T. N. K. GOVINDARAJULU CHETTY vs. COMMISSIONER OF INCOME-TAX, MADRAS

CIVIL APPEAL No. 1425/1966Supreme Court[1967] 3 S.C.R. 65317 April 1967Bench: 3 JudgesAuthor: J.C. SHAH, S.M. SIKRI, V. RAMASWAMI N. K. GOVINDARAJULU CHETTY8 pages
AI SummaryDismissed

What were the facts?

The assessees' property was requisitioned and later acquired by the State. The assessees demanded compensation and interest, and the High Court enhanced the compensation and awarded interest at 6% on the compensation amount from the date of acquisition notification. The assessees received a total of Rs. 6,28,716/- during the previous years relevant to assessment years 1955-56 and 1956-57. The Income-tax Officer apportioned Rs. 1,28,716/- as interest and assessed it to income-tax. The Appellate Assistant Commissioner held the amounts were revenue receipts. The Income-tax Appellate Tribunal, however, accepted the assessees' contention that the interest was a capital receipt and not taxable. The Commissioner appealed to the High Court, which answered the question of taxability in the affirmative. The assessees appealed to the Supreme Court.

What did the Supreme Court hold?

The Supreme Court held that the interest received by the assessees was taxable. The Court reasoned that if the source of the obligation to pay interest arises because the claimant is kept out of their money, the interest received is chargeable to tax as income. This principle applies even if interest is payable under an agreement and awarded by a court or arbitrator. The Court distinguished the present case from Commissioners of Inland Revenue v. Ballantine and Simpson (H.M. Inspector of Taxes) v. Executors of Bonner Maurice, where the source of the right to interest did not arise from statute or agreement. In this case, the right to interest arose by virtue of Sections 28 and 34 of the Land Acquisition Act, 1894, and the arbitrator and the High Court merely gave effect to that right. The Court found that Section 19(1)(g) of the Defence of India Act did not exclude the application of substantive law relating to the payment of interest. The appeals were dismissed.

What were the issues?

1. Whether the sum of Rs. 1,28,716/- is assessable as income under any of the provisions of the Income-tax Act, 1922? (Question of law turning on the nature of interest received on compensation for acquired property). 2. If the answer to the first question is in the affirmative, the assessment years in which the amount falls to be assessed by suitable apportionment. (Question of law turning on the timing of assessment). Assessee's contentions: The sum of Rs. 1,28,716/- received as interest, being part of the compensation, was not assessable to tax as it was a capital receipt. Revenue's contentions: The Income-tax Officer was justified in assessing the amounts in the years in which they were received. The High Court held the interest was taxable income.

Which sections of the Income-tax Act were involved?

Section 19,Section 28,Section 34

AI-generated summary — verify with the full judgment below

T. N. K. GOVINDARAJULU CHETTY v. COMMISSIONER OF INCOME· TAX, MADRAS April 17, 1967 B [J. C. SHAH, S. M. SIKRI AND V. R.AMAsWAMI, JJ.) c D E F G H Income-tax Act, 1922(11 of 1922)-Interest on compensatwn for property acquired-If taxable.

The assessees were offered compensation and interest on the ainount of compensation in respect of their property which was first requisitioned under r, 75A of the Defence of India Act, 1939 and later acquired by the State under. s. S of the Requisitioned Land (Continuance of Powers)

Act. The Requisition Act provided that compensation payable shall be determined in accordance with the provisions of s. 19 of the Defence of India Act and the rules thereunder, but neither s. 19 nor the Rules. provided that interes1 shall be paid on the amount of compensation. The assessee demanded· more compensation and interest, and, the High Court in appeal enhanced the compensation and awarded interest on it. The Revenue assessed to income-tax the amount of interest, which was up- held, in reference, by the High Court. In appeal, this Court. HELD : Interest received by tho asscssee was taxable.

If the source of the obligation imposed by th

The order continues below.

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