Case: S. R. Y. Sivaram Prasad Bahadur Vs. The Commissioner Of Income Tax Hyderabad

2. The material facts bearing on the point in issue are identical in all these appeals. Hence it would be sufficient if we set out the facts of Civil Appeals Nos. 1309 to 1312 of of 1968 which were filed by the same assessee. The assessee in those appeals is a Hindu Undivided Family and that family was the holder of the Estate of Devarkota and Challappalli. This Estate vested in the Government under the Act. During the assessment years 1953-54, 1954-55, 1956-57 and 1958-59, the assessee received some interim payments. The Income-tax Officer sought to include those payments in the assessment of the assessee in those years. The assessee contended that those receipts were not Revenue receipts and hence not taxable. He based his plea firstly on the ground that those receipts represented agricultural income or alternatively they were capital receipts and lastly on the ground that the income having been apportioned among the principal land-holder and the other persons referred to in sub-section (2) of S. 50 of the Act, the entire amount did not fall to be assessed in his hands. All these contentions were rejected by the Income-tax Officer. Before the Appelate Assistant Commissioner, the assessee repeated those contentions. But the Appellate Assistant Commissioner rejected them and upheld the order of the Income-tax Officer. On a further appeal to the Income-tax Appellate Tribunal, the Tribunal held that as those payments were made to the assessee as compensation for destroying his income producing assets they should be considered as capital receipts and hence not liable to be taxed. Thereafter, at the instance of the Commissioner of Income-tax, the Tribunal referred theon the facts and in the circumstances of the case, the interim compensation of Rs. 80,843/-; Rupees 40,422/-. Rs. 1,21,146/- and Rupees 80,391/- received by the assessee under Section 50 of the Madras Estates (Abolition and Conversion into Ryotwari) Act, 1948 was of a capital nature and not liable toSection 66 (1) of the Act for the opinion of the High Court. The High Court answered that question in favour of the Department. Following that decision, the High Court dismissed the Writ Petitions filed by Shri. V. V. V. R. K. Yachendra Kumar Raja raising the very question that was the subject matter of the References. The other appeals in this batch of appeals arise form the decision in those Writ Petitions.

Reasoning: 7. From the provisions of the Act, it is clear that the legislature must have been satisfied that the enquiries relating to the determination of the compensation of the Estates abolished was bound to take considerable time. In the very nature of things, those enquiries were bound to be prolonged. We have earlier seen that the Estates abolished vested in the Government as soon as the notification contemplated in Section 3 was issued. But the compensation payable to the Estate holders became due only when the same was finally determined under Section 39. In other words, the liability of the Government to pay the compensation finally determined arose only after the same was determined under Section 39 though the Act provided for payment of half the amount of compensation on the basis of a rough estimate within six months from the date of vesting. It may also be noted that there is no provision in the Act providing for payment of interest on the compensation payable as from the date of vesting.While it is true that the terminology used by the legislature in respect of a payment is not conclusive of the true character of that payment, it would be proper to proceed on the basis that the legislature knew what it was saying. The word compensation is a well known expression in law. When the legislature says that all payments made under the Act are in respect of the compensation payable to the former holders unless there are clear and convincing circumstances to show that one or more items of payment do not form part of the compensation payable, we must hold that those payments are what they are said to be by the statute. We must give the word "compensation" its normal and natural meaning. As seen earlier, in cl. (e) of S. 3 of the Act the legislature definitely says, that the holder or holders of the Estate falling within clauses (b) and (c) of S. 3 "shall be entitled only to compensation from the Government as provided in this Act". From this it follows that all payments made to them under the Act are compensation payable to them for taking over their Estates. Statutes which take away others property, by and large, provide for payment of compensation as from the date of taking. In the generality of those statutes, if immediate payment is not made at the time of taking provision is made for payment of interest on the compensation payable as from the date of taking. In the Act, there is no provision for payment of compensation at the time of the vesting of the Estates in the Government. Nor is there any provision for payment of interest on the compensation payable, as from the date of taking. The compensation determined has to be deposited only after the enquiry under S. 39 was over. We are told at the bar that the final determination of the compensation under S. 39 was made years after the Estate vested in the Government, though some advance compensation was paid. Hence there is force in the contention advanced on behalf of the assessee that the interim payments made were given as compensation for depriving the assesses of the income that they would have got from their agricultural lands; an income which would not have been assessable to tax under the Act if it had been received as agricultural income. The quantum of interim payments payable to the former holders of those Estates was determined by taking into consideration the income that the former owners would have received had they continued to be the owners of those Estates. This prima facie shows that the