1998 PTD 2412 (PLP)

(ii) The assessee had never claimed the interest income as exempt either in the return of income nor ever revised it under section

57. As such to raise this issue at this forum for an amount which was not originally claimed exempt was self-contradictory. (iii) The assessee had neither was nor specific in his stand whether the amount was compensation or not. If it was a compensation; then for what and against what? If it was against the land then the payment for price of land had already been received. It was, thus, over and above the sale price and hence not a compensation. The amount received by the Society for delayed payments made by the L.D.A. in no way could be linked up with the price of land. (iv) The interest income attracted the provisions of section 30 and under it there was no exemption and as such no merit in the stand taken by the assessee.

24. The sale agreement/deed with the L.D.A. was made on 14-2-1980 and that determined the sale price and as such till this stage it was capital gain and had been determined to that extent accordingly. Subsequently, interest had accrued year-wise and declared accordingly by the Society. It had thus not been included in the sale price of land but it was in addition to it. Interest was on and from the amount/price (Rs.8,00,00,000) of land sold by the Society. There was, thus, a clear, specific and distinct distinction in the two types of dealings. The interest has been shown as an amount receivable in the books of accounts and in profit and loss account statements.

25. In support the Department relied upon:-- (i) [(1963) 50-ITR (Sh. N) III In the Madras High.Court Re: CIT, Madras v. T.N.K. Govindarajulu Chetty; "The Requisitioned Land (Continuance of Powers) Act (VII of 1947) gave power to the Government to acquire land which had been requisitioned under the Defence of India Rules and provided that compensation payable shall be such sum as would lie sufficient to purchase a similar piece of land at the market rate then prevailing, or twice the market value of the land at the time of requisition, whichever was lower. Though the Act did not provide for payment of interest on the sum awarded as compensation, a sum of Rs.1,28,716, being 6 percent on the amount of compensation from the date of acquisition, was awarded by the High Court: Held, that the sum of Rs.1,28,716 paid as interest on the amount of compensation payable under the Act was not a capital receipt but was income and was assessable to income-tax as such." (ii) 1965 PTD 61 Re: Dr. Shamlal Narula v. CIT: "Income or capital--Compulsory acquisition of land by Government-- Compensation awarded

Interest on compensation--?Whether income or capital

Held, income and liable to tax. " (iii) (1967) 66 ITR 465 (S.C. Ind.) Re: T.N.K. Govindaraju Chetty v. CIT, Madras: "Income of capital

Land acquisition

Statute not providing for payment of interest

Interest on compensation awarded by decree--?Whether income

Indian Income Tax Act, 1922." (iv) 1997 PTD 554 (S.C. Ind.) Re: Rama Bai and others v. CIT: "...Accrual of income

Assessee's land acquired by the Government and compensation awarded

Interest on enhanced compensation ordered by Court from the date of dispossession--?Income, held, accrued from year to year from the date of delivery of possession of the lands till the date of Court order

Income-tax Officer could not add said income in the assessment year in which the interest on enhanced compensation was ordered by the Court." (v) (1987) 165 ITR 231 Re: CIT, Madras v. T.N.K. Govindarajulu Chetty: "Interest on compensation for compulsory acquisition of property--?Paid over two years--Assessee maintaining accounts on mercantile system

Interest to be spread over respective years in which it could be deemed to have accrued. " (vi) 1997 PTD 2018 (S.C. Ind.) Re: Bikram Singh and others v. Land Acquisition Collector arid others: "Interest received on delayed payment of the compensation under the Land Acquisition Act, is a revenue receipt exigible to income?-tax. The amended definition of interest in section 2(28-A) of the Income Tax Act, 1961 was not intended to exclude the revenue receipt of interest on delayed payment of such compensation from taxability. Once it is construed to be a revenue receipt, necessarily, unless there is an exemption under the appropriate provisions of the Act, the revenue. receipt is exigible to tax. The amendment is only to bring within its tax net, income received from the transaction covered under the definition of interest. " (vii) (1970) 77 ITR 743 (S.C. Ind.) Re: Chandroji Rao v. CIT, M.P. "Income or capital

