Fazilka Electric Supply Co. v. Commr. Of Income-Tax

S. Ranganathan, J.:— This income-tax reference raises a basic question relating to the concept of accrual of income in the context of the interest payable on the amount of compensation determined in acquisition cases. It arises out of the assessment of the Fazika Electric Supply Co. Ltd. for the assessment year 1963-64 for which the relevant previous year ended on 31-3-1963.

2. The assessee company was a licensee under the Punjab Electricity Supply Act. This business was taken over by the Government of Punjab on 23-7-1949 in pursuance of proceedings under Section 7(1) of the Indian Electricity Act, 1910. these proceedings had started with the issue of a letter by the Secretary to the Government of Punjab dated 13-3-1947 by which he gave notice to the assessee company that the Punjab Government had decided to purchase the electricity supply undertaking of the assessee by exercising the option given in clause 9(1) of the licence granted to the assessee read with Section 7(2) of the Indian Electricity Act, 1910. The Government of Punjab fixed a compensation of Rs 3,17,691 as payable to the assessee in respect of the undertaking. The assessee company did not agree to this compensation and agitated for an increase of the compensation amount. On 5-5-1952, the assessee company addressed a letter to the Secretary to the Punjab Government stating that the valuation of the undertaking placed by the government of Punjab was grossly inadequate and wholly incorrect and that the correct value of the lands, buildings and all other effects of the undertaking would be Rs 10,80,000. By this letter the assessee purported to refer to arbitration' the dispute regarding the question of valuation in accordance with Section 7(1) and 52 of the Indian Electricity Act read with Clause 13 of the Licence granted to the assessee in 1934. The assessee's claim under clause 9(1) of the Licence read with Section 7(2) of the Act amounted to Rs 10,80,000besides interest upto the date of payment. By the above letter the assessee purported to L. Jagraj, Straw Board Manufacturing Company Ltd., Saharanpur, U.P as its arbitrator in the matter and requested the Government to appoint their arbitrator without undue delay so that the proceedings might start. It appears that there was a delay on the part of the Government in appointing its arbitrator whereupon the company nominated Mr. Jagraj as the sole arbitrator in the case. There were some legal proceedings and the appointment of Shri Jagraj as arbitrator was set aside by the Court. After this the Government nominated Shri Sodagar Singh as their arbitrator. The proceedings before Mr. Jagraj and Mr. Sodagar Singh started on 5-10-1953 and continued before the said Board of Arbitrators for some time. Thereafter there were a number of changes of arbitrators details of which it is unnecessary to record here and the proceedings for arbitration continued till 17-4-1961 but no final conclusion was reached by the arbitrators who could not agree between themselves as to the proper valuation of the assessee's undertaking. On 25-4-1961 the Electricity Board and the company referred the dispute to Shri Mehar Chand Mahajan, former Chief Justice of India, as Umpire. The learned Chief Justice entered on the reference as an Umpire on 5-7-1961 and announced his award on 30-7-1961. He determined the fair market value of all the items of the undertaking at Rs 6,25,000 to which was to be added 20% as solatium for compulsory purchase under the terms of the licence and thus fixed the purchase price of the undertaking as on 23-7-1949 at Rs 7,50,000. Having done this the learned Chief Justice proceeded to say:

“The ex-licensee has also claimed in the reference interest on the claim. I award him interest on the amount unpaid at 4½% for a period of eight years only taking into consideration the time that was wasted during or before the arbitration owing to his dilatory conduct or spent in the proceedings to get the appointment of Mr. Yagraj as sole arbitrator set aside. I have also looked at the provisions of the amendment made in 1939 in the electricity act Section 7 about interest, though this provision has since then been repealed. Rs 3,17,691 has already been paid by the State to the Company. The balance due is Rs 4,32,309. On this amount I allow the interest @4½% for eight years which works out to Rs 1,55,623. Thus the company is entitled to the payment of a sum of Rs 5,87,927.”

3. On 23-11-1961, an application was made to the Sub-Court Ferozepur for making the award of the Umpire a rule of the Court. This was done on 28-9-1962. The entire amount of interest viz., Rs. 1,55,620 was paid to the assessee company through the court on 13-2-1963.

4. During the assessment proceedings of the assessee for the assessment year 1963-64 a question arose regarding the assessability to tax of the interest amount of Rs 1,55,620 which had been received by the assessee during the previous year. The assessee had not returned this amount of interest for taxation. Its plea was that the sum represented a capital receipt and alternatively that it was a casual receipt not assessable to tax. It was also contended that even if the amount is treated as taxable only the interest attributable to the previous year, i.e, the period of 12 months from 1-4-1962 to 31-3-1963 could be brought to charge in the assessment year 1963-64 and not the balance. Since the interest awarded by the arbitrator was only for a period of eight years the assessee was in effect contending that no part of interest was taxable for the assessment year presently in question.

5. The Income-tax Officer did not accept the claim of the assessee. He was of opinion that the interest did not represent a capital or a casual receipt but was an item of income receipt which was liable to tax. He also held that the assessee had become entitled to receive the interest of Rs 1,55,628 during the previous year. It could not be bifurcated on an accrual basis as suggested by the assessee as the period of eight years with reference to which it was granted had not been specified by the arbitrator.

6. The assessee preferred an appeal to the Appellate Assistant Commissioner who confirmed the assessment. In regard to the contention, that the interest should be allocated to the several years to which it related, the Appellate Assistant Commissioner held that, in this case, the source of the interest was the award made by the Umpire as embodied in the decree of the Court and that no question of its being allocated on a year to year basis arose. He pointed out that the purchase price having become payable on 23-7-1949 and the award having been made a rule of the court only in February, 1963, there was a delay of about 14 years. Interest had been awarded only in respect of 8 years and it could not be said that the interest awarded related to any particular years of period.

7. The assessee preferred a further appeal to the Income-tax Appellate Tribunal. Before the Tribunal, the assessee did not press its contentions that the amount of interest was not at all taxable. The only contention that was urged before the Tribunal was that no part of it could be said to have accrued or arisen in the previous year relevant to the assessment year under appeal. It was claimed that the amount was assessable in equal proportions in the previous years relevant to the assessment years 1950-51 to 1957-58.

8. There was a difference of opinion between the two members who heard the appeal. The Accountant Member came to the conclusion (i) that the award became enforceable only on the day when it was made a rule of the court; (ii) that though the company was more or less following the mercantile system of accounting, it was difficult to say that the assessee was consistently following any system of accounting; (iii) that the Umpire in awarding the assessee interest was only giving effect to the statutory provisions in this regard though he curtailed the period for which the interest must payable to the assessee; and (iv) that the right to receive interest must be treated as having accrued to the assessee company from year to year over a period of eight years from the date of acquisition. The learned Judicial member held (i) agreeing with the Accountant Member, that the award assumed finality only on the date on which it was made a rule of the court, namely, 28-9-1962, a date which fell within the previous year with which we are concerned; (ii) that the assessee was being assessed on whatever system it was following and that the present claim that interest had accrued from the beginning was inconsistent with the books of account which contained no entries regarding the accrued interest even in relation to the undisputed amount of compensation which had been paid on 7-4-1951; (iii) that, in any event, assuming that the company had a vested right to receive interest on the delayed payment of purchase money under the statute, the source of the interest awarded in the present case was not the statute but the award itself; and (iv)_that the entire interest had accrued only on the date of the award and was rightly assessed in the assessment year in question.

