether the money was due for any other reason in law
In either case the money was due to him and was not paid or in other words was withheld from him by the debtor after the time when payment should have been made in breach of his legal rights and interest was a compensation whether the compensation was liquidated under an agreement or statute as for instance under section 57 of the Bills of Exchange Act 1882 or was unliquidated and claimable under the Act as in the present case
The essential quality of the claim for compensation is the same and the compensation is properly des cribed as interest
This passage indicates that interest whether it is statutory or contractual represents the profit the creditor might have made if he had the use of the money or the loss he suffered because he had not that use
It is something in addition to the capital amount though it arises out of it
Under section 34 of the Act when the Legislature designedly used the word interest in contradistinction to the amount awarded we do not see any reason why the expression should not be given the natural meaning it bears
The scheme of the Act and the express provisions thereof establish that the statutory interest payable under section 34 is not compensation paid to the owner for depriving him of his right to possession of the land acquired but that given to him for the deprivation of the use of the money representing the compensation for the land acquired
We shall now proceed to consider the case law cited at the Bar
Where a Tribunal directed the Improvement Trust under the provisions of section 28 of the Land Acquisition Act to pay interest to the assessee from the date of taking possession of the property to the date of payment a Division Bench of the Allahabad High Court held in Behari Lal Bhargava vs Commissioner of Income tax C P and U P 1 that the interest so awarded was in the nature of compensation for the loss of the assessee s right to retain possession of the property acquired and therefore was no income liable to tax
The reason for the said conclusion is stated thus It is not the fruit of a tree to borrow the simile used in Shaw Wallace s case 2 but was compensation or damages for loss of the right to re 1  24
2 AIR 1932 PC 138
LPDlSC 22 
674 tain possession and it seems to us that Section 28 was designed as a convenient method of measuring such damages in terms of interest
As we have pointed out earlier 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 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
Adverting to the said decision a Division Bench of the Madras High Court in Commissioner of Income tax Madras vs CT
N Narayanan Chettiar1 observed    with great respect we find ourselves unable to follow the reasoning
Certainly we are not prepared to accept the judgment as a guide to the decision in the present case
So was the interest granted to an assesse under section 18A of the Income tax Act on the advance payment of tax by him under the provision of that section held to be income taxable in his hand see Commissioner of Income tax Bihar and Orissa vs Maharajadhiraj Sir Kameshwar Singh2
There when the decision of the Allahabad High Court in Behari Lal Bhargava s case3 was relied upon the learned Judges
refusing to follow it observed thus It is not a matter of discussion for the Central Government but the duty to pay interest is imposed by statute
Apart from this I think with great respect that the Allahabad decision is of doubtful authority
The decision is not consistent with the principle laid down in Schulze vs Bensted1 and Commissioners of Inland Revenue vs Barnato5
The Madras High Court expressly declined to follow the Allahabad case in Commissioner of Income tax vs Narayanan Chettiar1
 The Kerala High Court in P V Kurien vs Commissioner of Income tax Kerala6 held that interest paid on the enhanc ed amount of compensation directed to be paid by an appellate 1  477
2  225
3 4 5 6 675 court in an appeal against an award of compensation for compulsory acquisition of land under the Land Acquisition Act represented capital and was not income liable to be taxed under the Indian Income tax Act
It was argued there sum estimated in terms of interest
In coming to the conclusion which they did the learned Judges relied upon the decision of the Judicial Committee in Inglewood Pulp and Paper Co Ltd vs New Burnswick Electric Power Commission1 and that of the Madras High Court in Revenue Divisional Officer Trichinopoly vs Venkatarama Ayyar2
In the former the Judicial Committee directed the purchaser who had taken delivery and possession of the property he had purchased before the sale to pay interest to the vendor on the purchase money from the date he had taken possession on the ground that the right to receive interest takes the place of the right to retain possession and is within the rule and in the latter though it arose under the Land Acquisition Act possession was taken by the Government under circumstances falling outside the scope of sections 16 and 17 of the said Act
In both the cases 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
But in a case where title passes to the State the statutory interest provided thereafter can only be regarded either as representing the profit which owner of the land might have made if he had the use of the money or the loss he suffered because he had not that use
In no sense of the term can it be described as damages or compensation for the owner s right to retain possession for he has no right to retain possession after possession was taken under section 16 or section 17 of the Act
We therefore hold that the statutory interest paid under section 34 of the Act is interest paid for the delayed payment of the compensation amount and therefore is a revenue receipt liable to tax under the Income tax Act
The order of the High Court is therefore correct
In the result the appeal fails and is dismissed with costs
Appeal dismissed
1 2 L PD ISCI 22a 


Summary:
The State acquired the land of the appellant
The Collector made an award under the Land Acquisition Act as a result of which the appellant received Rs 281822  which included a sum of Rs 48660 as interest upto the date of the award The Income tax Officer included Rs 48660 the said interest in the total income of the appellant on the ground that the said amount was not a capital receipt
The matter went upto the Income tax Appellate Tribunal
The Tribunal excluded the said interest from the total income of the assessee appellant on the ground that it was a capital receipt
On a reference the High Court held that the said interest was not a capital but a revenue receipt and as such liable to tax under the Indian Income tax Act
The High Court granted a certificate to the appellant to file an appeal to the Supreme Court
Hence the appeal
Held i The scheme of the Land Acquisition Act and the express provisions thereof establish that the statutory in terest payable under section 34 is not compensation paid to the owner for depriving him of his right to possession of the land acquired but that given to him for the deprivation of the use of the money representing the compensation for the land acquired
In other words the statutory interest paid under section 34 of the Act is interest paid for the delayed payment of the compensation amount and therefore is a revenue receipt liable to tax under the Income tax Act
Behari Lal Bhargava vs Commissioner of Income tax CP and UP 1941 9 ITR and P V Kurien vs Cmmissioner of Income tax Kerala  overruled
Westminister Bank Ltd vs Riches  Com missioner of Income tax Madras vs CT
N Narayanan Chettiar and Commissioner of Income tax Bihar and Orissa vs Maharajadhiraj Sir Kameshwar Singh  approved
Inglewood Pulp and Paper Co Ltd vs New Brunswaick Electric Power Commission and Revenue Divisional Officer Trichinopoly vs Venkatarama Ayyar  distinguished
Shaw Wallace s case AIR 1932 PC 138 Schulze vs Bensted  and Commissioner of Inland Revenue vs Barnato  referred to
ii The interest under section 34 of the Land Acquisition Act shall be paid on the amount awarded from the time the Collector take possession until the amount is paid or deposited
It 669 makes no 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 possession has been taken
In no sense of the term can it interest be described as damages or compensation for the owner s right to retain Possession for as he has no right to retain possession after possession was taken under section 16 or section 17 of the Act