BIKRAM SINGH AND ORS.versusTHE LAND ACQUISITION COLLECTOR AND ORS.

A                   BIKRAM SINGH AND ORS.
                              v.
           THE LAND ACQUISITION COLLECTOR AND ORS.

                            SEPTEMBER 12, 1996

B    [K. RAMASWAMY, FAIZAN UDDIN AND G.B. PATTANAIK, JJ.]

         Income Tax Act, 1961 :

          Sections 4,5, 194-A-lnterest received as income on the delayed pay-
C   ment of compensation detennined under S.28 or 31 of Land Acquisition
    Act-Held : It is revenue receipt exigible to tax under S.4-S.194A not
    applicable as it relates to deduction of tax at source.

         Land Acquisition Act, 1894 :

D        Sections 28,31-Jnterest received as income on the delayed payment of
    compensation-ls a revenue receipt exigible to tax under S.4 of the Income
    Tax Act, 1961.

          Dr. Sham/al Nanlla v. Commissioner of Income tax, Jamnm, 53 ITR
    151; TMK Gvoindaraju Chetty v. Commissioner of Income-tax, Madras, 66
E   ITR 465; Rama Rai & Ors. v. CIT Andhra Pradesh, 181 ITR 400 and K.S.
    Krishna Rao v. CIT, A.P., 181 ITR 408, relied on.

         CIVIL APPELLATE JURISDICTION : Civil Appeal No. 12497-
    12500 of 1996.
F        From the Judgment and Order dated 13.12.91 of the Punjab &
    Haryana High Court in C.W.P. Nos. 10558, 10556, 11495 and 10557of1991.

          K. G. Bhagat, S.S. Dahiya, Kamal Baid and G.G. Singh for the
    Appellants.
G
         R.R. Misra, Ms. Lakshmi Iyengar and Anil Srivastava for the
    Respondents.

          The following Order of the Court was delivered :

H         Leave granted.
                                        214
                  BIKRAM SINGH v. lAND ACQN. COLLECTOR                    215

          We have heard learned counsel on both sides.                           A

          This appeal by special leave arises from the judgment of the High
    court of Punjab & Haryana made in CWP Nos. 1558/91 and batch on
    December 13, 1991. The admitted facts are that the appellants had received
    notice on July 31, 1991 for payment of income-tax on the delayed interest    B
    amount recovered under the Land Acquisition Act, 1894 (for short, the
    "LA Act"). calling that notice in question, they filed writ petitions. The
    High Court relying upon decisions of this Court dismissed the petitions
    with a finding as under :

            "This now leads us to the consideration of the question whether      c
            interest paid on the amount of compensation for compulsory
            acquisition of land is "income" and, therefore, taxable under. the
            Act. Matters which have to be considered for awarding compen-
            sation for compufaory acquisition of land are enumerated in section
            23 of the Land Acquisition Act. While sub- section (2) of that D




-
            section provides for payment of certain solatium for acquisition of
            compulsory nature, interest is not included as an item of compen-
            sation. Instead, interest is payable by force of section 34 of the Act,
            if compensation is not paid or depositeq on or before taking
            possession of the land. By force of section 28 also, the court, on a
            reference if it enhances the co~pen~ation offered by the Collector E
            is entitled to award interest on the amount of such enhanced
            compensation. Section 28 a:lso provides that the court, on a refer-
            ence, shall award interest on the amount of enhanced compensa-
            tion. It will thus appear from the text of section 34 of the Land
            Acquisition Act that interest is not payable as compensation but F
            is paid if the compensation is not paid before taking possession of
            the land. Interest is thus payable because of the deprivation of the
            possession of that land before compensation for compulsory ac-
            quisition of that land is paid. This position is now well- settled. In
            Dr. Sham/al Nam/a v. CIT, (1964) 53 ITR 151 SC ; AIR (1964) SC
            1878, the observation is that interest has to be paid on the amount G
            awarded from the time the Collector takes possession until the
            amount is paid or deposited. Interest is not an item of compensa-
            tion nor is it consideration for acquisition of land. Payment of
            interest has been provided for separately under section 34 of the
            Land Acquisition Act. This is so because interest is paid after the H
    216                SUPREME COURT REPORTS (1996) SUPP. 6 S.C.R.