9. In view of the difference of opinion between the two members, the matter was referred to the Vice-President of the Tribunal who agreed with the conclusion of the learned Judicial Member. He took the view that the price fixed by the Umpire could not be said to have become due to the assessee at any time before the award was given. It followed as a logical corollary that the interest attributable to the enhanced price could not arise earlier than the determination of the additional price itself. In these circumstances, he thought, the controversy whether the interest was awarded in terms of the Act or whether it was given by the arbitrator suo motu was somewhat remote from the central issue in the case. He agreed that the two members wh had heard the appeal earlier that the award could not be said to have become enforceable until it was made a rule of the court. So far as the method of accunting, employed by the assessee was concerned, he was of opinion that the method of accounting followed by the assessee was somewhat neutral in effect as the assessee was claiming that the amount in dispute was a capital and no adverse inference could, therefore, be drawn against it by reason only of the fact that it had failed to make entries in its books of account in the earlier years in regard to the amount of interest. However, he observed that, in the view he took in regard to the date on which the interest had accrued, this aspect became academic. He concluded that the amount, whether on accrual or receipt basis, was rightly taxed for the assessment year 1963-64.

10. The result of the above orders was that the assessee was held liable to pay tax on the entire amount of interest in the assessment year in question.

11. The assessee has, therefore, obtained a reference to this court by the Income-tax Appellate Tribunal. The questions of law referred for our decision read as follows:—

“1. Whether on the facts and in the circumstances of the case the conclusion of the Tribunal that the right to receive interest amounting to Rs 1,55,628 did not arise under the Indian Electricity Act read with Punjab Electricity Act, 1939 but emanated from the award given by the Umpire is justified in law?

2. Whether on the facts and in the circumstances of the case the Appellate Tribunal was justified in law in holding that the entire interest of Rs 1,55,628 was liable to be taxed in assessment year 1963-64 and not the proportionate amount relatable to that hyears.”

21. At the outset, we may deal with an attempt by the counsel for the assessee to cut short the whole controversy. His contention is that, even assuming that the interest arises only when awarded and not earlier, the relevant date to be considered is 31-7-1961 when the award was published and not 28-9-1962 when it was made a rule of court. This contention, if accepted, makes the interest taxable for assessment year 1962-63 and the assessee gets relief so far as the year presently under consideration, that is, assessment year 1963-64, is concerned. This ontention has to be rejected for two reasons. In the first place it is not open to the assessee to raise this question before us. On this aspect, all the three members of the Tribunal who heard the appeal have taken a concurrent view and held that, though the award was made in July, 1961 it became enforceable and conferred a right on the assessee to recover the amount of enhanced compensation and interest thereon only when it was made a rule of court in September, 1962 which is a date falling within the previous year. A copy of the reference application filed by the assessee under Section 256(1) shows that a reference on this question was not sought by the assessee. No doubt, the first question suggested by the assessee in its application was in the following terms:

“Whether on the facts and in the circumstances of the case was the Appellate Tribunal justified in holding that the sum of Rs 1,55,628 is the income of the assessee liable to be taxed in the assessment year 1963-64?”

Even if it could be said that this question is comprehensive enough to raise the point now sought to be raised by the learned counsel, the Tribunal declined to refer this question as well as another question posed by the assessee relating to its method of accounting and the assessee has not pursued the matter further under Section 256(2). This aspect of the matter has, therefore, not been referred to us and it is not open to the assessee to raise the issue before us. Secoundly, even on the merits, the plea is not tenable. An award of an arbitrator that is not filed in court and made a rule of court has no force or validity. It has no effective value and it cannot create, extinguish or pass any title or interest. Nobody can rely on such award by way of attack or defence in any proceeding whatsoever. Indeed, in such a case, the parties are not barred even from filing a suit on the original cause of action. No party can be prejudiced or benefited by the mere existence of such an award. It may be that effect can be given to the award if both parties consent to abide by its terms. But that will be on the ground that the parties have by mutual agreement settled a dispute between themselves and perhaps in that situation the liability can be said to have been admitted and so to have accrued when the award is given. But where proceedings are taken under section 14 of the Arbitration Act the position is different. In such a case, until the proceedings in court conclude, the award as such is unenforceable. Moreover, when the award is filed into court and a decree on its terms sought, it is open to the court to consider it in all its aspects. The court can set aside, modify or remit the award for fresh consideration and it cannot be taken for granted that the court will make a decree on its terms. We are, therefore of opinion that the assessee did not get an enforceable right (which is what is material for purposes of accrual) until the award had been made a rule of the court. This is also the view taken by the Allahabad High Court in A.P.S Cold Storage & Ice Factory v. CIT, (1979) 119 ITR 709(i). We uphold the view taken by the Tribunal on this point.

13. It will be convenient at this stage to refer to the large number of cases which have dealt with the present issue and then apply the principle emerging from their discussion to the facts of the present case:

1. Sampangiramiah v. Commissioner of Income-tax, 1968-69 ITR 159 (Mys.) (2). In this case, the assessee's property was acquired under the Land Acquisition Act and possession thereof was taken by the Government on February 19, 1949. On 2-6-1949, the Land Acquisition Officer determined the compensation payable at Rs 46,000 (Rs 2 per sq. yard) and this amount was duly paid to the assessee on 31-12-1949. But there was a reference to the District Judge under Section 18 of the Land Acquisition Act and the District Judge enhanced the compensation to Rs 5 per sq. yard. From the decree made by the District Judge, both the assessee and the Land Acquisition Officer appealed to the High Court. The High Court by a decree dated 30-3-1956 enhanced the compensation to a sum calculated at Rs 7 per sq. yard. There was again appeals to the Supreme Court by both the parties but those appeals were dismissed on 7-3-1961. In the final result, a sum of Rs 2,02,265 was received by the assessee on 12-10-1961, i.e, previous year relevant for assessment year 1962-63, comprising a sum of Rs 1,15,000 by way of compensation and a sum of Rs 87,265 by way of interest. The interest received represented the interest payable on the enhanced compensation from the date on which possession was taken (namely, 19-2-1949) till 12-10-1961 (namely, the date of the payment). The Income-tax Officer assessed the entire sum of Rs 87265 as the income of the assessee for the assessment year 1962-63. The Appelate Tribunal however, took the view that the assessee could be taxed only on that part of the interest amount as was attributable to the period from 1-4-1961 to 12-10-1961 which fell during the relevant previous year. The Tribunal observed that though the amount payable to the assessee was determined only in 1961 after the judgment of the supreme Court, the asessee all along possessed the right to receive interest payment from 1949 itself and, therefore, the proportionate interest referable to each successive year during the period from February, 1949 to October 12, 1961 was assessable in the respective year. The High Court endorsed the conclusion of the Tribunal that only the interest for the period from 1-4-1961 to 12-10-1961 was assessable in the assessment year 1962-63, observing that the principle on which the finding of the Tribunal rested was that which emerged from the decision of the Supreme Court in he case of Sassoon & Co. Ltd. v. CIT, 1954-26 ITRF 27 (SC)(3). At this stage it must be pointed out that the court in this case was concerned with assessment year 1962-63 (previous year 1-4-1961 to 31-3-1962). Even on the arguments addressed by the Revenue in the case, the assessee became entitled to interest as a result of the judgment of the Supreme Court dated 7-3-61 which fell in the earlier assessment year 1961-62 was only the quantification and payment. So far as the assessment year 1962-63 was concerned, it appears clear on the facts, only the interest for the period from 1-4-1961 to 12-10-1961 could be said to have accrued. However, this decision is of help here for two reasons.

