CHANDROJI RAO vs. COMMISSIONER OF INCOME-TAX, M.P. NAGPUR

CIVIL APPEAL No. 505/1967Supreme Court[1971] 1 S.C.R. 42228 April 1970Bench: 3 JudgesAuthor: J.C. SHAH, K.S. HEGDE, A.N. GROVER4 pages
AI SummaryDismissed

What did the Supreme Court hold?

The Supreme Court held that the interest received on the compensation for the resumption of the jagir was a revenue receipt and not a capital receipt. The Court reasoned that Section 8(2) of the Jagir Act clearly distinguished between compensation payable under Section 8(1) and interest payable under Section 8(2). The interest was provided because the compensation was to be paid in instalments over ten years, compensating the Jagirdar for being kept out of the compensation amount for that period. The legislature, aware of the distinction between compensation and interest, used clear language. The marginal heading of Section 8, 'Duty to pay compensation', could not control the clear and unambiguous language of the section itself. The Court relied on the principle that statutory interest paid on delayed compensation is a revenue receipt, as held in Dr. Sham Lal Narula v. Commissioner of Income-tax. Therefore, the interest was payable in its well-understood sense and could not form part of the compensation money.

What were the facts?

The appellant, a Jagirdar, challenged the taxability of interest received on compensation for the abolition of his jagir under the Madhya Bharat Abolition of Jagir Act, 1951. The Act stipulated that compensation was payable in annual instalments over 10 years, and simple interest at 2.5% per annum was payable from the date of resumption until payment. The Income-tax Officer and Appellate Assistant Commissioner treated the interest as revenue receipt. The Income-tax Appellate Tribunal, however, held it to be a capital receipt. The High Court, on reference, ruled against the assessee. The matter reached the Supreme Court via special leave.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the interest received on the amount of compensation paid for the resumption of the assessee's jagir was a capital receipt? (Question of mixed law and fact, turning on Section 8 of the Madhya Bharat Abolition of Jagir Act, 1951). Assessee's contentions: - The interest payable formed part of the compensation money. - Sections 13, 14, and 15 of the Act did not distinguish between the principal compensation and interest, referring to both as 'compensation payable'. - Section 15(4) stated that payment of compensation money, including interest, operated as a full discharge of the Government's liability. - The marginal heading of Section 8, 'Duty to pay compensation', indicated that interest was an integral part of the compensation. Revenue's contentions: - Not recorded in the judgment.

Which sections of the Income-tax Act were involved?

Section 8,Section 15

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422 .CHANDROJI RAO v COMMISSIONER OF INCOME-TAX, M.P. NAGPUR April 28, 1970 [J, C. SHAH, K. S. HEGDE AND A. N. GROVER, JJ.] . Indian Income-tax Act, 1922-Capital and Rei·enue Compensation payable under s. 8 of Madhya Bharat Abolition of Jagir A<·t, 19'51- Payabte In 10 years In annual instalments--lnterest on compensation lf'hether taxable as revenue receipt-Marginal notes, value of, The appellant was a Jagirdar of the erstwhile Gwalior State which marged in the State of Madhya Bharat (now Madhya Pradesh).

The Madhya Bharat Abolition of Jagir Act 1951 abolished Jagirs with effect from December 4, 1952. Under s. 8 <if the Act compensation was payable in accordance with the principles laid down in Schedule I of the Act.

Under sub-section (2) of that section the compensation payable became due as from the date of the resumption of the Jagir. Simple interest was payable at 2+ per cent per· mnum from that date up to the date of -par· ment of the amount of compensation which was payable w1thm a period of 10 years in annual instalments.

The appellant claimed before the Income-tax Officer that the amount of interest formed part of the compensation and constitu

The order continues below.

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