A         compensation has been determined. It is something in addition to
          the capital amount though it arises out of it. It has expressly been
          held that interest under section 34 of Land Acquisition Act is not
          compensation paid to the owner for depriving him of his right to
          possession of the land acquired, but is given to him for the
          deprivation of the use of the money representing the compensation
B
          for the land acquired. This interest under section 34 of the Land
          Acquisition Act is thus paid for the delayed payment of the
          compensation amount and, therefore, a revenue receipt liable to
          tax under the Income-tax Act. The Supreme Court expressly dis-
          tinguished the decision of the Privy Council in Inglewood Pulp and
c         Paper Co. Ltd. v. New Brnnswick Electric Power Commission, AIR
          (1928) PC 287. This decision of the Privy Council as also the
          decision in Abhay Singh Surana v. Secretary, Ministry of Com-
          munication, AIR (1987) SC 2177 are authorities only for the
          proposition that interest is payable on the amount of compensation
D         determined either under the Land Acquisition Act or under the
          Requisition and Acquisition of Immovable Property Act, 1952.
          Neither of these authorities consid{'.red the question of exigibility
          of such interest to income-tax. This principle in Narnla's case
          (1964) 53 ITR 151 SC has subsequently been applied by the
E         Supreme Court in a later decision in T.N.K. Govindaraju Chetty v.
          CIT, (1967) 66 ITR ·465 also, where the property was acquired
          under the Requisition and Acquisition of Immovable Property Act
          which did not make any specific provision for the award of interest
          on the amount of compensation, the application of sections 28 and
          34 of the Land Acquisition Act, 1894, dealing with the pa~ent of
F         interest on the amount awarded ·as compensation could not be
          deemed to be excluded. When the owner of property was dispos-
          sessed pursuant to an order for compulsory acquisition, an agree-
          ment that the acquiring authority will pay interest on the amount
          of compensation was implied. It has been expressly held that the
G         view in Sham/al Narula's case (1964) 53 ITR 151 SC, that the
          interest received is chargeable to tax as income, will apply if
          interest is payable under the terms of an agreement, express or
          implied, and the court or the arbitrator gives effect to the terms
          of the agreement and awards interest which has been agreed to be
H         paid. It has, therefore,to be held that the amount received as
             BIKRAM SINGH v. LAND ACQN. COLLECTOR                      217

        interest on the amount of compensation assessed under the Land A
        Acquisition Act or under the Requisition and Acquisition of Im-
        movable Property Act is income taxable under the Income Tax
        Act. Certainly, it is not agricultural income since it is neither rent
        nor revenue derived from the land used for agricultural purposes
        It is, therefore, not exempt from income-tax under section 10(1)
                                                                               B
        of the Income-tax Act as agricultural income. The Land Acqui~i.­
        tion Collector is, therefore, perfectly justified in retaining the
        amount of interest payable to the holders of agricultural lands
        compulsorily acquired in terms of section 194A of the Act. The
        Land Acquisition Collector is also justified in demanding the sum
        paid on account of interest under section 194A of the Act. The C
        notices issued and challenged in these petitions are, therefore,
        valid and perfectly justified."

      The question for consideration is : whether the delayed interest on
the compensation paid under the Land Acquisition Act is chargeable to D
income tax under Sections 4 & 5 of the Income Tax Act, 1961 (for short
the "Act") It is contended for the appellants that "interest"-has been defined
under Section 2 (28A) as:

        "Interest" means interest payable in any manner in respect of any
        moneys borrowed or debt incurred (including a deposit, claim or      E
        other similar right or obligation) and includes any service fee or
        other charge in respect of the moneys borrowed or debt incurred
        or in respect of any credit facility which has not been utilised."

     Under Section 194A dealing with "interest on securities" provides as
under:                                                               ·        F

        "194A. (1) Any person, not being an individual or a Hindu un-
        divided family, who is responsible for paying to a resident any
        income by·way of interest on securities shall, at the time of credit
        of such income to the account of the payee or at the time of G
        payment thereof in cash or by issue of a cheque or draft or by any
        other mode, whichever is earlier, deduct income- tax thereon at
        the rates in force.

        Explanation-For the purposes of this section, where any income
        by way of interest as aforesaid is credited to any account, whether H
     218                   SUPREME COURT REPORTS (1996) SUPP. 6 S.C.R.