(i) In the course of judgment, the court dealt with the issue of accrual. In repelling the contention that “the right to no part of the interest was born until the Land Acquisition Officer made his arithmetic after the Supreme Court disposed of the appeals”, the Court observed.

“Now when possession was taken by the Land Acquisition Officer, he became liable to pay interest until the amount awarded by him was paid, and the assessee acquired the right to recover it from him. The direction of the District Judge for the payment of interest on the enhanced compensation, which his decree made on 28.2.1951, incorporated, produced the right to recover such interest at least on the date of that decree. Then again, when compensation was further enhanced by the former High Court of Mysore which made a similar direction for the payment of interest on such enhanced compensation, all that interest which that amount so earned from February 19, 1949 became immediately due and payable under an executable decree.”

It will be seen from these observations that the High Court did not agree with the view taken by the Tribunal that the right to receive interest had accrued on 19-2-1949 itself and that the interest, even on the enhanced compensation amounts, attributable to the period form February 19, 1949 to October 12, 1964 should be apportioned yearwise and assessed in the relevant previous year. On the other hand, it held, so far as the enhanced amounts of compensation and interest awarded thereon are concerned, that they accrued only o the dates of the respective orders and thereafter.

(ii) a contention urged on behalf of the Department that whether the amount had been accruing earlier or not, it was taxable in the hands of the assessee for the year 1962-63 as it had been received during the relevant previous year and as there was no finding that the assessee had been maintaining his accounts on the merecantile basis. The court, however, did not accept this contention and simple rejected it observing:

“….in the case before us, in which the Appellate Tribunal did not find that method of accounting employed was the one or the other (i.e the cash or the mercantile system), the income became taxable when it became legally due and recoverable, for, it is then that it accrued.”

This aspect of the matter may require reconsideration in an appropriate case for, where there is no method of accounting binding on the Income-tax Officer, it can be argued, there is no reason why income should not be assessable on accrual or receipt as the language of section 5(1)(a) is wide enough.

2. Khan Bahadur Ahmed Alladin & Sons v. CIT, (1969) 74 ITRF 651 (A.P)(4). This was a case relating not to interest but to the amount of compensation itself, which was assessable because it related to an item of stock-in-trade. In this case, the assessee firm purchased an estate from the government of Indian a portion of which was subsequently acquired by the Government under the Land Acquisition Act on 23-6-1954. The collector gave an award on 10-12-1954 determining the compensation payable to the assessee at Rs 1,25,131 and this amount was paid to the assessee on 22-3-1956. There was a reference to the civil court which on 12-12-1956 enhanced the compensation and further appeal to the High Court was dismissed. The Income-tax Officer assessed the sum of Rs 1,25,131 in the assessment year 1957-58 for which the previous year was the period from 1-10-1955 to 30-9-1956 apparently on the basis of the date on which the compensation was paid. However, the Appellate Assistant Commissioner on appeal, held that the amount was assessable for assessment year 1956-57. He pointed out that the award had been given on 10-12-1954 and hence the amount of compensation was assessable in the assessment year 1956-57 and not 1957-58. The Income-tax Officer thereupon made reassessment for 1956-57 and, in so doing, he included not only the amount of Rs 1,25,131 originally awarded but also the additional compensation awarded by the order dated 12-7-1956. Again, there was an appeal. This time the Appellate Assistant Commissioner held that only the amount awarded on 10-12-1954 could be assessed in the assessment year 1956-57 and that the additional compensation had accrued only on 12-12-1956 and could be assessed only in the assessment year 1957-58. But the Tribunal reversed the order of the AAC and upheld the assessment as made by the officer holding that the right to receive compensation but accrued on 23-6-1934 when the land was taken over and that whatever was the amount of compensation payable, it should be attributed to that dae and he assessment year relevant thereto.

On a reference, the High Court up held the view of the Appellate Assistant Commissioner. It was pointed out that though compensation became payable o the date when the land was taken over by the Government, the right of the owner to compensation was an inchoate right to have the compensation determined and paid to him. The Court proceeded in observe:

“What is the income that can be said to have accrued to him on that date which can be assessed to tax in the year of assessment? If the actual amount of compensation has not been fixed, no income could accrue to him. It cannot be contended that the mere claim by the assessee, after taking possession at a particular rate or for a certain sum is the compensation. It is the amount actually awarded by the Collector or subsequently decreed by the court which accrues to him, and the respective amounts, whether awarded by the Collector or the court accure on the respective dates on which the award or the decree is passed. Income tax is not levied on a mere right to receive compensation; there must be something tangible, something in the nature of a debt, something in the nature of an obligation to pay an ascertained amount. Till such time, no income can be said to have accrued.”

The court observed that by no stretch of imagination could it be said that the right to enhanced compensation, which had not yet been accepted by the proper forum, viz., the court, had also become payable on the date when the original compensation became payable for being included in that year of assessment. To hold otherwise, it was pointed out, would be entitling the Income-tax Officer to re-open an assessment ad re-compute the entire income on the basis of the final compensation as determined by the last appellate court which was an unjustifiable proposition. The court relied, in support of this conclusion, on certain decisions, including Sampangiramiah's case discussed earlier.

Though this decision pertains to the question of accrual of the compensation amount, the same principle should apply to the question of accrual of interest as well for where the principal amount itself has not accrued, interest in respect thereof can hardly accrue. It may also be pointed out that the contention urged on behalf of the Department in this case would cause harassment to the assessee in two ways: (i) by increasing the rate of tax by subjecting to tax all the compensation amount in one year though receivable in different years and (ii) by making it difficult for the assessee to claim any refunds or rectifications in the event of the compensation amounts getting reduced at the stages of appeal because of rules of limitation. It would also be prejudicial to the revenue itself because of the rules of limitation making it impossible for the Department either to keep the assessment indefinitely open until the final compensation figure in determined or to re-open the assessment from time to time to include the additional compensations subsequently declared.