Statutory resumption of jagir

Compensation payable to jagirdar in ten annual installments

Interest on compensation

Whether income or capital." ....under subsection (2) interest was payable in its well known and well understood sense and it could never form a part of the compensation money." (viii) (1960) 2 Tax (Suppl-1) In the Decca H. C., Dacca Re: CIT, Bengal Mufassil v. Burdhan Kuti Wards' Estate: "Income-tax Act (XI of 1922)

Sections 2(1) and 4(3) (viii)

Wasteland leased out for housing refugees temporarily- Salami and annual rent received

Whether agricultural income

Held no--?Whether compensation, capital receipt or income

Held income. "

26. The learned D.R. did not agree with the comparison drawn by the assessee in the case cited at (1973) 87 ITR 666 (Kerala High Court) as there was distinguishable factors. In the cited case the land had been compulsorily acquired through a statutory provision while in the assessee's case it was a simple business arrangement where a sale deed had been executed with specific provisions of interest on delayed payment.

27. Objection was also taken to the plea that the income was casual in nature and not an adventure in the nature of trade because the moot point here was not the sale of land but the benefits which accrued/derived thereof from it. To link it up with the Tribunal decision where the sale of land had been declared exempt was not correct. In opposing the plea that it was causal in nature reliance was placed on: 1989 PTD (Trib.) 607 (Kar. H.C.) Re: CIT, Zone-B, Karachi v. M/s. Sandoz (Pak) Ltd.: "In order to claim exemption it should be proved by the assessee that the receipt does not arise from business or exercise of profession, vocation or occupation. It has not accrued as a result of business or professional activity. It should be casual and non?recurring. Such qualification can be attached if the receipt is uncertain, and accidental. It is not paid under any agreement or in discharge of contractual and legal obligation related to the business, profession or vocation not foreseen or anticipated. It is a gift or voluntary payment without any obligation or understanding and the assessee has no right to claim it. It is unexpected and unforeseen. It will be non-recurring if it is not bound to recur nor can there be any expectancy or right in its recurrence. In the present case the Tribunal has given a finding of fact that the receipt was voluntary payment by the donors without any string free from any legal or contractual obligation. Nor there is any material on record to suggest that the assessee can claim it as a matter of right or expect it whenever it suffers a loss."

28. The learned A.R. reserving his right of reply objected to the first objection of the L.A. that this issue stood settled by the CIT(A) vide his order dated 30-5-1986. The A.R. was of the view:-- (i) The order of the first appellate authority had set it aside to be made de novo; it was obvious that all the facts had to be looked into again and afresh which was duly reflected in the orders passed under section 62/132 for 1981-82 and 1982-83 though the ITAT in its order - I.T.A. No.567/LB of 1989-90 .... dated 30-6-1990 had observed that the aspect of the liability to tax of the interest income would be taken up when the assessee's appeal would be heard. (ii) The stand whether exemption was claimed in the original return of income or not is not barred by estoppel as it does not take away the assessee's legal right.

29. We have heard the submissions and arguments of the assessee and are of the view and opinion:-- (i) The additional grounds taken up do not emerge and arise out of the impugned order. To this A.R.'s reference/reliance is on first sentence last para. of page 2 of CIT(A) order dated 28-8-1989: "The third ground of appeal is regarding taxability of interest amount of Rs.42,79,837 received from L.D.A." -- We are not convinced with this far-fetched interpretation. These specific issues (as per amended grounds of appeals) do not arise out of the impugned orders. It does not even form the grounds of appeal before the CIT(A) and this issue as already observed earlier [the grounds of appeal taken up before the CIT(A)] have not been submitted with the memorandums of appeal. (ii) The reliance on ITAT decisions for 1979-80 and 1980-81 is also not fully correct. No finding has been given that the sale of land was casual income. (iii) The emphasis of the A.R. as mentioned above, was with reference to the case cited at (1973) 87 ITR 666 (Kerala High Court). In relying on this case the learned A.R. was of the opinion that this had drawn a distinction with the two cases

