Supreme Court of India
COMMISSIONER OF INCOME-TAX, WEST BENGAL-II, CALCUTTAversusHINDUSTAN HOUSING & LAND DEVELOPMENT TRUST LIMITED
- Citation
- 1986 INSC 152
- Decided
- 29 July 1986
- Disposal
- Dismissed
- Bench
- R S PATHAK
Holding
The right to additional compensation accrues only when the amount is finally determined and payable; therefore the sum did not accrue as income in the assessment year 1956‑57.
Summary
Hindustan Housing & Land Development Trust Ltd. owned land requisitioned and later acquired by the Government of West Bengal. The initial compensation award of Rs.24,97,249 was appealed, and an arbitrator enhanced it to Rs.30,10,873 with interest and recurring payments. While the State appealed the award, it deposited an additional amount of Rs.7,36,691, which the assessee withdrew and the Income‑Tax Officer taxed Rs.7,24,914 as business income for AY 1956‑57. The Tribunal held that the compensation was a trading receipt but agreed that the extra amount had not accrued in that assessment year and referred the legal question to the High Court. The High Court, affirmed by this Supreme Court judgment, held that a right to additional compensation accrues only when the amount is finally determined and payable by a competent authority; until then no income arises under s.4(1)(b)(i) and s.5(1)(b) of the Income‑Tax Act. Consequently, the revenue's appeal was dismissed.
Issues considered
- Whether the additional compensation of Rs.7,24,914 accrued to the assessee as income in the assessment year 1956‑57 under s.4(1)(b)(i) and s.5(1)(b) of the Income‑Tax Act.
Legislation cited
- Defence of India Act, 1939s. 19
- Defence of India Ruless. 75A(1)
- Income Tax Act, 1922s. 4(1)(b)(i)
- Income Tax Act, 1961s. 5(1)(b)
- Land Acquisition Acts. 18
- Requisition of Land (Continuance of Powers) Act, 1951s. 5
Subjects
income taxaccrual of incomecompensationland acquisitionassessment yeartaxabilitys.4(1)(b)(i)s.5(1)(b)disputed right
Judgment
A
COMMISSIONER OF INCOME-TAX,
WEST BENGAL-II, CALCUTTA
v.
B HINDUSTAN HOUSING & LAND DEVELOPMENT
TRUST LIMITED
JULY 29, 1986
(R.S. PATHAK AND SABYASACHI MUKHARJI, JJ.}
c Income-tax Act, 1922 s. 4(1)(b)(i)/lncome-tax Act, 1961: s.
5( l)(b)-Acquisition of /and-Additional compensation received-lia-
bility to tax-Income whether could be deemed to have accmed or
arisen during the relevant assessment year.
D During the pendency of the appeal by the State against an ar-
hitrator'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
E business income. The Appellate Tribunal, however, accepted the asses·
see's contention that the amount could not be said to have accrued to
the assessee as its income during the relevant previous year, and there-
fore, 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.
F
Dismissing the appeal of the Revenue, this Court,
HELD: It is only on the rmal determination of the amount of
compensation that the right to such income in the nature of compensa-
tion arises or accrues and till then there is no liability in praesenti in
'
respect of the additional amount of compensation claimed by the owner
G of the land. (396G]
There is a clear distinction between cases where the right to re-
ceive 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.
