Civil Appeal No 1126 NT of 1974 From the Judgment Order dated 9th January 1973 of the Calcutta High Court in Income Tax Reference No 5 of 1967
VS Desai Dr MB Rao and Miss A Subhashini for the Appellant
Nemo for the Respondent
The Judgment of the Court was delivered by PATHAK J
This appeal by certificate granted by the High Court is directed against the judgment of the Calcutta High Court answering the following question in the negative Whether on the facts and in the circumstances of the case the extra amount of compensation amounting to Rs 392 724914 was income arising or accruing to the assessee during the previous year relevant to the assessment year 1956 57
 The assessee who is the respondent before us is a limited company dealing in land
It maintains its accounts on the mercantile system
By an order dated June 21 1946 under rule 75A1 of the Defence of India Rules read with section 19 of the Defence of India Act 1939 certain plots of land measuring about 1917 acres in village Kankulia in the District of 24 Parganas and belonging to the assessee were requisitioned by the Government of West Bengal
Subsequently the land was acquired permanently in the State Government under s5 Requisition of Land Continuance of Powers Act 1951 by a notice of acquisition dated December 27 1952 published in the Gazette dated January 8 1953
The Land Acquisition Officer awarded a sum of Rs2497249 as compensation payable to the assessee
The assessee was not satisfied with the amount of compensation and preferred an appeal before the Arbitrator 24 Parganas Calcutta
The Arbitrator made an award dated July 29 1955 whereby he fixed the amount of compensation at Rs3010873 on account of the permanent acquisition of the land thus enhancing the original amount of compensation by Rs513624 on which he directed interest at 5 per cent per annum from January 8 1953 the date of acquisition to the date of payment
The Arbitrator also directed that further recurring compensation at Rs6272104 per mensem should be paid to assessee from the date of requisition till the date of the acquisition
The State Government now appealed to the High Court and during the pendency of the appeal on April 25 1956 it deposited Rs736691 which the assessee was permitted to withdraw on May 9 1956 on furnishing security
On receipt of the amount the assessee credited it in its suspense account on the same date
During the assessment proceedings for the assessment year 1956 57 the relevant accounting period being the year ended March 31 1956 the Income Tax Officer brought to tax a sum of Rs724914 in the assessee s business income
This represented the difference between the sum of Rs737190 payable to the assessee in terms of the award dated July 29 1956 of the Arbitrator and a sum of Rs12276 out of that amount which had already been assessed to tax
The Income tax Officer treated the sum as liable to income tax during that year on the basis that the income accrued to the assessee on the date of the award
393 The assessment was confirmed by the Appellate Assistant Commissioner of Income tax on first appeal
In second appeal by the assessee before the Income tax Appellate Tribunal two contentions were raised by it
It was urged that the amount of compensation received by the assessee was not a receipt of a revenue nature
It was also contended that in any event the amount did not accrue to the assessee as its income during the relevant previous year ended March 31 1956
The Appellate Tribunal rejected the first contention and held that the compensation received by the assessee related to the acquisition of land which was the stock in trade of the assessee and was therefore a trading receipt of the business carried on by the assessee and therefore a receipt of a revenue nature liable to tax
The Appellate Tribunal however accepted the other contention that the sum of Rs724914 was not taxable in the assessment year 1956 57
It allowed the appeal accordingly by its order dated February 22 1964
At the instance of the Revenue the Appellate Tribunal referred the question of law set out earlier to the Calcutta High Court for its opinion and by its judgment dated January 9 1973 the High Court answered the question in favour of the assessee and against the Revenue
The question raised in this appeal is limited to the point whether on the facts and circumstances of the case the Revenue can claim that the sum of Rs724914 payable to the assessee as compensation can be said to have accrued to it as income during the previous year ended March 31 1956 relevant to the assessment year 1956 57
Now as long ago as ED Sassoon  Company Ltd and others vs Commissioner of Income tax Bombay City this Court considered the question as to the point at which income could be said to accrue or arise to an assessee for the purpose of the Indian Income Tax Act
In the majority judgment delivered by NH Bhagwati J it was explained that the words arising or accruing describe a right to receive profits and that there must be a debt owed by some body
Unless and until there is created in favour of the assessee a debt due by somebody it was observed it cannot be said that he has acquired a right to receive the income or the income has accrued to him