Dr. Shamlal Narula v CIT and T.N.K. Govindaraju Chetty v. CIT

which forms the basis of the action/treatment by the authorities below. It was, therefore, pleaded that based on this reported case the assessee's case fell on all four Squares and as such the interest should be declared exempt. Here we are not in agreement as facts are not similar:--? ??????????? (a) in the cited case the land had been compulsorily acquired under the Land Acquisition Act of 1894. In the case of Model Town Cooperative Society there is no compulsory acquisition as there is a sale agreement/deed dated 14-2-1980; a fact which is acknowledged, admitted and not denied.?? ??????????? (b) Again in the cited case compensation had been paid while in the appeals under consideration interest was paid on account of delayed payments of the sale price of land; (c) in the cited case the Kerala High Court (India) has drawn a distinction in the case of re: Dr. Shamlal Narula (supra) and re: T.N.K. Govindaraju Chetty (supra) by pointing out distinction between the actual possession of land by the Government and subsequent acquisition through award. It has thus held that for this intervening period when the land was actually assumed by the Government and subsequently award announced the compensation paid on acquisition was not chargeable to tax. Otherwise the Kerala High Court has not differed with the findings of these two Supreme Court decisions cited above. In other words it has upheld the Bindings as reflected in the case of Dr. Shamlal Narula and T.N.K Crovindaraju Chetty. The Kerala High Court observed this distinction that has been drawn by the Supreme Court in the decision of Dr. Shamlal Narula v. C. I. T.:-? "A distinction has been drawn in relation to possession assumed under the provisions of the Act and possession otherwise taken. In the former case sections 16 and 17 of the Land Acquisition Act stipulate that on possession being taken, the property will vest in the Government. In the absence of any such statutory provision even when possession is assumed by the Government, whether under some provision of law or by agreement or even sometimes unauthorisedly, the view is that there has been deprivation of property and the interest paid by the Government is merely compensation for deprivation of such property. The fact that compensation that is payable for such deprivation is calculated on a percentage of interest on that amount does not affect the question. It is still compensation for deprivation of property. This is the distinction that has been drawn by the Supreme Court in the decision in Dr. Shamlal Narula v. C.I.T. referred to by the Tribunal. That this distinction is real, cannot be disputed and in a later decision of the Supreme Court in T.N.K. Govindaraju Chetty v. C.I.T. the earlier decision is referred to and approved.

30. The assessee has thus not been able to effectively and ably distinguish its case from those of Dr. Shamlal Narula and T.N.K. Govindaraju Chetty.

31. From the facts unfolded before us it is not clear if the parcel of land in question was ever compulsorily acquired. From the record rather it appears that on issuance of notice under section 4(1), Punjab Acquisition of Land (Housing) Act, 1973 the assessee agitated the proposed acquisition before the High Court but finally agreed to sell through an agreement dated 6-2-1980 the parcel for a consideration of Rs.8,00,00,

000. Since compulsory acquisition of land never took place no question of payment of a sum as a consideration for deprivation could arise at all. In all the reported judgments relied upon by the assessee particularly the decision of the Kerala High Court it was forcible taking away of the property which was compensated by way of an additional sum from the date of taking over of possession till the time of award when the price of property was finally settled. On the other hand, the assessee sold its property for a price settled between the parties. The provision for payment of interest was neither a part of price settled, nor it had any nexus or relation to the proprietary interest of the assessee Society. The stipulation with regard to payment of interest was only for a consideration and on account of postponement of the price settled for the property. In other words the assessee was allowed compensation for having remained deprived of the price of property for a certain length of time. The basic principle underlying payment of an additional amount otherwise called interest always remains the same as it happened in the case of the assessee Society. It is the compensation which a person receives from having surrendered use and enjoyment of his money either by option or by compulsion for certain period of time. This is what the theory of interest is all about. It is correct that the payer of interest, L.D.A., had to include the interest in the total cost of the property when finally took over from the seller. However, mere fact that the purchaser, L.D.A. paid the price and the accrued interest thereon to acquire a property and in their hands it remained as capital investment yet the nature of amount paid as interest changed its form when received by the assessee as a seller. That a receipt is capital in nature or a revenue receipt will depend upon its character in the hands of the recipient and not in the hands of the payer. This principle was enunciated by the Supreme Court of India in (1971) 82 ITR 460; re: CIT, West Bengal II v. Kamal Beharilal Singha. Their lordships looked at the proposition in the following words: "It is now well-settled that in order to find out whether a receipt is a capital receipt or a revenue receipt one has to see what it is in the hands of the receiver and not its nature in the hands of the payer. In other words, the nature of the receipt is determined entirely by its character in the hands of the receiver and the source from which the payment is made has no bearing on the question. Where an amount is paid which, so far as the payer is concerned, is paid wholly or partly out of capital, and the receiver receives it as income on his part, the entire receipt is taxable in the hands of the receiver."

