Kerala High Court
Smt. Annamma Alexander And Ors. (Legal ... vs Commissioner Of Income-Tax on 6 April, 1992
Equivalent citations: [1993]199ITR303(KER)
Author: K.S. Paripoornan
Bench: K.S. Paripoornan, K.T. Thomas
JUDGMENT K.S. Paripoornan, J.
1. This batch of twelve references are connected cases. Four of them are at the instance of an assessee to income-tax, and the other eight are at the instance of the Revenue. In the references at the instance of the assessee, the Revenue is the respondent. The same assessee is the respondent in the references made at the instance of the Revenue. The assessee at whose instance the references were made originally is no more. His legal heirs were impleaded. They have been served. But there is no appearance on their behalf at the time when the references were taken up for hearing. All the references relate to the assessment years 1967-68, 1968-69, 196970 and 1971-72.
2. We heard counsel for the Revenue, Mr. P. K. R. Menon. The original assessee is one K. C. Alexander who was in possession of landed properties measuring 131.23 acres. Mr. Alexander filed a suit for eviction of the trespassers on the property. He claimed mesne profits and also damages for the waste committed by the trespassers in cutting down some trees. The trial court, as well as the High Court, awarded mesne profits. Compensation for waste with interest was also allowed. Interest was allowed on mesne profits as well. The assessing authority brought to tax the interest on mesne profits and also the interest on damages for waste. In appeals, the first appellate authority held that the interest on mesne profits is not exigible to income-tax. However, he took the view that the interest on damages for waste is taxable. The Revenue took up the matter in second appeal before the Income-tax Appellate Tribunal (in short, "the Tribunal"). The assessee filed cross-objections against the finding that interest on damages for waste is taxable. The Tribunal held that interest on mesne profits is not taxable. However, the Tribunal took the view that interest on damages for waste is taxable. But, in the view of the Tribunal, for taxing the interest on damages for waste, the Revenue should examine whether the interest was realisable or recoverable and whether it could be brought to tax only on the basis of actual realisation. The matter was remitted to the Income-tax Officer for a fresh determination. The common order passed by the Tribunal is dated November 30, 1983. It is thereafter that four questions of law--one at the instance of the assessee and the other three at the instance of the Revenue--have been referred for the decision of this court in the twelve referred cases.
3. The questions are as follows :
"Common question at the instance of the assessee :
Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that interest awarded by the civil court on damages decreed for waste committed on property is taxable ?
Common questions at the instance of the Department :
1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that interest awarded by the civil court on mesne profits decreed is not taxable?
2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that interest on damages for waste decreed by the civil court can be brought to tax only after examining whether it is realisable ?
3. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that interest on damages for waste decreed in favour of the assessee by the civil court can be brought to tax only on the basis of realisation?"
4. The sole question, referred at the instance of the assessee, and questions Nos. 2 and 3, referred at the instance of the Revenue, go together. They relate to the question as to whether interest on damages for waste, decreed in favour of the assessee, could be brought to tax and if so, whether it should be examined that it is realisable and then could be brought to tax only on the basis of realisation. The Tribunal noticed that this point was taken up for the first time before it, but none the less permitted the point to be taken in the interest of justice. The Tribunal took the view that the interest referable to the compensation for waste is chargeable to tax. Even so, it was held that it should be examined whether it is capable of realisation. The Tribunal stated that interest on the decree accrued, to the assessee for the first time and so it is open to him to claim that he may be assessed on the basis of actual realisation or receipt by undertaking to maintain accounts. Since the assessee agreed that he has no objection to be assessed on cash basis, it was permitted to be done. The Tribunal also held that the interest amount referable to mesne profits is not taxable.
5. On a fair reading of the order of the Tribunal, we hold that the Tribunal was justified in holding that the interest amount referable to mesne profits cannot be brought to tax. This conclusion of the Tribunal is in accord with the Bench decision of this court in CIT v. Mrs. Annamma Alexander [1991] 191 ITR 551. In this perspective, we answer the first question, referred to this court at the instance of the Revenue, in the affirmative, against the Revenue and in favour of the assessee.
6. We are concerned with three more questions--one at the instance of the assessee and two at the instance of the Revenue--all of them centring round the exigibility of tax on interest for damages awarded by the civil court in its decree, for waste committed on the property. The "Tribunal, rightly in our view, held that interest on compensation for waste is different from mesne profits. It is exigible to tax. The sole question referred at the instance of the assessee should, therefore, be answered in the affirmative, against the assessee and in favour of the Revenue. We do so. But the larger question that arises for consideration is : can the interest awarded by the court on damages decreed for waste be brought to tax only if it is realisable or recoverable and only when it is realised ? The Tribunal took the view that a person could be assessed only on real income. It is so. But the question here is : when is the interest on the decree to be assessed ? It is true that it is under the decree that the assessee obtained the right to recover interest. The assessment order does not show that the assessee was maintaining any accounts. As against the entry "method of accounting", nothing is mentioned. There is no material to show whether the assessee was maintaining accounts and whether the method of accounting was "mercantile" or "cash basis". If the accounts were kept on "cash basis", it may be open to contend that the amount can be assessed only on the date of realisation or receipt. In the absence of accounts, one has to find out whether and when the right to interest accrued or arose. The decision of the Supreme Court in Rm. AR. AR. Rm. Ar. AR. Ramanathan Chettiar v. CIT [1967] 63 ITR 458 at page 464, goes to show that interest granted under the decree of the court from the date of the institution of the proceedings in the court is calculated on the footing that it accrued de die in diem, and hence it has the essential quality of recurrence. In view of the fact that there is no material to show that the assessee is maintaining any account at all, it should be held that the interest accrued from year to year and it should be taxed on that basis--year to year basis--and not when actually recovered or received. We, therefore, answer questions Nos. 2 and 3 referred at the instance of the Revenue in the negative, against the assessee and in favour of the Revenue.
7. The references are disposed of as above.
8. A copy of this judgment under the seal of this court and the sig nature of the Registrar will be forwarded to the Income-tax Appellate Tribunal, Cochin Bench.