Calcutta High Court
Narayan Prasad Kundu vs Commissioner Of Income-Tax on 17 April, 1990
Equivalent citations: [1993]204ITR740(CAL)
Author: Suhas Chandra Sen
Bench: Suhas Chandra Sen
JUDGMENT Bhagabati Prasad Banerjee, J.
1. The following three questions of law of which two questions at the instance of the assessee and one question at the instance of the Revenue, have been referred to this court by the Tribunal under Section 256(1) of the Income-tax Act, 1961 :
Questions referred at the instance of the assessee :
"(1) Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that the sum of Rs. 60,000 received by the assessee as compensation for loss of earnings from brick manufacturing business as mentioned in the award made by the Additional District Judge, Hooghly, represented a revenue receipt in the hands of the assessee for the assessment year 1967-68 ?
(2) Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that the sum of Rs. 1,250 received by the assessee as compensation for readymade earth lying on the acquired portion as mentioned in the award of the Additional District Judge, Hooghly, represented stock-in-trade of the assessee and was as such a revenue receipt assessable in the assessment year 1967-68?"
Question referred at the instance of the Revenue :
"(1) Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that out of the entire amount of Rs. 48,526 representing interest on the enhanced amount of compensation received by the assessee, only that much thereof which accrued in the previous year relevant to the assessment year 1967-68 was taxable ?"
2. The assessment year involved in this reference is the assessment year 1967-68, for which the relevant period of account is the financial year ending on October 31, 1966.
3. The facts found by the Tribunal as narrated in the statement of case are as under :
The status of the assessee is an individual. Certain plots of land belonging to the assessee and utilised by him for brick manufacturing business were acquired by the West Bengal Government under the provisions of the Land Acquisition Act. The Government took possession of the land on August 25, 1956. The Land Acquisition Collector determined the compensation at Rs. 1,533, which was received by the assessee on October 20, 1956. Dissatisfied with the award given by the Land Acquisition Collector, the assessee sought reference to the District Judge, Hooghly, and the Additional District Judge, Hooghly, by award dated June 26, 1966, determined the compensation under different heads as below :
L. A. Case No. 117 :
Rs. P.
1.
Compensation for shifting cooli quarters
60.73
2.
Compensation for cost of land measuring .375 acres at Rs. 14,700
5,512.50
3.
Compensation for 1,500 cft. readymade earth-lying on the acquired portion 1,250.00 6,823.23 L. A. Case No. 119 :
Rs. P.
1.
Compensation for loss of earnings from brick manufacturing business
60,000.00
2.
Loss for shifting and rebuilding of cooli quarters
800.00
3.
Price of .86 acres of land valued at Rs. 14,700 per acre
12,642.00
73,442.00
Total
80,265.23
4. The Additional District Judge further ordered payment of interest at six per cent. on the amount awarded by him and the amount already received by the assessee as per the award of the Land Acquisition Collector from the date of compensation till the date of payment. The amount of interest so calculated came to Rs. 48,626. The assessee thus received, in the accounting year relevant to the assessment year 1967-68, Rs. 1,27,258, that is to say, Rs. 80,265 on account of compensation plus Rs. 48,256 on account of interest less Rs. 1,533 earlier received on October 20, 1956.
5. The Income-tax Officer, while making the assessment, held that the total amount of interest of Rs. 48,526 was the accumulation for more than ten years on the compensation money and that only one year's interest thereon was includible in the current income of the assessee. He thus calculated the interest for one year at six per cent. on Rs. 78,732 (Rs. 80,265 -- Rs. 1,533), which came to Rs. 4,724. He, therefore, included Rs. 4,724 only in the income of the assessee.
6. The Commissioner of Income-tax, on examination of the assessment record, considered that the assessment order was erroneous in so far as it was prejudicial to the interests of the Revenue. The following points were taken notice of by him :
(i) According to the Commissioner of Income-tax, the Income-tax Officer should have taken the entire amount of interest in the sum of Rs. 48,525 as income of the assessee in that year. He followed the ratio of the judgment of the Madhya Pradesh High Court in the case of CIT v. H.H. Maharaja Yashwant Rao Pawar [1981] 127 ITR 650, wherein it has been held that the right to receive the interest on the enhanced amount of compensation accrues or arises only when the court while enhancing the amount of compensation also directs payment of interest thereon and such right does not accrue or arise when possession of the land is taken from the person whose land is acquired. The Commissioner of Income-tax, therefore, directed the entire amount of interest of Rs. 48,526 to be included in the total income for the assessment year 1967-68.