32. We would like to record that the parallels drawn by the assessee between compulsory acquisition of land, the taking over of the property and finally the award in regular acquisition proceedings cannot be compared with an ordinary sale and purchase of property between two agreeing parties.

33. Following the above principle the distinction between the payer (L.D.A.) and the receiver (Model Town Cooperative Society) is distinct, clear and obvious. For the payer the amount at which the property has been transacted is the capital cost (price of land) plus interest on delayed payment but in the hands of the receiver it is only sale price of land. Whatever was received over and above to it is compensation for not receiving the price of land on the signing of agreement; the receiver having been deprived of immediate payment has been compensated with interest. Therefore, the nature of receipts in the hands of the receiver is different from the nature in the hands of the payer. It, thus, becomes a receipt liable to tax.

34. We also rely upon 1960 PTD 808 Re: CIT/Excess Profits Tax Bombay v Shamsher Printing Press. "Indian Income-tax Act (XI of 1922)

Sections 3 and 4(3)(vii)--?Compulsory acquisition of building by Government

Compensation paid for compulsory vacation of premises, disturbance and loss of business

Whether capital or revenue receipt--(Held revenue receipt).

35. The assessee was carrying on business of purchasing and selling paper, stationery and other things and manufacturing books, exercise books diaries, etc. and for the purpose of its business it had a printing press. The premises in which the press was housed was requisitioned by the Government and the assessee had to shift its business to another place amongst other payments made by the Government as compensation a sum of Rs.57,435 was paid on account of compulsory vacation of the premises, disturbance and loss of business. On the question whether the sum of Rs.57,435 was a revenue receipt and liable to tax it was held that:-- "(i) on the facts that the sum of Rs.57,435 was not received by the assessee for any injury to its capital assets including goodwill; it was received as compensation for loss of profits and was a revenue receipt liable to tax, and (ii) it was trading receipt and was not exempt from tax under section 4(3)(vii) as a casual and non-recurrent receipt." ......"The question is whether this sum of Rs.57,435 was liable to income-tax and excess profits tax. It would be liable if it was a revenue receipt and not, if it was a capital receipt. It was, no doubt, paid in respect of some injury suffered by the respondent on account of the requisition. If that injury was to the respondent's capital assets then the receipt would be a capital receipt. If, on the other hand, the injury was to the respondent's trading then it would be revenue receipt. --The payment, thus, received was obviously not on account of any injury to the capital assets of the Society. In the light of the above we hold the fact that interest on delayed payments received from L.D.A. has been rightly charged to tax.

36. We will now dispose of the appeals and the other issues involved of the two parties, year-wise. 1980-81:

37. Against the decision of CIT(A), Zone-III, Lahore on 28-8-1989 and the issues raised pertain to an order passed under section 62/132/65 of the Income Tax Ordinance, 1979 where--??????????? (i) treatment of administrative expenses and allocation thereof stands determined and decided in the Tribunal's order for 1979-80 and 1980-81 - I.T.As. Nos 3592 and 3593/LB of 1983-84: Action of CIT(A) is confirmed; (ii) income from petrol pump: CIT(A) has not given specific finding. Assessing officer should do so now in light of ITAT order for 1979? 80 and 1980-81 mentioned above;????????? (iii) income from property in the form of rent from members and non-members; not omitted. It has been discussed by the CIT(A) in second last `sentence of first para. pertaining to assessment year 1980-81. Nothing erroneous brought on record. Action of CIT(A) confirmed; (iv) the claim of local authority has already been decided by the Tribunal against the appellant in its order for 1979-80 and 1980-81. Claim of a charitable institution was not allowed to be taken up to ITAT for 1979-80 and 1980-81 as it did not arise out of the impugned decisions. Position remains the same even now. It was also observed that this question required investigation. The CIT(A) has also adequately disposed of this issue in his order for 1983-84 where nothing has been brought on record to show that it is erroneous. No merit in issue. Dismissed; (v) the issue regarding the interest received from L.D.A. on delayed payment is dismissed. It has been rightly charged to tax in the light of our discussion above. 1981-82:

