Law: Income Tax Act, 1922

Section: 12

Section 56 of the Income-tax, Act 1961 [Corresponding to section 12 of the Indian Income-tax Act, 1922], read with section 60 of the U.P. Zamindari Abolition & Land Reforms Act - Income from other sources - Chargeable as - Petitioner/assessee whose zamindari was abolished received compensation bonds payment of which was spread over a period of forty years carrying interest at 21/2 per cent per annum of principal amount - Petitioner protested against deduction of income-tax on amount representing interest which was included in instalment due to him stating that same was really not interest but part of compensation and as such capital receipt not assessable to income-tax - Whether payment of interest in instant case was not related to acquisition of property but to promise to pay or to temporary use of money by Government, and, therefore, amounts paid in the name of interest could not partake of nature of compensation of damages but were in nature of a return for use that Government made of money under law deemed to be belonging to intermediary - Held, yes - Whether, in above circumstances, interest on compensation bonds was taxable as income from other source - Held, yes FACTS The petitioner was the proprietor of the Ayodhya Raj before the abolition of zamindari. He held large properties in various districts. As a consequence of the abolition of zamindari his properties vested in the State Government and the petitioner received by way of compensation for the acquisition of his rights in those properties compensation bonds during the period 1954 to 1958. The bonds were of a self-liquidating nature and the payment under them was spread over a period of forty years. They carried interest at 21/2 per cent per annum on the principal amount, and were payable in forty equal installments. The scheme of payment was that the interest for the whole year plus a part of the principal was paid every year. As the interest went on decreasing due to the part payment of the principal every year, the amount of principal included in the instalment went on increasing. The petitioner, presented his bonds for realisation of installments before the Treasury Officer, who under the…

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