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

Citation: [1967] 3 S.C.R. 653 · Decided: 17-04-1967 · Supreme Court of India · Bench: J.C. SHAH · Disposal: Dismissed

Judgment (excerpt)

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 the statute to pay interest 
arises became the claimant is kept out of his money, the interest received 
is chargeable to tax as income. The same principle would apply if in-
tere~t is payable under. the terms of an agreemenr and the court or the 
arbitrator gives efiect to the terms of the agreement-express or implied-
and awards interest which has been agreed to be paid. Clauses (a) to. 
(fl of s. 19(1) of the Defence of India Act are a Code relatin~ to a 
arbitration in determinin(! the compensation payable to a pel'SOll deprived 
of his property. Provisions relating 
to payment of interest, are not, 
however, part of the law relating tc> arbitration and there is nothing in 
cl. (g) which excludes the application of the suootantive Jaw relating to· 
payment of interest when the arbitration is determining the amount of 
compensatron. 
In this case, the right to interest arose by virtue of the 
provisions of Ss. 28 and 34 of the Land Acquisition Act, 1894, and the 
arbitrator and the High Court merely gave effect to that right in award-
ing interest on the account of compensation. (658 E-F; 660 D-Hl 
Dr. Shamlal Narula v. Commisslon•r of Income-tax, Punjab, Jamnu1. 
and Kashmir, Himachal Pradesh and Patiala, 53 I.T.R. 151, and Satlnd•r 
Singh & Ors. v. Amrao Singh & Ors" JI961] 3 S.C.R, 676, followed. 
The Cominissioners of Inland Rev•nu• v. B•llantine, 8 T.C. 595, and 
Simpson (H. M. Inspector of Taxes) v. Executors of Bonner Maaric• as 
Executor of Edward Kay, 14 T.C. 580, distinguished, 
Crv!L APPELLATE JURISDICTION: Civil Appeals Nos. 1425 
and 1426 of 1966. 
Appeals by special leave from the judgment and order dated 
October 29, 1962 of the Madras High Court in Tax Case No. 195 
of 1960. 
S. Swaminathan and R. Gopalokr/shnan, for the appellant (ino 
both the appeals). 
654 
SUPll.IMll COU1T UPOJlTS 
(1967) 3 s.c.R. 
T. V. Yiswanatha Iyer, T. A. Ramachandran, S. P. Nayyar 
for R. N. Sachthey, for the respondent (in both the appeals). 
The J.udgment of the Court was delivered by 
Shah, J, The Income-tax Appellate Tribunal submitted two 
, questions for the opinion of the High Court of Madras : 
"1. Whether the sum of Rs. 1,28,716/- is assessable 
as income under any of the provisions of the. Act 1 
2. If the answer is in the affirmative, the assessment 
years in which' the amount falls to be assessed by suitable 
apportionment." 
The first question was answered by the High Court in the affirma· 
tive. 
The High Court declined to answer the second question 
because it did l;IOt, in their view, arise out of the order of the 
Tribunal. The assessees have appealed to this Court. 
, .By order dated January 30, 1944, the Cgllector of Madras, 
exercising power under r. 75A of the Defence of India Rules, 1939, 
requisitioned a property known as "Lutterals Gardens" belonging 
to tr; assessees. The property continued to remain under requisi· 
tiojlill it vested in the Government of Madras absolutely in conse-
qitence of an order made on May 24, 1949 by the Collector of 
.Madras under s. 5 of the Requisitioned Land (Continuance of 
Powers) Act, 194 7, declaring the intention of the Government of 
Madras to acquire that property. The assessees declined the offer 
made by the Collector to pay Rs. 2,40,000/- as compensation for 
acquisition of the prop

Excerpt shown. Read the full judgment & AI analysis in Lexace.