In the present case although the award was made by the Arbitrator on July 29 1955 enhancing the amount of compensation payable to the assessee the entire amount was in dispute in the appeal filed by the State Government
Indeed the dispute was regarded by the Court as real and substantial because the assessee was not permitted to withdraw the sum of Rs736691 deposited by the State Government on April 25 1956 without furnishing a security bond for refunding the amount in 394 the event of the appeal being allowed
There was no absolute right to receive the amount at that stage
If the appeal was allowed in its entirety the right to payment of the enhanced compensation would have fallen altogether
This is a case which must be distinguished from that decided by this Court in Kedarnath Jute Mfg Co Limited
vs Commissioner of Income Tax Central Calcutta where the liability to sales tax arose immediately on a dealer affecting sales which were subject to sales tax and what remained to be done was a mere quantification of that liability
The case compares rather with Commissioner of Income tax vs Jai Parkash Om Parkash Co Ltd The very foundation of the claim made by the assessee was in serious jeopardy and nothing would be due if the appeal was decided against the assessee
Our attention has been drawn by the Revenue to Pope The King Match Factory vs Commissioner of Income tax That case however proceeded on the basis that excise duty was payable and its quantification alone remained to be decided in the appeal
We may point out that the Andhra Pradesh High Court dealing with the taxability of compensation received under the Land Acquisition Act in Khan Bahadur Ahmed Alladin  Sons
vs Commissioner of Income tax held that when land was taken over by the Government the right of the owner to compensation was an inchoate right until the compensation had been actually determined and had become payable
It was observed that the enhanced compensation accrued to an assessee only when the Court accepted the claim and not when the land was taken over by the Government
Examining the question whether income could be said to have accrued to the assessee on the date when possession of the land was taken by the Government for the purpose of assessment to tax in the year of assessment P Jaganmohan Reddy CJ speaking for the Court said If the actual amount of compensation has not been fixed no income could accrue to him
It cannot be contended that the mere claim by the assessee after taking of possession at a particular rate or for a certain sum is the compensation
It is the amount actually awarded by the Collector or subsequently decreed by the court which accrues to him and the respective amounts whether awarded by the Collector or the court accrue on the respective dates on which the award or the decree is passed
Income tax is not levied on a mere right to receive compensation there must be something tangible something in the nature of a debt 395 something in the nature of an obligation to pay an ascertained amount
Till such time no income can be said to have accrued    
On the date when the Collector awarded the compensation it is only that amount which had accrued or deemed to accrue whether in fact paid or not
But by no stretch of the words in section 41bi could it be said that the right to enhanced compensation which has not yet been accepted by the proper forum namely the court has become payable on the date when the original compensation become payable for being included in that year of assessment
The enhanced compensation accrues only when it becomes payable ie when the court accepts the claim
As has been stated earlier a mere claim by the assessee after taking of possession of the land at a particular rate or for a certain sum is not compensation
It must not be forgotten that even if a court was awarded enhanced compensation there is a right of appeal by the Government to the High Court and the High Court may either disallow that claim or reduce the compensation
As against that judgment there is further right of appeal to the Supreme Court
The assessee also can appeal against the insufficiency of the enhanced compensation
Can it be said that the final determination by the highest court of the compensation would entitle the Income tax Officer notwithstanding the period of limitation fixed under the Income tax Act to reopen the assessment in which he had included the initial compensation awarded by the Collector and recompute the entire income on the basis of the final compensation We do not think there can be any justification for such a proposition
On a proper construction of the terms accrue  or arise  we are of the view that such an interpretation cannot be placed
The interpretation given by us does not affect the interests of the revenue
At the same time it safeguards the assessee and prevents harassment
To hold otherwise would be contrary to the provisions of law
 The legal position was explained in further detail by the Gujarat High Court in Topandas Kundanmal vs Commissioner of Income tax Gujarat The High Court was called upon to decide without the right to receive the enhanced compensation under the Land Acquisition Act accrued or arose to the assessee when he sought 396 a reference under section 18 of the Act or when the award was made by the Civil Judge although an appeal was pending against that award