A            called "Interest payable account" or "SuspeJ!Se account" or by any
             other name, in the books of account of the person liable to pay
             such income, such crediting shall be deemed to be credit of such
             income to the account of the payee and the provisions of this
             section shall apply accordingly."
B           In the circular issued by the Board of Direct Taxes, the concept of
     "interest" defined under Section 2(28A) has been explained with the added
     explanation as under :

             "The terms "interest" has been defined in new clause (28A) inserted
             in Section 2 of the Income-Tax Act with a view to removing doubts
C.
             about the true character of fees or other charges paid in respect
             of moneys borrowed or in respect of the credit facilities which
             have not been utilised. The definition is very wide and covers
             interest payable in any manner in respect of loans, debts, deposits,
             claims and other similar rights or obligations. It also includes any
D            service fees · or other charges in respect of such loans, debts,
             depo~its, etc. as also fees in the nature of commitment charges on
             unutilised portion of credit facilities. This definition will be ap-
             plicable for all purposes of the Income-tax Act.:

           Relying upon these three provision, it is contended that the definition
E of "interest" is confined only to money-lending business between debtor and
     the creditor and if the creditor receives any amount by way of interest from
     the debtor, it is in the nature of a receipt of income on a charge paid in
     respect of money borrowed or in respect of the credit facility given which
     have been utilised and, therefore, the definition would be applicable only
F    when the money is lent by a creditor and received by the debtor. Then only
     interest is chargeable to income-tax. When interest is paid either under
     Section 34 or Section 28 of the LA Act, it is only a payment in considera-
     tion of loss of enjoyment of the possession by the owner. It is not by way
     of any charge on compensation determined under Section 23(1). Therefore,
     it is not exigible to income tax. We find no force in the contention.
G
            The controversy is no longer res integra. This question was considered
     elaborately by this Court in Dr. Shamlal Narula v. Commissioner of Income-
     tax, Jammu 53 ITR 151. Therein K. Subba Rao, J. as he then was, con-
     sidered the earlier case law on the concept of "interest" laid down by the
H    Privy Council and all other cases and had held at page 158 as under :
                                                                                     \
                  BIKRAM SINGH v. lAND ACQN. COLLECTOR                         219

            "In a case where title passes to the State, the Statutory interest A
            provided thereafter can only be regarded either as representing
                                                                        I
            the profit which the owner of the land might have made 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 B
            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, there-
            fore, is a revenue receipt liable to tax under the Income-tax Act".
                                                                                      c
           This position of law has been consistently reiterated by this Court in
    the case of TMK Govindaraju Chetty v. Commissioner of Income Tax,
    Madras, 66 ITR 465; Rama Rai & Ors. v. CIT, Andhra Pradesh, 181 ITR
    400 and K.S. Krishna Rao v. CIT, A.P., (181) ITR 408. Thus by a catena
    of judicial pronouncements, it is settled law that the interest received on       D
    delayed payment of the compensation is a revenue receipt exigible to
    income tax. It is true that in amending the definition of "interest" in Section
    2(28A), interest was defined to mean interest payable in any manner in
    respect of any money borrowed or debt incurred including a deposit, claim
    or other similar right or obligation and includes anv service, fee or other
    charges in respect of the moneys borrowed or debt incurred or in respect          E
    of any credit facility which has not been utilised. It is seen that the word
    "interest" for the purpose of the Act was interpreted by the inclusive
    definition. A literal construction may lead to the conclusion that the
    interest received or payable in any manner in respect of any moneys
    borrowed or a debt incurred or enumerated analogous transaction would             F

-   be deemed interest. That was explained by the Board in the circular
    referred to hereinbefore.

           But the question is: whether the interest on delayed payinent on the
    acquisition of the immovable property under the Acquisition Act would G
    not be exigible to income-tax? It is seen that this Court has consistently
    taken the view that it is a revenue receipt. The amended definition of
    "interest" was not intended to exclude the revenue receipt of interest on
    delayed payment of compensation from taxability. Once it is construed to
    be a revenue receipt, necessarily, unless there is an exemption under the
    appropriate provisions of the Act, the revenue receipt is exigible to tax. H
    220                    SUPREME COURT REPORTS (1996) SUPP. 6 S.C.R.

A   The amendment is only to bring within its tax net, income received from
    the transaction covered under the definition of interest. It would me~n that
    the interest received as income on the delayed payment of the compensa-
    tion determined under Section 28 or 31 of the Acquisition Act is a taxable
    event. Therefore, we hold that it is a revenue receipt exigible to tax under
    Section 4 of the Income-Tax Act. Section 194A of the Act has no applica-
B   tion for the purpose of this case as it encompasses deduction of the income
    tax at the source. However the appellants are entitled to spread over the
    income for the period for whieh payment came to be made so as to
    compute the income for assessing tax for the relevant accounting ye<!.r.

c of lawUnder these circumstances, we do not think that there is any error
         committed by the High Court in the Judgment under appeal war-
    ranting interference

         The appeals are accordingly dismissed. But in the circumstances
    without costs.
D
    G.N.                                                    Appeals dismissed.