H
[396H;397A-R]
390
C.I.T. v. HINDUSTAN HOUSING (PATHAK,J.J 391
.In the instant case, although the award was made by the arbi· A
trator 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 Government. There was no absolute right to receive the amount at
that stage, for if the appeal had been allowed in its eetirety 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 B
the relevant assessment year. [393G; 394A·B]
E.D. Sassoon & Company Ltd. and others v. Commissioner of
Income-tax, Bombay City, I1954] 26 ITR 27, Commissioner of Income-
tax v. Jai Parkash Om Parkash Co. Ltd., (1961) 41 ITR 718, Pope The
King Match Factory v. Commissioner of Income-tax, [1963] 50 ITR 495, c
Khan Bahadur Ahmed Alla din & Sons v. Commissioner of Income-tax,
[1969] 74 ITR 651, Topandas Kundanmal v. Commissioner of Income-
tax, G,ujarat, [ 1978] 114 ITR 237, Barish Chandra Raj Singh v. The
Deputy Land Acquisition Off1Cer & Anr., [1962] l SCR 676 and Addi-
tional Commissioner of Income-tax, Gujarat, v. New Jehangir Vakil
Mills Co. Ltd., (1979) 117 ITR 849, referred to. D
Kedarnath Jute Mfg. Co. Ltd. v. Commissioner of Income-Tax
(Central), Calcutta, [1971] 82 ITR 363, distinguished.
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1126
(NT) of 1974 E
From the Judgment Order dated 9th January, 1973 of the Cal-
cutta High Court in Income Tax Reference No. 5of1967.
V.S. Desai, Dr. M.B. Rao and Miss A. Subhashini for the
Appellant. F
Nemo for the Respondent.
The Judgment of the Court was delivered by
PATHAK, J. This appeal by certificate granted by the High G
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.
H
392 SUPREME COURT REPORTS [1986] 3 S.C.R.
A 7,24,914 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 com-
pany dealing in land. It maintains its accounts on the mercantile
B
system. By an order dated June 21, 1946 under rule 75A(l) of the
Defence of India Rules read with s. 19 of the Defence of India Act,
1939 certain plots of land measuring about 19 .17 acres in village
Kankulia in the Di~trict 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 s.
c 5, 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
Rs.24,97 ,249 as compensation payable to the assessee. The assessee
was not -satisfied with the amount of compensation, and prefe~ed an
appeal before the Arbitrator, 24 Parganas, Calcutta. The Arbitrator
D
made an award dated July 29, 1955 whereby he fixed the amount of
compensation at Rs.30,10,873 on account of the permanent acquisi-
tion of the land, thus enhancing the original amount of compensation
by Rs.5, 13,624 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
E
Rs.6272/10/4 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
Rs.7,36,691, which the assessee was permitted to withdraw on May 9,
F
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 yea! 1956-
57, the relevant accounting period being the year ended March 31,
1956 the Income Tax Officer brought to tax a sum of Rs.7,24,914 in the
G
assessee's business income. This represented the difference between
the sum of Rs.7,37,190 payable to the assessee in terms of the award
dated July 29, 1956 of the Arbitrator and a sum of Rs.12,276 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
H basis that the income accrued to the assessee on the date of the award.
C.I.T. v. HINDUSTAN HOUSING [PATHAK,J.) 393
~ The assessment was confirmed by the Appellate Assistant Commis- A
sioner 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 con-
tended that in any event the amount did not accrue to the assessee as B
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 there-
fore, a receipt of a revenue nature liable to tax. The Appellate Tri-
bunal, however, accepted the other contention that the sum of
Rs.7,24,914 was not taxable in the assessment year 1956-57. It allowed
c
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 1anuary 9, 1973 the High Court answered the ques-
D
tion 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 ofRs.7,24,914 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
E
ago as E.D. Sassoon & Company Ltd. and others v. Commissioner of
Income-tax, Bombay City, (1954] 26 !TR 27 this Court considered the
question as to the point at which income could be said ta accrue or
~ arise to an assessee for the purpose of the Indian Income Tax Act. In
the majority judgment delivered by N.H. Bhagwati, J. it was explained
F
that the words "arising or accruing" describe a right to receive profits,
-f= 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 en-
G
-
hancing the amount of compensation payable to the assessee, the en-
tire amount was in dispute in the appeal filed by the State Govern-
ment. Indeed, the dispute was regarded by the Court as real and
substantial, bec.mse the assessee was not permitted to withdraw the
sum of Rs.7,36,691 deposited by the State Government on April 25,
1956 without furnishing a security bond for refunding the amount in H
394 SUPREME COURT REPORTS [1986] 3 S.C.R.
A 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 KedarT111th Jute Mfg. Co. Limited. v.