(ii) The Income-tax Officer, while framing the assessment, did not consider Rs. 60,000 awarded by the Additional District Judge in L. A. Case No. 119, as compensation for loss of earnings from brick manufacturing business, for being assessed as revenue receipt. The case of the assessee in the acquisition proceedings before the Additional District Judge was that, due to acquisition of the silt pits of the brick fields, he was compelled to use the hard land by way of cutting solid earth to the maximum depth lying within his brick field for brick manufacturing business purposes for several years since 1957, till up to 1965 and he could not run his brick manufacturing business any longer for want of silt pits and also hard and solid lands within his brick fields. Thus, according to him, he had to close down the business of brick manufacturing after 1965 for want of silt pits. This case of the assessee was accepted by the Additional District Judge and accordingly compensation of Rs. 60,000 was awarded for loss of earnings from brick manufacturing business. The Commissioner of Income-tax, on a consideration of these facts, as discussed in paragraph 6 of his order, reached the conclusion that such compensation for loss of income should be treated as a revenue receipt. He, accordingly, directed the Income-tax Officer to add Rs. 60,000 to the income of the assessee.
(iii) Further, the Commissioner of Income-tax found that the Income-tax Officer did not consider the receipt of Rs. 1,250 as compensation in L. A. Case No. 117 by the assessee on account of loss of readymade earth lying on the acquired portion. According to the Commissioner of Income-tax, readymade earth lying on the acquired portion was a sort of stock-in-trade of the brick manufacturing business and compensation therefore was liable to be assessed as a revenue receipt. He, accordingly, directed the Income-tax Officer to add Rs. 1,250 to the income of the assessee.
(iv) The assessee went in appeal before the Tribunal against the order of the Commissioner of Income-tax on all the points. The Tribunal held that the Income-tax Officer had not done anything wrong in assessing the proportionate interest accrued during the previous year relevant to the assessment year. The order of the Commissioner of Income-tax directing the entire amount of interest of Rs. 48,526 to be included in the total income of the assessee was, therefore, reversed. However, the Tribunal maintained the order of the Commissioner of Income-tax on the other two points, namely, to treat Rs. 60,000 and Rs. 1,250 as income of the assessee.
7. The character and method of payment which was given to the assessee was not decisive of the character of payment of compensation. To ascertain the position, we have to look into the order of the Land Acquisition Collector. In the present land acquisition cases, the Land Acquisition Collector has observed that, after the acquisition was made in 1956-57, the assessee had to run his brick manufacturing business by way of cutting solid and hard earth within the assessee's brick field area till 1965 and after 1965, the assessee had to close down his brick manufacturing business due to acquisition of four bighas' of lands of the assessee. It is also in evidence, which was not disputed, that there was no place for making silt pits within the lands of the assessee. From the records of the land acquisition case, the Income-tax Officer found that the assessee earned an income on an average of Rs. 5,000 per annum. The assessee claimed twenty times the said net income of Rs. 5,000 per annum as loss of his earnings due to forced Closure of his brick manufacturing business on account of acquisition of the brick field in question. The Land Acquisition Collector held that the assessee was entitled to claim an amount of Rs. 1,00,000 as total loss of his earnings from his said brick manufacturing business which had to be closed down on account of acquisition of a portion of his brick field subject, of course, to deduction from the said sum of the market price of the land of his brick field which was not acquired at the rate ascertained at Rs. 14,700 per acre approximately. After deducting this sum of Rs. 40,000 from the assessee's claim of Rs. 1 lakh, a sum of Rs. 60,000 was arrived at as the assessee's total loss of earnings from his brick manufacturing business which accrued due to acquisition of a portion of land of his brick fields in question.
8. Therefore, the compensation that was awarded by the Land Acquisition Collector to the assessee was not in lieu of the loss of income for a particular year, but the Land Acquisition Collector had adopted a method of valuation for the purpose of computing the total loss of earnings because of forced closure of the brick field. In other words, it is a case where the assessee has been deprived of his earnings. The Land Acquisition Collector has also observed that if the assessee had closed down his brick manufacturing business on account of acquisition of land within the brick fields where the silt pit was situated, then the assessee was certainly entitled to claim loss of his income.