3. CIT v. Dr Sham Lal Narula, 1972-84 ITR 625(5): In this case the assesses land was acquired by the state Government under the provisions of the Land Acquisition Act and the assessee was deprived of the possession of the land on 15-10-1951. The interest, on the amount of compensation amounting to Rs 48,660, was paid to the assessee in the previous year relevant to the assessment year 1956-57. The assessee contended that the entire amount could not be assessed in 1956-57 but should be spread over the earlier years as well. The Appellate Tribunal held that interest to the tune of Rs 42,577.50 being interest due for the accounting years 1951-52 to 1954-55, accrued in the previous year ending on 31-3-1955 and could not be assessed in the assessment year 1956-57 and this view was upheld on reference. The court relied in coming to this conclusion, on the decision in Smpangiramiah which was extensively quoted and on the provisions of Section 34 of the Land Acquisition Act which entitles the owner to interest from the date of dispossession and also specifies the rate at which it is to be paid. The reasoning of Alladin was not accepted.

This case is interesting for a number of reasons: (a) In the first place, it is necessary to point out how the Tribunal came to hold that a substantial part of the interest pertaining to the period from 1951-52 to 1954-55 had accrued in the previous year ending on 31-3-1955 though possession had been taken over on 15-10-1951 itself. It appears that the lands of the assessee had been acquired on 21-6-1950 by a notification under certain local land acquisition statutes and the proceedings for acquisition were finalized under the Indian Act which had subsequently replaced the local enactments. On 11-10-1953 a notification was issued withdrawing the acquisition proceedings but the assessee challenged the validity of this notification. On 12-2-1955 the PEPSU High Court decided that the notification withdrawing the lands from the acquisition was not valid and it was as a result of this order of the High Court that the acquisition of the land was confirmed. The Tribunal held, therefore, that the assessee's right to compensation crystallized on this date and, therefore, the compensation and even earlier interest accrued only on this date. The controversy before the High Court related only to the deletion by the Tribunal of Rs 42,557.50 from the assessment for the assessment year 1956-57. Though the High Court has confirmed this, the discussion in the judgment negatives the Tribunal's conclusion that the said amount had to be assessed in assessment year 1955-56 and calls for a spread over of the interest from 15-10-1951 onwards as contended for by the assessee though this was an aspect irrelevant in relation to assessment year 1956-57.

(ii) The report of the case shows that the award in the case had been made on 30-9-1955 but the accrual as held by the High Court, will even be from the earlier date of dispossession. So also, it appears that there was a reference from the award and an enhancement the dates of which are not known and the interest received was on the enhanced compensation amount. To the extent the decision holds that interest on the amount awarded must be treated to have accrued earlier to the award and that the interest on the enhanced amount should be also deemed to have accrued from the long anterior date of dispossession, the ruling does not appear to be in accord with Sampangiramiah.

(iii) This decision clearly proceeds on the footing that as a right to be paid interest on the compensation amount springs under Section 34 from the date of dispossession, the accrual of interest on the compensation amount—whether it is the one originally awarded or subsequently modified—must start from that date and be spread over from year to year until it is actually paid though the determination of these amounts takes place very much later. It is an approach basically different from Sampangiramiah and Alludin.

(iv) An argument was addressed in this case also on behalf of the revenue that since the assessee maintained no accounts the interest could be assessed on receipt basis. The argument was rejected as futle as there was no question of the assessee, a property owner, having to keep any accounts. This may explain why no accounts were kept but, with respect, the decision does not consider the impact of Section 5 (taxation on accrual or receipt basis) in the absence of a system of accounting binding on the assessee and the officer.

4. Govindarajulu Chetty v. CIT, 1973-87 ITR 22 (Mad.) (6): Narula's case just referred to, relates to the subsequent stage after the High Court and the Supreme Court had disposed of earlier proceedings in which the very taxability of interest amounts was challenged. Vide Shamlal Narula v. CIT, 1964-53 ITR 151 (SC)(7) and Govindarajulu Chetty v. CIT, 1967-66 ITR 465 (SC)(8), answering the issue against the assessee. That issue having been settled, the mode of taxability of the interest receipts came up for consideration in the decision that is being presently noticed. In this case the assessee firm owned a property which was first requisitioned by the government of India under the Defence of India act and later acquired by it by a notification dated 24-5-1949 under the Requisitioned Land (Continuance of powers) act, 1947. The collector gave an award determining the compensation payable to the assessee at Rs 2,40,000. The assessee sought a reference to an arbitrator who fixed the compensation payable to the assessee at Rs 3,67,666 with interest at 6% per annum from 24-5-1949. there was an appeal to the High Court which fixed the compensation due to the assessee at Rs 5 lacs and confirmed the order of the arbitrator in other respects. On the basis of the order of the High Court a sum of Rs 6,28,716 was received to the assessee: Rs 2,54,885 during the accounting years which ended on 13-4-1955 and Rs 3,73,831 during the accounting year ending on 12-4-1956, relevant respectively for the assessment years 1955-56 and 1956-57. The sum received by the assessee included a sum of Rs 1,28,716 by way of interest. The Income-tax Officer took the view that the amounts received by the assessee in each of the previous years aforesaid included a proportionate interest component. He therefore, brought to tax a sum of Rs 50,592 in the assessment year 1955-56 and Rs 78,124 in the assessment year 1956-57, the allocation being on the basis of the total amounts received in the respective years. The plea of the assessee was that the interest receipt of Rs 1,28,716 should be assessed by apportioning it to the several respective years to which the interest is relatable.

The High Court accepted this contention. It observed:

“In this case the assessee has acquired a right in present against the Government to get the compensation for the land acquired even on the date of the notification, and to get interest on the amount of compensation if payment of the same is postponed for some reason or the other. From the mere fact that a compensation was fixed ultimately by this court, it cannot be said that the liability to pay either the compensation or the interest thereon arose only on the date of such fixation.”

And again:

“In this case the liability to pay interest would arise when the compensation amount due to the assessee had not been paid, in each of the relevant years. Therefore, the accrual of interest has to be spread over the years between the date of acquisition till it was actually paid.”

It will be noticed that in this case the entire compensation and interest were paid only after the decision of the High Court and the attempt of the Department was to tax the entire amount of interest in the year in which it was received. An award had been given and an enhancement made even earlier but the report of the decision does not indicate their dates. The date of the order of the High Court is also not known and if it had preceded the commencement of the accounting year relevant for the assessment year 1955-56, only that portion of the interest which was referable to the respective previous years could have been taxed in the two years in question and the portion regarding the earlier years was not directly in issue. But the principle on the basis of which interest is taxable in ch cases was discussed and laid down clearly on the same basis as the Punjab High Court in Narula's case viz. that the right to receive interest under Section 34 (and even Section 28) of the Land Acquisition Act arises by virtue of the statute and that the orders made under the Act determining the compensation merely quantify and give effect to that right and that therefore, the interest must be deemed to accrue from the date on which the compensation is payable initially or the date of the acquisition. In this case, the Department also sought to raise a contention that, even though the assessee had maintained its accounts according to the merecantile system of accounting, the amounts could be taxed in the year of receipt on the basis of the receipt notwithstanding the earlier accrual as the Income-tax Officer has an option to assess the income by way of interest either on the basis of accrual or on the basis of receipt. This contention was, if we may say so with respect, rightly rejected.

