Law: Income Tax Act, 1961

Section: 4

Section 4 of the Income-tax Act, 1961 [Corresponding to section 3 of the Indian Income-tax Act, 1922] - Income - Chargeable as - An area of land belonging to assessee was acquired by State Government - Compensation awarded was enhanced first by District Court and then by High Court, and on enhanced compensation interest was awarded - Whether interest so received by assessee in terms of order of High Court in connection with land acquisition proceedings was not taxable under 1922 Act - Held, yes FACTS An area of land belonging to the assessee was acquired by the State under the provisions of the Travancore Land Acquisition Act, 1089. The compensation awarded was enhanced first by the District Court and then by the High Court, and on the enhanced amount, interest was directed at 6 per cent per annum from the date on which the assessee was dispossessed by the State. The question arose whether the interest of Rs. 16,477 was assessable to tax under the 1922 Act. On reference : HELD The Distinction between income and a capital sum estimated in terms of interest is a distinction of substance and not of mere name or form. A payment styled as interest or compensation may nonetheless be a capital sum estimated in terms of interest and thus outside the field of taxation. Allahabad High Court in Behari Lal Bhargava v. CIT [1941] 9 ITR 9; AIR 1941 All. 135, held that interest awarded under section 28 of the Land Acquisition Act is in the nature of compensation for the loss of the late owner's right to retain possession of the property acquired. In other words, it is damages assessed in terms of interest for loss of possession of property up to the date of receipt of its consideration. Accordingly the sum of Rs. 16,477 received by the assessee as interest in terms of the order of the High Court in connection with the land acquisition proceedings was not taxable under 1922 Act. Note: The case was decided in favour of the assessee. CASES REFERRED TO CIT v. Kameshwar Singh (No. 2) [1953] 23 ITR 212 (Pat.), CIT v. Narayanan Chettiar [1943] 11 ITR 470 (Mad.), Inglewood Pulp and Paper Co. Ltd. v. New Brunswick Electric Power Commission AIR 1928 PC 287, Revenue Divisional Officer…

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