9. In this particular case, looking at the character of the payment that was made by the Land Acquisition Collector, it appears that the payment was not made in lieu of the loss of income of a particular year or years. Admittedly, in the instant case, the assessee could not carry on business due to acquisition of land and for that purpose, the Land Acquisition Collector had adopted a particular method of valuation for arriving at the figure of loss of earnings. In the instant case, it has been rightly pointed out by the learned advocate appearing on behalf of the assessee that the assessee had lost his profit-making apparatus and that it cannot be treated to be a revenue income within the meaning of the Income-tax Act.
10. Reference was made to the decision of the Supreme Court in the case of Senairam Doongarmall v. CIT [1961] 42 ITR 392. In that case, the assessee, which owned a tea estate consisting of tea gardens, factories and other buildings, carried on the business of manufacturing tea. The factory and other buildings on the estate were requisitioned by the military authorities for defence purposes, where the assessee continued to be in possession of the tea gardens and tended them to preserve the plants, but the manufacture of the tea was completely stopped. The assessee was paid compensation for the years 1944 and 1945 under the Defence of India Rules calculated on the basis of the out-turn of tea that could have been manufactured by the assessee during that period. The question that arose in that case was whether the amount of compensation was a revenue receipt. In that case, the Supreme Court held that the first consideration before holding a receipt to be profits or gains of business within the meaning of Section 10 of the Income-tax Act was to see if there was a business at all of which it could be said to be income. It was further held that the primary condition for the application of Section 10 was that tax was payable by an assessee under the head "Profits and gains of a business" in respect of a business carried on by him. To say that a business was being carried on meant no more than that profit was to be earned by a process of production. The business of a tea-grower and manufacturer was not merely to grow tea plants but to collect tea leaves and render them fit for sale. The tending of the tea gardens to preserve the plants was not a continuation of the business of the assessee, which had come to an end for the time being. It was held that the measure and method of its payment was not decisive of the character of payment of compensation. The compensation that was paid to the assessee did not partake of the character of profits because business not having been done by the assessee, no question of profits taxable under Section 10 arose and the amounts of compensation that were received by the assessee were not revenue receipts and did not comprise any element of income. In that case, the Supreme Court quoted with approval the following passage from the decision in the case of Ensign Shipping Co. Ltd. v. IRC [1928] 12 TC 1169, 1175 (CA) (see page 400 of 42 ITR) :
"Now, it is quite clear that if a source of income is destroyed by the exercise of the paramount right .... and compensation is paid for it, that that is not income, although the amount of the compensation is the same sum as the total of the income that has been lost."
11. In the instant case, the source of income of the assessee was destroyed by exercise of the powers of acquisition of the land and compensation was paid for it. That is not an income although the amount of compensation may be calculated on the basis of a particular formula or basis to arrive at the figure of loss or profits per year.
12. In view of the decision of the Supreme Court, it is quite clear that the compensation that was paid to the assessee because of the loss of earnings cannot be regarded as a revenue receipt.
13. Accordingly, the first question referred at the instance of the assessee has to be answered in the negative and in favour of the assessee.
14. So far as the second question is concerned, referred at the instance of the assessee, Mr. Bhattacharjee, the learned advocate appearing for the assessee, has fairly stated that the Tribunal has taken a correct view of the matter on the basis of the materials before him. Accordingly, the second question has to be answered in the affirmative and in favour of the Revenue.
15. The question that has been referred at the instance of the Revenue is now concluded by the decision of the Supreme Court in the case of Rama Bai v. CIT . In view of the decision, this question has to be answered in the negative (sic) and in favour of the assessee.
16. Accordingly, the questions are answered in the following manner:
Question No. 1, referred at the instance of the assessee, is answered in the negative and in favour of the assessee.
Question No. 2, referred at the isntance of the assessee, is answered in the affirmative and in favour of the Revenue.
Question No. 1, referred at theinstance of the Department, is answered in the negative (sic) and in favour of the assessee.
17. There will be no order as to costs.
Suhas Chandra Sen, J.
18. I agree.