5. Joynarayan Panigrahi v. CIT: 1974-93 ITR 103(Ori)(9).

This case follows and applies Narula's case (Supra) two extends of land were acquired and taken possession of on 11-6-1954 and 10-11-1957 respectively. The assessee was offered compensation by the competent authority on 7-6-1957 and 11-8-1958 respectively. The assessee objected to the amount and the matter was referred for arbitration. Apparently the arbitrator enhanced the compensation and ultimately on 30-1-1961 the entire compensation was paid to the assessee along with an interest of Rs 16,460 in respect of the period from 11-6-1954 and 10-11-1957 respectively upto the date of payment. The entire income was assessed for the assessment year 1961-62 by the officer while the assessee contended that it should be apportioned among assessment years 1957-58 to 1961-62 in the manner tabulated at page 109 of the report. The assesses contention was upheld relying on Sampangiramiah and Narula. The one additional feature about this case was that the relevant statute did not provide for the payment of interest but this was held to make no difference. Here again the fact that the assessee maintained no accounts was held to make no difference.

6. CIT v. Sonkari Manickyamma, 1976-105 ITR 172 (A.P)(10).

The lands of the assessee in this case were acquired in 1933. The compensation awarded was alleged to be inadequate for the proceedings followed. Ultimately on May 9, 1963, the High Court passed a compromise decree awarding the assessee additional compensation of Rs 22,904. The assessee also became entitled to interest of Rs 31,569 at the rate of 6% on the above amount which was received on 1-3-1964. The Income-tax Officer sought to bring this interest amount to tax as income of assessment year 1964-65 but the Tribunal accepted the assessee's contention that it had to be spread over 26 years during which it had accrued the High Court following the principle in the Alladin case held that the enhanced compensation as well as the interest thereon accrued only on 9-5-1963 as the grant of increased compensation was in the discretion of the court.

7. CIT v. Raja S.N Bhanja Deo, 1977-106 ITR 748 (Ori.)(11).

The assessee was the proprietor of an estate which having been abolished and taken over, the assessee became entitled to compensation. This was sometime in 1952 relevant for the assessment year 1953-54. The assessee received the compensation amount due to him on 31-3-1965 and along with it interest amounting to Rs 26,007. The assessee claimed that the net interest (after deducting expenses) should be apportioned and spread over the twelve assessment years from 1953-54 to 1965-66 and this claim was accepted by the Tribunal. The High Court, however, took a different view. It distinguished its earlier decision in Joynarayan Panigahi's case and observed:

“On facts we find difference between the reported case and the case in hand. There is no material here at all to hold that before compensation was finalized, the quantum of interest could at all be worked out because under the statutory provisions interest is a percentage of the compensation that become due. Therefore, so long as the compensation is not quantified, it is difficult to hold that interest was accruing on yearly basis. On the terms of the statute right to interest would accrue only when the compensation gets quantified though, for purposes of working out the quantum of interest to be paid to the ex-proprietor the rate indicated on annual basis has to be taken into account. This being the position, we are of the view that the Tribunal were wrong in holding that interest was accruing to the assessee year after year since abolition of the estate till payment of compensation.”

The decision was followed in CIT v. Bhanja Deo—1978-111 ITR 178 (Ori.)(12).

8. Topandas Kundanmal v. CIT—1978-114 ITR 237 (Guj.)(13):

In this case, the assessee's lands were acquired and the Land Acquisition Officer made an award on 18-7-1962 offering a compensation of Rs 24,293. On a reference, the compensation was enhanced to Rs 5,04,824 and an interest of Rs 61,416.90 for the period 15-8-1960 to 31-8-1963 was also worked out. The State Government preferred an appeal and the assessee filed cros-objections therein. Pending their disposal, the assessee was permitted to withdraw a sum of Rs 50,000 on furnishing security. Eventually the appeal of the State Government was allowed and the assessee had to repay the amount withdrawn by him with interest. Pending these proceedings the Income-tax Officer included, for the assessment year 1964-65, the additional compensation of Rs 4,80,531 and interest of Rs 61,417 which the assessee was awarded by the District Judge. So far as the compensation amount was concerned, it was taxable, in terms of Section 45, in the year of transfer. But the general question of accrual became relevant in the context of the interest amount. It is in this context that the court had to consider the time of accrual of the principal amount of compensation. The court observed in this regard:

“It is, therefore, clear having regard to the provisions of the Land Acquisition Act that the compensation awarded by the Land Acquisition Officer is nothing more than an offer to the person whose land is sought to be acquired and if that offer is not accepted, the acquisition proceedings are not concluded and the owner has the statutory right of having the question determined by the court and it is the amount of compensation which the court may determine that would bind both the owner and the Collector. In other words, as said by the Supreme Court in Harish Chandra's Case, AIR 1961 SC 1500, that it is on the amount thus determined judicially that the acquisition proceedings would be concluded. If the real nature of the award and the right of the party who is not satisfied with the other made in the award is, as pointed out in Harish Chandra's case, AIR 1961 SC 1500, how can it he said—much less urged successfully—that the said offer creates enforceable right to the enhanced compensation because in the ultimate analysis it is this right of the claimant to the additional compensation that is to be judicially determined and with which we are concerned in this case. In other words the legal position which emerges is that there is no liability in present to pay an enhanced compensation till it is judicially determined by the final court since the entire question, namely, whether the offer made by the Land Acquisition Officer is inadequate and the claimant is entitled to an additional compensation and if yes, at what rate is in flux till the question is set at rest finally, we do not think that any enforceable right to a particular amount of compensation arises. The offer made by the Land Acquisition Officer, by his award, if not accepted by a claimant would not result automatically in a liability to pay additional compensation as claimed by a party aggrieved. There is no doubt a liability to pay a compensation as offered by the Land Acquisition Officer. But that is far from saying that that liability is a liability to pay additional compensation or enhanced compensation as claimed by a party aggrieved. If there is an existing liability, the mee fact that the payment is postponed to future would not detract that liability from becoming a debt but the liability to pay unliquidated damages or additional compensation which are inchoate or contingent would not create a debt. We are, therefore, of opinion that if an aggrieved party whose land is acquired does not accept the offer made by Land Acquisition Officer in his award, he has a right to seek reference under Section 18 for getting the question of the compensation determined by the court and it is on the amount thus determined judicially that the owner would be entitled to enforce that right for a particular sum. It is on the final determination. In our opinion, of the amount of compensation that the right to that income in the nature of compensation would arise or accrue and till then there is no liability in presenti in respect of the additional amount of compensation claimed by the owner of the land sought to be acquired.”

