COMMISSIONER OF INCOME-TAX, WEST BENGAL-II, CALCUTTA vs. HINDUSTAN HOUSING & LAND DEVELOPMENT TRUST LIMITED

CIVIL APPEAL No. 1126/1974Supreme Court[1986] 3 S.C.R. 39029 July 1986Bench: 2 JudgesAuthor: R.S. PATHAK, SABYASACHI MUKHERJI COMMISSIONER OF INCOME8 pages
AI SummaryDismissed

What did the Supreme Court hold?

The Supreme Court, dismissing the appeal of the Revenue, held that the High Court was right in its view. The Court reasoned that income in the nature of compensation accrues or arises only upon the formal determination of the amount of compensation. Until then, there is no present liability in respect of additional compensation claimed. The Court distinguished between cases where the right to receive payment is in dispute, and cases where the right is admitted and only quantification is pending. In this case, the entire enhanced compensation amount was under dispute in the Government's appeal to the High Court. Therefore, the assessee did not have an absolute right to receive the amount at that stage, as the appeal could have resulted in the claim for enhanced compensation falling altogether. Consequently, the sum could not be said to have accrued or arisen during the relevant assessment year. The ratio is that income from enhanced compensation accrues only upon its final judicial determination, not on an interim award or withdrawal under security, especially when the right to receive it is itself under appeal.

What were the facts?

The assessee, Hindustan Housing & Land Development Trust Limited, dealt in land and maintained accounts on a mercantile system. Certain plots of land belonging to the assessee were requisitioned and subsequently acquired permanently by the Government of West Bengal. The Land Acquisition Officer awarded Rs. 24,97,249 as compensation. The assessee, dissatisfied, appealed to an Arbitrator who, by an award dated July 29, 1955, fixed the compensation at Rs. 30,10,873, enhancing it by Rs. 5,13,624. The State Government appealed this award to the High Court. During the pendency of this appeal, the Government deposited Rs. 7,36,691, which the assessee withdrew on May 9, 1956, furnishing security. For the assessment year 1956-57 (previous year ending March 31, 1956), the Income-Tax Officer brought to tax Rs. 7,24,914, considering it business income that accrued on the date of the award. The Appellate Assistant Commissioner confirmed this. The Income-Tax Appellate Tribunal accepted the assessee's contention that the amount did not accrue during the relevant previous year, though it held the receipt to be revenue in nature. The High Court answered the reference in favour of the assessee.

What were the issues?

1. Whether the extra amount of compensation amounting to Rs. 7,24,914 was income arising or accruing to the assessee during the previous year relevant to the assessment year 1956-57, under Section 4(1)(b)(i) of the Income-tax Act, 1922 / Section 5(1)(b) of the Income-tax Act, 1961. Assessee's Contentions: - The amount of compensation received was not a receipt of a revenue nature. - In any event, the amount did not accrue to the assessee as its income during the relevant previous year ended March 31, 1956. Revenue's Contentions: - The Income-Tax Officer treated the sum as liable to income-tax during that year on the basis that the income accrued to the assessee on the date of the award. - The Appellate Assistant Commissioner confirmed the assessment. - The Revenue appealed to the High Court against the Tribunal's decision.

Which sections of the Income-tax Act were involved?

Section 4(1)(b)(i), Section 5(1)(b)

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A COMMISSIONER OF INCOME-TAX, WEST BENGAL-II, CALCUTTA v. B HINDUSTAN HOUSING & LAND DEVELOPMENT c D E F G H TRUST LIMITED JULY 29, 1986 (R.S. PATHAK AND SABYASACHI MUKHARJI, JJ.} Income-tax Act, 1922 s. 4(1)(b)(i)/lncome-tax Act, 1961: s. 5( l)(b)-Acquisition of /and-Additional compensation received-lia- bility to tax-Income whether could be deemed to have accmed or arisen during the relevant assessment year.

During the pendency of the appeal by the State against an ar- hitrator's award made on July 29, 1955 enhancing the original amount of compensation the Government deposited the extra amount, which the assessee was permitted to withdraw on May 9, 1956 on furnishing security. During the assessment proceedings for the relevant assessment year the Income-tax Officer brought that amount to tax as the assessee's business income. The Appellate Tribunal, however, accepted the asses· see's contention that the amount could not be said to have accrued to the assessee as its income during the relevant previous year, and there- fore, was not liable to tax in the particular assessment year. The High Court answered the question referred in favour of the assessee and

The order continues below.

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