38. There are three appeals for this year, two are against the order of the CIT(A) dated.30-5-1986 where the plea is that the appellant is not a local authority and it enjoyed the status of a charitable institution. These issues are dismissed in the light of the Tribunal's order for 1979-80 and 1980-81 and our findings for 1980-81.

39. The third appeal for 1981-82 is against the order passed under section 62/132 by the CIT(A) dated 28-8-1989. The issue before us regard: (i) allocation and determination of administrative expenses; (ii) treatment as a local authority/charitable institution. (iii) income of property in the form of rents from members and non? members. -- These issues stand decided against the assessee as already discussed earlier and are, therefore, dismissed.

40. Issue of interest payment received from L.D.A. has already been decided against the assessee vide above discussion.

41. The plea regarding the Zakat deducted at source; we set aside the action and direct the assessing officer to look into it on the basis of Zakat certificate; as already directed by the first appellate authority in his decision for 1982-83. 1982-83

42. There are two appeals for 1982-83 against the CIT(A) order where the issues are of the treatment as a local authority and the status of a charitable institution. We need not to go further in the issues as these had already been decided against the assessee. We according dismiss it.

43. Issues in the third appeal against order of CIT(A), dated 28-8-1989 pertain to the determination/allocation of administrative expenses, rent from non-members and treatment as a local authority/charitable institution. There being no change in the facts of the case the issues stand decided against the assessee and treatment is confirmed. The other issue regards the interest received from L.D.A. also stands decided against it in the light of the above discussion.

44. All three appeals for 1982-83 dismissed. 1983-84

45. Against CIT(A)'s order of 28-8-1989 the issues again pertain to the allocation/determination of administrative expenses, income from property of rent of building from non-members, treatment as a local authority/charitable institution. These stand decided against the assessee and action is upheld. In the impugned order the CIT(A) has rejected the assessee's appeal for treatment as a charitable institution with cogent reasons. These findings could not be re-butted or dislodged. Treatment is confirmed.

46. On the issue of Zakat the assessing officer is directed to look into it on the basis of Zakat Certificates as already held by the CIT(A) in his earlier order.

47. The question of interest received on delayed payment from L.D.A. has been decided against the assessee. No further comments are necessary. 48. 'The assessee during the year under appeal has also raised the issue of income from bus service. The CIT(A) has deleted the addition of Rs.4,00,000 made by the assessing officer while the assessee's plea on this issue does not arise out of the impugned order as already discussed copy of ground of appeal taken by the CIT(A) have not been furnished. We uphold the action of the first appellate authority. Sewerage Charges (Rs 4,41,440):

49. The learned CIT(A) directed that 1/5th of the same was taxable as per history of case having been recovered/received from non-members. Nothing to the contrary has been brought before us to show that the impugned order is erroneous. Treatment is confirmed. Miscellaneous Receipts:

50. The treatment of the CIT(A) is confirmed for reasons entailed in the same being as per case history. Interest income:

51. The issue stands already decided against the assessee. We repeat our decision and uphold the action.

52. It was pleaded that the Department had charged to tax the interest income on cash basis which was against the decision and directions of the Tribunal vide I.T.As Nos.567 to 571 of 1989-90 (Assessment Years 1980-81 to 1984-85) dated 30-6-1990. The L.A. could not dislodge the treatment. We would, therefore, direct that interest received on delayed payments from L.D.A. be charged on accrual basis. 1984-85:

53. Appeal is against CIT(A)'s order of 29-8-1989. Issues pertaining to administrative expenses (allocation/determination), interest from L.D.A. on delayed payment, income from property, local authority/charitable institution are dismissed.

54. In respect of Zakat deducted at source we set aside the action and direct the assessing officer to look into it on the basis of Zakat certificate as already directed by the first appellate authority in his decision.