And further:

“It is no doubt true that he has a right to be awarded interest on the amount of compensation from the date of possession till the date of payment. Nonetheless the vested and enforceable rights to receive such interest would accrue of arise only if the designated authorities under the Land Acquisition Act ultimately determine that the assessee is entitled to enhanced or additional amount of compensation. Till then it cannot be urged successfully that his right to interest has accrued or arisen irrespective of the claim of the additional compensation being finally adjudicated upon by the courts. An incidental question agitated before us is whether the Income-tax Officer should hold up assessment proceedings till the question is finally determined which may in some cases result in the proceedings being time-barred. We do not think that such a question can justifiably arise in the view which we are taking of the matter, since, in our opinion, the right to the income of compensation or interest arises or accrues when the question is finally determined by the designated authorities under the Land Acquisition Act.”

The court differed from the view expressed by the Mysore, Punjab, Madras and Orissa High Courts and followed the view expressed by the Andhra Pradesh High Court.

9. Jairam v. CIT, 1979—117 ITR 638 (Kar.)(14)—In this case the lands were acquired on 11-5-1962 under the Land Acquisition Act and compensation was awarded. On a reference, the court awarded additional compensation and interest thereon from 11-5-1962. The two assesses received interest of Rs 10,322 and Rs 16,705 in the accounting year relevant for assessment year 1970-71 and was taxed thereon. The assessee, however, claimed that the interest should be spread over between 1962 and 1969 for purposes of assessment. The High Court, hollowing Sampanigramiah and Alladin and dissenting from Narula and Govindarajulu Chetty rejected this contention. The Orissa judgments are not referred to. The Court observed:

“We have given the matter our careful attention. The arguments appear so nicely and evenly balanced, that a choice is not altogether easy. On the one side is the view that acquisition proceedings start the trial which may blow up in stages of dispossession, award, payment, reference to court, excess compensation and interest, and so on; and once the spark had been lighted at one end, the avenue is open till the end, although it may not travel to the bitter end. This, however, according to this view, would not prevent the right “arising” or “accruing”. On the other view, the mere prospect of making a reference and earning excess compensation and interest, cannot be regarded as a right or income “arising” or “accruing”, when riddled with many imponderables, such as the actual making of the reference, the award of excess compensation, and the further award of interest thereon. It appears to us that income by way of interest on excess compensation under Section 28 of the Central Act Section 30 of the Kerala Act) cannot be regarded as having “accrued” or be “deemed to have accrued” from the moment of dispossession or of the notification under Section 4 At these stages, it cannot invariably be predicated that the assessee would file an application for reference in the court for excess compensation, or that the court would enhance the compensation; or even if it does so, that it would award interest on the excess compensation. In an allied sphere, considering the provisions of the General Clauses Act, with respect to the expression “right accrued” and “vested right”, it has been ruled that a mere right to take advantage of the provisions of a statute, without anything done to effectuate that right, is not a “right accrued” within the meaning of the section—see, for instance, the discussion in Narayanaswami v. Inspector of Police, AIR 1949 Mad. 307, paras 37, 38, 92, 93, 132, 133. We think that the right to interest on the excess compensation can be said to arise, and income by way of such interest can be said to accrue, only when the court decrees interest while awarding excess compensation. This seems to follow from the exposition in Sassoon's case (1954) 26 ITR 27 (SC), which we have noticed earlier. The principle is also stated by the Mysore High Court in CIT v. Sampangiramaiah, (1968) 69 ITR 159, in the passage that we have emphasized. Chief Justice Jagan Mohan Reddy's statement of principle with respect to excess compensation, in Khan Bahadur Ahmed Alladin & Sons v. CIT, (1969) 74 ITR 651 (AP), is appealing and the same consideration should apply to interest on excess compensation. The right to excess compensation and to interest thereon cannot be said to “arise” or “accrue”, on the date of dispossession, much less, on the date of the S. 4 notification. On these dates the prospect of a reference and its outcome are alike uncertain, and even if the claimant succeeds on reference in the first instance before the court, the State's right of appeal throws, as the Chief Justice points out, a further element of fluctuation in the scale. We are unable to accept the contrary ruling of the Madras High Court in T.N.K Govindarajulu Chetty v. CIT, (1973) 87 ITR 22 (Mad.) or of the Punjab and Haryana High Court in CIT v. Dr Shyam Lal Nerula, (1972) 84 ITR 625”

It may be pointed out that this decision understands Sampangiramaiah in the way we have done earlier and that though the case concerned interest under Section 28 of the Land Acquisition Act on the grant of which the court has discretion, the decision is not based on that circumstance; it is based on the consideration that the interest on the enhanced compensation can arise only when it is granted and cannot be held, in anticipation, to accrue as from the date of dispossession itself.

10. Addl. CIT v. Virendra Singh, 1979—118 ITR 923 (All.)(15)—In this case lands were taken possession of in February, 1959 and compensation and interest thereon paid as awarded. There was a reference and further appeal and as a result of the High Court's order dated 28-9-1967 the assessee received interest of Rs 1,68,176 on 16-12-1967 which was attempted to be taxed for 1968-69. This decision following the Punjab, Madras & Orissa views holds “that the right to interest under Section 34 of the Land Acquisition Act, 1894, accrued on the date on which the Collector took possession of the property. It was a right in presenti which recurred from day to day throughout the years in between the two events, namely, dispossession and actual payment and continued to accrue in each of the succeeding years and only that amount of interest income could be taxed in a particular assessment year which accrued in the relevant previous year.

11. Motilal Chaddami Lal Jain v. CIT, 1980, 118 ITR 949 (All.) (16)— This has considered the taxability of the interest awarded on enhanced compensation. The enhanced compensation was awarded by the District Court on 31-5-1971 and the assessment was of a sum of Rs 1,09,492 received towards interest during the previous year relevant for the assessment year 1973-74 which commenced on 18-11-1971. Though the Tribunal had observed that the interest must be taken to have accrued from year to year, the High Court had only to hold that, for the assessment year 1973-74, only the interest attributable to the previous year could be said to have accrued on the mercantile system followed by the assessee.

12. CIT v. Sri Ram Gopal, 1980—123 ITR 387 (Raj.) (17)—arrived at the same conclusion. None of the several earlier decisions appear to have been cited or considered. The facts of the case were somewhat special in that there were certain original awards—about the time of taking possession—which, in addition to some cash compensation, allotted alternative sites to the assessee. This did not materialize and eventually an award was made in 1961 and the interest paid thereunder was sought to be taxed in assessment year 1962-63. It was held that the award of 1961 should be deemed to be a part and parcel of the earlier awards and that the interest should be deemed to have accrued year after year from the dates of the earlier awards.

13.George Paul Puthuran v. CIT, 1980—126 ITR 168 (Ker.)(18)—The Kerala High Court following its earlier decision in Jairam and dissenting from Virender Singh upheld the view taken by the Tribunal that the interest on enhanced compensation granted on a reference by the sub-court could be taxed only in respect of the year in which the sub-court determined the compensation and granted interest and could not spread over the entire period from the date of dispossession to the date of the decree.