Government was compensating the former holders for taking away their income producing assets. The interim payments do not appear to have any relationship with the compensation ultimately payable. On the other hand, it takes note of the loss of income incurred by the former owners due to the abolition of the Estates. The contention that it was in lieu of interest on the compensation payable overlooks the fact that the liability of the Government to pay the compensation excepting to the extent provided in Section 54-A, arose only after the compensation payable was finally determined under S. 39. The interim payments were not fixed on the basis of the estimated compensation. They were fixed on the basis of the loss of income to the former owners. Under these circumstances, it is not possible to accept the contention that the interim payments were paid in lieu of interest or even that they represented compensation for loss of interest. If the legislature intended that the interim payments were to be made in lieu of the payment of interest on the compensation payable, nothing would have been easier than to say so in the Act. The term "interest" is a familiar term in law. In this very Act, the legislature had prescribed payment of interest under certain circumstances. As observed by this Court in Dr. Sham Lal v. Commr. of Income-tax, Punjab, 53 ITR 151   = (AIR 1964 SC 1878  ) the interest is a payment to be made by the debtor to the creditor when money was due to the creditor but was not paid or in other words was withheld from the creditor by the debtor after the time when the payment should have been made. Proceeding further, this Court observed in that case that interest whether it was statutory or contractual represented the profit the creditor would have made if he had the use of the money to which he was entitled to. In the cases before us, the assesses were not entitled to any compensation till the same was determined under S. 39. Therefore, no amount, to which they were entitled to, were, withheld from them. Hence on that account they were not entitled to any compensation in lieu of interest.10. It is true that while the Act calls the payments made under Sections 54-A, 54-B and 41 as compensation, the payments made under Section 50 (2) is called interim payments. This circumstance by itself will not be of much significance because, as seen earlier, S. 3 proceeds on the basis that all payments made under the Act are in the nature of compensation. Possibly the legislature wanted to make a distinction between compensation paid for the loss of income and that for the loss of assets.In our opinion, this sub-section, instead of assisting the Department, support the case of the assesses. All that that provision says is that the interim payments made under S. 50 (2) are not to be considered as compensation which the Government is required to deposit under S. 41 (1) or to any extent to be in lieu of such compensation. That section does not say that the interim payments are not compensation. It only says that it is no part of the compensation required to be deposited under S. 41 or in lieu of such compensation. That does not mean that it cannot be compensation for the recurring loss caused to the owner because of the taking away of an income producing asset without payment of compensation. It is not the contention of the assesses that the interim payments made are part of the total compensation payable for the acquisition of the Estates. According to them, it is a compensation for the destruction or taking away of an income producing asset of their till the assets taken from them are compensated.It is the character of the payments made under S. 14 that came up for consideration before this Court in Rameshwar Raos case, 1964-2 SCR 847   = AIR 1963 SC 290 (supra). Quite clearly the maintenance allowances paid were revenue receipts. Hence that decision has no bearing on the question of law under consideration in the present case. The observations made by this Court in that decision must be read in the light of the facts of that case.22. The decision of Mr. Justice P. Jaganmohan Reddy (as he then was) in Kumara Rajah of Venkatagiri v. Income-tax Officer, A-Ward Nellore, (1967) 64 ITR 264 (Andh Pra) sitting singly proceeded on the basis that the ratio of the decision of this Court in Raja Rameshwara Raos case, 1964-2 SCR 847   = (AIR 1967 SC 290  ) is equally applicable to payments under S 50 (2) of the Act. The same view was taken by the judges of the High Court who rendered the decisions under appeal. For the reasons mentioned earlier both those decisions must be held to have proceeded on an errorneous view of the decision of this Court.23. On behalf of the Revenue, reliance was placed on the decision of this Court in Chandroji Rao v. Commr. of Income-tax, Madhya Pradesh, 77 ITR 743   = (AIR 1970 SC 1582  ). To that decision both of us were parties. The question for decision in that case was whether the payments of interest made under S. 8 (2) of the Madhya Bharat Abolition of Jagirs Act, 1951 was a Revenue receipt or a capital receipt. That section provided for the payment of interest on the compensation payable to the Jagirdars by the Government under S. 8 (1) for resumption of their Jagir lands. This Court held that the receipt of interest under S. 8 (2) of that Act was a taxable income. The Court observed that there was a clear distinction between the compensation payable under S. 8 (1) and the interest payable under sub-s. (2) of Section 8. The payment under Section 8 (2) was given to the Jagirdar for his being kept out of the compensation amount to which he was entitled for a period of ten years and that it was not a payment for the acquisition of the Jagir. Therein the Court explained the distinction between the payment made for depriving the use of money to which a person is entitled and that made for the destruction or taking away his property, the former being a revenue receipt and the latter a capital receipt.