The learned Judges referred to the nature of an award made by the Collector and adverting to the opinion of this Court in Harish Chandra Raj Singh vs The Deputy Land Acquisition Officer  Anr 1962 1 SCR 676 that the award made by the Collector was merely an offer or tender of the compensation determined by the Collector to the onwer of the property on the acquisition the High Court observed  the legal position which emerges is that there is no liability in praesenti to pay an enhanced compensation till it is judicially determined by the final court since the entire question namely whether the offer made by the Land Acquisition Officer is inadequate and the claimant is entitled to an additional compensation and if yes at what rate is in flux till the question is set at rest finally we do not think that any enforceable right to a particular amount of compensation arises
The offer made by Land Acquisition Officer by his award if not accepted by a claimant would not result automatically in a liability to pay additional compensation as claimed by party aggrieved
There is no doubt a liability to pay compensation as offered by the Land Acquisition Officer
But that is far from saying that liability is a liability to pay additional compensation or enhanced compensation as claimed by a party aggrieved
If there is an existing liability the mere fact that the payment is postponed to the future would not detract that liability from becoming a debt but the liability to pay unliquidated damages or additional compensation which are inchoate or contingent would not create a debt Khan Bahadur Ahmed Alladin  Sons supra and Topandas Kundanmal supra were relied on by the Gujarat High Court in Additional Commissioner of Income tax Gujarat vs New Jehangir Vakil Mills Co Ltd for reaffirming that it was on the final determination of the amount of compensation that the right to such income in the nature of compensation would arise or accrue and till then there was no liability in praesenti in respect of the additional amount of compensation claimed by the owner of the land
It is unnecessary to refer to all the cases cited before us
It is sufficient to point out that there is a clear distinction between cases 397 such as the present one where the right to receive payment is in dispute and it is not a question of merely quantifying the amount to be received and cases where the right to receive payment is admitted and the quantification only of the amount payable is left to be determined in accordance with settled or accepted principles
We are of opinion that the High Court is right in the view taken by it and therefore this appeal must be dismissed
The appeal is dismissed
There is no order as to costs
PSS Appeal dismissed


Summary:
During the pendency of the appeal by the State against an arbitrator s award made on July 29 1955 enhancing the original amount of compensation the Government deposited the extra amount which the assessee was permitted to withdraw on May 9 1956 on furnishing security
During the assessment proceedings for the relevant assessment year the Income tax Officer brought that amount to tax as the assessee s business income
The Appellate Tribunal however accepted the assessee s contention that the amount could not be said to have accrued to the assessee as its income during the relevant previous year and therefore was not liable to tax in the particular assessment year
The High Court answered the question referred in favour of the assessee and against the Revenue
Dismissing the appeal of the Revenue this Court  HELD It is only on the final determination of the amount of compensation that the right to such income in the nature of compensation arises or accrues and till then there is no liability in praesenti in respect of the additional amount of compensation claimed by the owner of the land
396G There is a clear distinction between cases where the right to receive payment is in dispute and it is not a question of merely quantifying the amount to be received and cases where the right to receive payment is admitted and the quantification only of the amount payable is left to be determined in accordance with settled or accepted principles
396H397A B 391 In the instant case although the award was made by the arbitrator on July 29 1955 enhancing the amount of compensation payable to the assessee the entire amount was in dispute in the appeal filed by the Goverment
There was no absolute right to receive the amount at that stage for if the appeal had been allowed in its entirety the right to payment of the enhanced compensation would have fallen altogether
The sum therefore could not be said to have accrued or arisen during the relevant assessment year
393G 394A B ED Sassoon  Company Ltd and others vs Commissioner of Income tax Bombay City  Commissioner of Incometax vs Jai Parkash Om Parkash Co Ltd  Pope The King Match Factory vs Commissioner of Income tax  Khan Bahadur Ahmed Alladin  Sons vs Commissioner of Income tax  Topandas Kundanmal vs Commissioner of Income tax Gujarat  Harish Chandra Raj Singh vs The Deputy Land Acquisition Officer  Anr 1962 1 SCR 676 and Additional Commissioner of Income tax Gujarat vs New Jehangir Vakil Mills Co Ltd  referred to
Kedarnath Jute Mfg Co Ltd vs Commissioner of Income Tax Central Calcutta  distinguished