55. Objections have also been taken to the omission of any finding on the issues of taxable portion of income from petrol pump, toll tax and bus service. These issues, we find, do not arise out of the impugned order. Further, as already observed copies of ground of appeal taken up before the CIT(A) have not been filed . We refuse to admit/adjudicate on these issues for facts/reasons on record. Anyhow the additions made by the I.T.O. in Bus Service A/c and Petrol Pump have been deleted. Interest receivable:

56. In the year under consideration an amount of Rs.652,975 was added because the appellant, according to the I.T.O. had failed to declare the interest which was receivable from the banks (detailed at page 7 of the I.T.O.'s order). This treatment was confirmed by the CIT(A) after finding that said amount had not been clarified in its account but had been only adjusted against payments and debts. Thus finding that the interest from the bank had nowhere been shown in the declared income but only adjusted the CIT(A) upheld the action of the I.T.O. The learned A.R. maintained that this was contrary to the facts of the case as the appellant was maintaining complete accounts which had been properly audited and there was no justification in the addition. It was claimed that said amount had been declared/included in the total income.

57. The learned L.A. did not agree with the stand taken on behalf of the appellant. It was explained that the Society had nowhere filed audited statement of accounts nor produced any evidence or document before any forum or at any stage which would substantiate its stand. It was further explained that the interests from the banks had not been shown/declared in the P&L Account of the Society; which was the proper place. When it had not been declared as a taxable source of income the action of the I.T.O., according to the L.A. was justified.

58. The learned A.R. in support of his argument produced a statement giving particulars and details of interest receivable in an attempt to prove that the same had been declared. The evidence before us does not substantiate the assessee's stand. The findings and conclusion drawn by the Authorities below have nowhere been dislodged. No attempt before any forum has been made to show that the interests from the banks have been declared in the returns of income. The A.R. has not been able to dislodge the findings of the first appellate authority and substantiate its own arguments. We dismiss this issue and uphold the action of the Authorities below. 1985-86:

59. Appeal is against the decision of CIT(A) of 28-8-1989 where the issues of allocation of administrative expenses, property income in the form of rent received from non-members and treatment as a local authority/charitable institution already determined and decided for reasons and factors on record. Treatment is confirmed.

60. The next issue of interest received on delayed payments from L.D.A. has also been decided against the assessee as discussed above.

61. The issue of interest--Rs.604,411 receivable from bank and not for income-tax purpose has already been discussed in the decision for 1984-85. The addition is confirmed as the facts, circumstances and arguments of the two parties are the same as for 1984-85.

62. The credit for Zakat deducted at source is set aside with the same directions as for earlier years.

63. Objection has again been taken to the treatment in case of income from petrol pump, toll tax and bus service. Facts remain the same as for 1984-85

issues do not arise out of impugned order and grounds of appeal before CIT(A) not filed. The CIT(A) has also deleted additions made in petrol pump and bus service account. 1986-87:

64. The issues before us are the same as for 1985-86. Our decision flows on the same lines i.e., treatment in all cases confirmed except in case of Zakat which is set aside with already laid down directions. DEPARTMENTAL APPEALS: 1979-80: 65 The issue raised by she Revenue pertain to the CIT (A) Zone-II, Lahore order dated 22-4-1984 wherein the action in respect of Municipal charges and property tax has been challenged. Nothing has been brought on record to show that the order of the first appellate authority is erroneous. Action of learned CIT(A) is confirmed. Departmental appeal dismissed.

66. The second appeal pertains to the order passed under section 56 wherein the objection is taken to the cancelling of the said order by the CIT(A). Here we are not in agreement with Department as the impugned decision is self-explanatory and according to the statutory provisions. No argument is forthcoming which would dislodge the action of the CIT(A). Departmental appeal dismissed. 1980-81. 1981-82 and 1982-83:

67. The appeals for the three years under consideration pertain to the order passed under section 156 wherein objection is taken to the concealing of the said orders by the CIT(A). We dismiss the departmental appeals for the reasons mentioned above for 1979-80.

68. The sixteen appeals before us stand disposed of to the manner and extent indicated above. M.B.A./531/Trib????????????????????????????????????????????????????????????????????????????????? Order accordingly.