14. CIT v. H.H Maharaja Yeshwant Pawar—1981, 127 ITR 650 (M.P) (19)—The Madhya Pradesh High Court followed the Kerala High Court's view in preference to that of the Allahabad. Mysore, Punjab and Orissa views. It also relied upon a decision of the Calcutta High Court in CIT v. Hindustan Housing Development Trust Ltd., 1977—108 ITR 380 (Cal.) (20) where the facts were somewhat involved. There, the interest was awarded by an arbitrator who on appeal from the award had enhanced the compensation. But the State Government had preferred an appeal and the assessee had been allowed to draw the amounts awarded only on furnishing security. It was held that the assessee's interest could not be said to have accrued or arisen until it became determinate and payable.

The above survey of the decisions shows a clear cleavage of opinion between the High Courts on this issue. All the decisions have applied the principles regarding accrual as enunciated in Sassoon's case, 1954—26 ITR 27 (SC) & Gajapathy Naidu's case, (1964) 53 ITR 114 (SC) (21) viz., that income accrues at the point of time when a right to receive that income is created in the assessee. If we view the subject matter of taxation in the abstract as the compensation or interest thereon receivable by an assessee when his property is taken away, then clearly the right to compensation or interest thereon will arise as from the date of dispossession both under the relevant statutory provisions as well as the earlier provisions in the Constitution which prohibited the deprivation of property without compensation. But if we consider the subject-matter as the assessee's entitlement to a particular amount which has been awarded to him, such entitlement clearly can be said to have crystallized only on the date on which the amount is awarded to him finally with no dispute possible in regard thereto. The former view proceeds on the principle that where a right clearly exists, the delay in quantification or even a dispute regarding the same in immaterial and irrelevant: a principle settled beyond doubt in regard to accrual of liabilities by the decision of the Supreme Court in the Kedarnath Jute Manufacturing Company's case, (1971—82 ITR 363, S.C) (22). The latter proceeds on the view that so long as it is not known and cannot be stated with any certainty whether any enhanced compensation at all would be given or whether, even if it is given by the District Court or High Court, it will ultimately be sustained, it would be futile and impractical to talk of any income having accrued.

15. As pointed out by the Kerala High Court in Jai Ram v. CIT, (197—117 ITR 638) the issue raised is really one of great nicety. Shri Aggarwal, learned counsel for the assessee urged that we should take the view of the Punjab, Madras and Allahabad High Courts. He pointed out that income is said to accrue when a right to receive such income vested in the assessee. It was immaterial that at the point of time when such a right was created in the assessee it might not be possible to exactly quantify the amount of such income. In the case of liabilities, he pointed out, it has been held in the Kedar Nath Jute Manufacturing case (1971—82 ITR 363) (22) that an amount of liability is debitable irrespective of any existing dispute in regard thereto or in regard to its quantification. Shri Aggarwal urged hat the rule cannot be different in regard to the accrual of income. He also urged that there is also no equity in taxing the entire interest received by an assessee in one or two years relevant to the previous years in which the amounts are received when in reality that interest is in respect of the delay in the payment of compensation for a long time after the dispossession of the owner from the land.

16. We are of opinion, after careful consideration, that these contentions of the learned counsel must prevail. We do not think we need to discuss the provisions of the indian & Punjab Electricity Act in detail. The same position as in the land acquisition cases must prevail here also. In fact the assessee's position is somewhat stronger here as it is really not a case of acquisition but of a purchase by the Electricity Board. The Board is bound to pay the purchase price and interest [vide Section 7(2) of the Indian Electricity Act read with Section 4 of the Punjab Act] and the statute itself envisages such payment after the market value of the assets is determined in accordance with the machinery provided in the Act. The assessee's right to payment of compensation clearly arises from the effective date on which the purchase is deemed to have become effective. There can be hardly any doubt that the profits o a sale accrue at the point of sale. But the assessee is entitled to succeed even if it is treated as on par with acquisition cases. The decisions in Sassoonn's as well as Gajapathy Naidu's case make it perfectly clear that income is said to have accrued when a right to receive such income arises in favour of an assessee. In the present case, as in the other cases relating to land acquisition, there can be no doubt that the moment the property is taken over there is a right in the seller or owner of the property to receive compensation. Indeed before the recent amendment of Article 31 of the Constitution no acquisition was at all possible without awarding compensation to the owner of the property. It seems to us that this right to receive compensation cannot be described as an inchoate right: it is a definite right in presenti, the accrual of the compensation & does not depend upon requirement that it has to be quantified in accordance with the procedure outlined in the statute before the assessee can become entitled to any particular sum of money by way of compensation or by way of interest thereon. The concept of accrual of income on the one hand and that of accrual of liability on the other are really of the same basic nature. If an item of liability is entitled to being debited in the books when a clear liability can be spelt out in the terms of a statute or a contract notwithstanding that there might be some dispute or that there might be some difficulty in its quantification, it s difficult to see why a different principle should be enunciated in regard to the accrual of income.

17. Some of he cases which we have referred to earlier and indeed the reasoning of the learned Vice President of the Tribunal in the present case have sought to make a distinction between the compensation that is awardable in the first instance and the right to receive what has been described as extra or additional compensation as a result of arbitration or reference or further appeals. This line of approach had been disapproved by the Supreme Court in Mrs. Kharshed Shapoor Chenai v. Asstt. Controller of Estate Duty, 1980—122 ITR 21 (24). That was a case under the Estate Duty Act. The lands belonging to a person were compulsorily acquired during his life time. But the compensation payable had not been determined by the date of his death. The question was regarding the nature of the asset that formed part of the estate and the method by which it was to be valued. Relying on the decisions in Ahmed Alladin & Sons. Hindustan Housing and Land Development Trust Ltd., Tooandas Kundanmal and Jairam it was contended on behalf of the revenue before the Supreme Court that once the award made by the Land Acquisition Collector had determined the compensation payable and this was paid to, and received by, the land owner he mere fact that he was agitating the correctness of the awards in further proceedings did not constitute any asset and was merely a precarious right. It was urged that such a right to further compensation would become property only when the claim is accepted finally by the court and till the enhanced compensation payable is determined by reason of the final adjudication of the court no property could be said to have come into existence. Dealing with the matter in this context the Supreme Court observed:

“In our opinion, the High Court was right in holding that there are no two separate rights—one a right to receive compensation and the other, a right to receive extra or further compensation. Upon acquisition of his lands under the Land Acquisition Act the claimant has only one right which is to receive compensation for the lands at their market value on the date of the relevant notification and it is this right which is quantified by the Collector under Section 11 and by the Civil Court under Section 26 of the Land Acquisition Act. It is true that under Section 11 the Collector after holding the necessary inquiry determines the quantum of compensation by fixing the market value of the land and in doing so is guided by the provisions contained in SS. 23 and 24 of the Act—the very provisions by reference to which to Civil Court fixes the valuation. It is also true that the Collector's award is, under Section 12, declared to be, except as otherwise provided, final and conclusive evidence as between him and the persons interested. Even so, it is well settled that in law the Collector's award under Section 11 is nothing more than an offer of compensation made by the Government to the claimants whose property is acquired. … It that be the true nature of the award made by the Collector then the question whether the right to receive compensation survives the award must depend upon whether the claimant acquiesces therein fully or not. If the offer is acquiesced in by total acceptance the right to compensation will not survive but if the offer is not accepted or is accepted under protest and a land reference is sought by the claimant under Section 18, the right to receive compensation must be regarded as having survived and kept alive which the claimant prosecutes in a Civil Court….”