Commissioner of Income-Tax (Central), Calcutta., [1971] 82 ITR 363
B
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 j
was a mere quantification of that liability. The case compares rather
with Commissioner of Income-tax v. Jai Parkash Om Parkash Co. Ltd.
tJ
c
[1961] 41 ITR 718. 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 v. Commissioner of
-
Income-tax, [1963] 50 ITR 495. That case, however, proceeded on the
basis that excise duty was payable and its quantification alone re- ......
mained to be decided in the appeal. We may point out that the Andhra
Pradesh High Court, dealing with the taxability of compensation re-
D
ceived under the Land Acquisition Act in Khan Bahadur Ahmed Alla-
din & Sons. v. Commissioner of Income-tax, [1969] 74 !TR 651 held
that when land was taken over by the Government the right of the
E
owner to compensation was an inchoate right until the compensation
had been actually determined and had become payable. It was ob-
served 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 posses-
sion of the land was taken by the Government for the purpose of
assessment to tax in the year of assessment P. Jaganmohan Reddy, }
C.J., speaking for the Court, said:
F
"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 compensa-
tion. It is the amount actually awarded by the Collector or
G
-
subsequently decreed by the court which accrues to him,
and the respective amounts, whether awarded by the Col-
lector 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
H something tangible, something in the nature of a debt,
C.l.T. v. HINDUSTAN HOUSING {PATHAK, J.J 395
something in the nature of an obligation to pay an ascer- A
tained 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 B
4(l)(b)(i), could it be said that the right to enhanced com-
pensation, which has not yet been accepted by the proper
forum, namely, the court, has become payable on the date
when the original compensation became payable, for being
included in that year of assessment. The enhanced compen-
sation accrues only when it becomes payable, i.e., when
the court accepts the claim. As has been stated earlier, a c
mere claim by the assessee, after taking of possession of the
land, at a particular rate or for a certain sum is not compen-
sation. 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 D
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, not- E
withstanding 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 justifica-
tion for such a proposition. On a proper construction of the
F
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 harass-
ment. To hold otherwise would be contrary to the provi-
sions of law."
G
I
~The legal position was explained in further detail by the Gujarat High
Court in Topandas Kundanmal v. Commissioner of Income-tax,
Gujarat, [1978] 114 ITR237. 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 H
3% SUPREME COURT REPORTS [1986) 3 S~C.R.
A a reference under s. 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 Col-
lector, and adverting to the opinion of this Court in Harish Chandra
Raj Singh v. The Deputy Land Acquisition Officer & Anr., [1962] I
SCR 676 that the award made by the Collector was merely an offer or
B
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 praesen ti to pay an enhanced compensation till it
.
is judicially determined by the final court since the entire
c question, namely, whether the offer made by the Land
Acquisition Officer is inadequate and the claimant is en-
titled 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
D
Officer, by his award, if not accepted by a claimant would
not result automatically in a liability to pay additional com-
pensation 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
E
compensation as claimed by a party aggrieved. If there is
an existing liability, the mere fact that the payment is post-
poned to the future would not detract that liability from
1:,ecoming a debt but the liability to pay unliquidated dam-
ages or additional compensation which are inchoate or con-
tingent would not create a debt."
F
Khan Bahadur Ahmed Alladin & Sons (supra) and Topandas Kundan-
mal (supra) were relied on by the Gujarat High Court in Additional
Commissioner of Income-tax, Gujarat v. Newlehangir Vakil Mills Co.
Ltd., [1979] 117 l.T.R. 849 for reaffirming that it was on the final
determination of the amount of compensation that the right to such
G
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
H sufficient to point· out that there is a clear distinction between cases
C.I. T. v. HINDUSTAN HOUSING (PATHAK, J.] 397
such as the present one, where the right to receive payment is in A
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 B
appeal must be dismissed.
The appeal is dismissed. There is no order as to exists.
P.S.S. Appeal dismissed ..
'·
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