Though these observations were made in a slightly different context they emphasise that what is determined in the case of acquisitions by the Civil Courts is merely a continuation of the same process of quantification that had already been undertaken by the Land Acquisition Officer. In this view of the matter it is not possible to take the view that once an award is made the assessee's right to compensation comes to an end and that a fresh right in respect of some extra or additional compensation comes into being when further proceedings are taken in the matter. We are, therefore, of opinion, having regard to the various pronouncements which have been dealt with earlier, that there can be no doubt that a right accrued I the assessee to receive compensation on the date of dispossession and that the compensation amounts or the interest payable thereon must be said to have accrued with reference to that date of dispossession. The view is not tenable, it seems to us, that the right to receive compensations fixed by the District Court of arbitrator arises only when the arbitrator's award or the District Court's judgment is given and that similarly the right to receive further compensation from the High Court or in the High Court would also depend upon the dates of the decision of those courts. For these reasons we answer the second question referred to us in the negative and in favour of the assesee. In our view the Appellate Tribunal was not justified in law in holding that the entire interest of Rs 1,55,628 was liable to be taxed in the assessment year 1963-64.

18. If we had agreed with the majority of the members of the Tribunal, the entire amount of Rs 1,55,628 would have been taxable, in assessment year 1963-64. But our answer raises the conundrum as to the amount, if any, that can be brought to tax in the assessment year. The last part of the second question poses this issue but we find it cannot be disposed of satisfactorily in the circumstances of this case. Normally, in case of acquisition, interest runs from the date of dispossession to the date of payment and will be taxed, in the view we have taken, proportionately, i.e in each year the interest in respect of the previous year will be liable to tax. But in the present case, the arbitrator has awarded interest for a period of 8 years. In the circumstances, can it be said that there is any interest proportionate relatable to that year, i.e, that can be said to have accrued from 1-4-1962 to 31-3-1963. We find that we are not called upon in this reference to answer this point as there has been no decision of the Tribunal thereon. The Vice-President and the Judicial Member, in the view they took, had no occasion to consider it at all; only the Accountant Member answered it and he related the interest to the financial years 1949-50 to 1956-57. Thus, on this point, there was no effective decision. Now that we have disagreed with the view of the majority, the matter has to be considered afresh by the Tribunal and a decision given thereon. We, therefore, leave this part of the question unanswered.

19. There were to more points of controversy debated in detail before the Tribunal. One of these related to the method of accounting employed by the assessee. It is, however, not necessary for us to discuss this aspect of the matter because the question regarding the assessee's method of accounting on which the assessee specifically sought a reference has not been referred to us and is, therefore, not properly before us. We have, therefore, to proceed on the basis that, irrespective of the method of accounting employed by the assessee on which the three members of the Tribunal have given their respective findings, the interest income in question has to be assessed on accrual basis.

20. The second controversy which is the subject matter of the first question before us is regarding the question whether the interest amounting to Rs 1,55,628 arises under the Indian Electricity Act read with the Punjab Electricity Act or it emanated from the award given by the umpire. The Accountant Member took the former view while the majority has taken the view that the interest is attributable only to the award. We are of opinion that on this point the conclusion of the learned Accountant Member is correct. As he has pointed out, Section 4 of the Punjab Electricity Act which supplemented the Indian Electricity Act, 1910 was very clear. It read:

“For the purposes of sub-section (3) of Section 7 of the Act, a purchase shall be deemed to have been effected on such date as Government may appoint within a period of six months after the specified date, whether the purchase money has been paid or not:

Provided that, with the consent of the parties concerned, any other date may be fixed for the purchase:

Provided also that the purchase money shall be paid to the licensee within a period not exceeding six months of the specified or fixed date for the purchase as the case may be, and if for any reason the purchase money is not paid within such period the licensee shall be entitled to interest at 1 per cent above the Reserve Bank of India rate from the expiry of such period.”

This sub-section clearly provided that if the purchase money is not paid within the period of six months above mentioned the Government was liable to pay interest to the licensee at 1 per cent above the rate of the Reserve Bank of India. Such interest is payable from the expiry of the period of six months from the specified date on which the purchase took effect till the actual date of payment of the purchase money. The Punjab Electricity Act was repealed by Act 15 of 1960. But Section 3 of the Repealing Act provided that such repeal “shall not affect the validity, invalidity, effect or consequences of anything already done or suffered, or any right, title, obligation or liability already acquired or incurred, or any remedy or proceeding in respect thereof, or any release or discharge of or from any debt, penalty obligation, liability claim or demand, or any indemnity already granted, or the proof of any past act thing”. It is, therefore, clear that though the Punjab Electricity Act was repealed the right that had accrued to the assesee company to claim interest as well as the liability of the Punjab State Electricity Board to pay interest to the assessee in terms of Section 4 survived.

21. It is, however, urged that the arbitrator did not award interest in accordance with the formula mentioned in Section 4. On the other had he awarded interest at a rate determined by him and for a period also determined by him. It is therefore, contended that the interest which the assessee received was in terms of the arbitrator's award and, therefore, the right to receive such interest has emanated. from that award The learned Accountant Member has given a finding that the rate of 4½ per cent awarded by the arbitrator is really in terms of Section 4 of the Punjab Electricity Act. On behalf of the revenue it is contended that this finding is based on no material. But it appears to us that this aspect of the matter is totally irrelevant. What went before the arbitrator for adjudication was the right of the assessee to compensation in terms of the statute. The assessee was entitled to the purchase price as well as interest under the statute. The assessee made a claim in this behalf before the arbitrator. In what manner the purchase price and the interest should be determined had to be adjudicated upon by the arbitrator. The arbitrator applied his mind to the issue and he has also specifically recorded that he has taken the note of the provision under the Punjab Electricity Act as well as the repealing Act. We, therefore, think that whether the interest awarded by the arbitrator can be correlated to the exact amount of interest which the assessee was entitled to receive under the Act or not, it would not be correct to say that the award of interest is entirely de hors the Act. No doubt an arbitrator does not and need not give reasons in support of his award. But in the present case he has done so. He has taken note of the fact that the assessee was entitled to interest under the statute. There can be no doubt about this right at least till 1960 when the Repealing Act was passed though what the arbitrator thought about the subsequent period is not known. Perhaps for this reason also, but in any event for the reason mentioned by him, he thought that the period of eligibility for interest should be curtailed. It cannot be inferred from the award that the arbitrator was of opinion that the assesee was not entitled to any interest under the statute but nevertheless proceeded to grant him some interest on his own initiative. We, therefore, think that it would not be correct to describe the entitlement of interest as emanating from the award and not from the statute. We, therefore, answer the first question in the negative.

22. The reference is disposed of as indicated above. We, however, make n order as to costs.

D.K.J Reference answered in the negative.