R.N Misra, J.:— This is a reference under section 256(1) of the Income-tax Act of 1961. The question referred to us is:

“Whether, on the facts and circumstances of the case, the income-tax authorities were justified in including the sum of Rs. 16,460 on receipt basis?”

2. The facts of the case are these: A Hindu joint family of which Joyanarayan Panigrahi is the karta owned properties in the villages of Pudapara and Baunsamura located in the district of Sambalpur. Under the provisions of Orissa Act 18 of 1948, 47.15 acres of land in village Pudapara were acquired by the State of Orissa for the Hirakud Dam Project. This acquisition was covered by two independent notifications, one dated November 9, 1951, and the other dated March 28, 1955. Possession of these lands was taken on June 11, 1956, and on June 7, 1957, the competent authority offered compensation of Rs. 23,804-3-0 under rule 5 of the rules made under the said Act. 3.24 acres of land in the other village came to be notified for acquisition on April 12, 1957. On October 18, 1957, possession thereof was taken and the competent authority under rule 5 offered compensation of Rs. 2,514.03 on August 11, 1958. The assessee objected to the quantum of compensation and claimed higher compensation. Under section 7 of the Orissa Act, the dispute was referred to arbitration and the arbitrator ultimately determined the compensation on the basis of the law laid down in the case of State of Orissa v. Bharat Chandra Nayak A.I.R 1955 Orissa 27.. On 30th of January, 1961, the entire compensation was paid for both the lands including interest of Rs. 15,519 for the first acquisition and Rs. 941 for the second acquisition. As indicated above possession had been taken of the lands in village Pudapara in June, 1956. Therefore, payment of interest of Rs. 15,519 was for the period between June 11, 1956, and 30th of January, 1961. In regard to the lands in the other village, possession had been taken from April, 1957, and the interest paid related to the period from 1957 up to 1961.

3. On receipt of the notices under the Act calling for the return for the assessment year 1961-62, the assessee filed the return showing income at Rs. 651 as income from house property. The assessing officer was of the view that the interest of Rs. 16,460 was in fact liable to be assessed during the year. The assessee disputed the liability of taxation in respect of the total amount of interest during the year on the basis that the said amount did not accrue due during the year and as such there should be no assessment in respect of the entire amount. According to the assessee that part of interest out of Rs. 16,460 which accrued due during the assessment year 1961-62 only could be taken into account and the entire amount of Rs. 16,460 was not available to be considered during the assessment year 1961-62 merely on the basis that on 30th of January, 1961 (relatable to assessment year 1961-62), that amount had been paid to the assessee. The Income-tax Officer repelled the stand of the assessee and assessed by taking the entire amount of interest into account and directed proceedings under section 271(1)(a) of the Act to be taken against the assessee. A penalty of Rs. 885 was, therefore, imposed on the assessee under section 271(1)(a) of the Act by the Income-tax Officer over and above the tax. The assessee's appeal before the Assistant Commissioner as also the Tribunal failed. At the instance of the assessee, the Tribunal has referred the question extracted above for determination of this court.

4. The Orissa Act, 18 of 1948, is a statute for acquisition of land for certain specified purposes. Its provisions are more or less supplemental to the Land Acquisition Act of 1894 (Central Act 1 of 1894). Though in the Orissa Act there is no provision for payment of interest, on the basis of section 34 of the Central Act, interest has been found payable. Their Lordships of the Supreme Court in Satinder Singh v. Umrao Singh, indicated that section 34 embodied the rule of equity, justice and good conscience and on such basis, for acquisitions under the Orissa Act, interest has been found payable by this court and the Supreme Court has also sustained the decision of this court with regard to payability of interest. Interest on the amount of compensation for the period between deprivation of possession and payment of compensation is awarded on the footing that the owner of the land has been deprived of the use of the land and also of the compensation which represents the value of the land. Their Lordships of the Supreme Court in the case of Dr. Sham Lal Narula v. Commissioner of Income-tax [1964] 53 I.T.R 151; [1964] 7 S.C.R 668 S.C. have laid down that while the amount of compensation is not liable to tax as income being a capital receipt, interest is income and is exigible to income-tax. That view has been reiterated in the case of Commissioner of Income-tax v. Saila Behari Lal Singha [1970] 76 I.T.R 702; [1970] 2 S.C.R 32 S.C..

5. The Income-tax Act of 1922 remained in force till March 31, 1962, and with effect from 1st of April, 1962, the Income-tax Act of 1961 came into force. The income arose at a time when the 1922 Act was in force, but the liability to make a return, if any, arose under the new Act. Section 4(1)(b)(i) of the 1922 Act provided:

“Subject to the provisions of this Act, the total income of any previous year of any person includes all income, profits and gains from whatever source derived which—……

(b) if such person is resident in the taxable territories during such year,—

(i) accrue or arise or are deemed to accrue or arise to him in the taxable territories during such year, or….”

6. In the new Act, section 4 of the Act is the charging section. Under sub-section (1):

“Where any Central Act enacts that income-tax shall be charged for any assessment year at any rate or rates, income-tax at that rate or those rates shall be charged for that year in accordance with, and subject to the provisions of, this Act in respect of the total income of the previous year or previous years, as the case may be, of every person:……”

7. Section 5 deals with total income. The total income of any previous year of a person who is a resident includes all income from whatever source derived which,—

(a) is received or is deemed to be received in India in such year by or on behalf of such person; or

(b) accrues or arises or is deemed to accrue or arise to him in India during such year.

8. Thus, the provisions contained in section 4(1)(b)(i) of the 1922 Act so far as liability to (sic) an accrual is similar under the new Act. The legal position is settled that if income has accrued during any particular year, it is not open either to the assessee or the Income-tax Officer to take that income into consideration in any other year. In the case of Laxmipat Singhania v. Commissioner Of Income Tax, U.P., their Lordships have said:

“It is not open to the Income-tax Officer, if income has accrued to the assessee, and is liable to be included in the total income of a particular year, to ignore the accrual and thereafter to tax it as income of another year on the basis of receipt.”

9. As we have indicated above, the total income during the previous year available to be considered during any assessment year would be such income which is received or is deemed to be received in India in such year or accrues or arises or is deemed to accrue or arise to the assessee during such year. We are not concerned in this case with the expression “deemed to accrue” or “arise”. What is necessary to be determined is whether the income by way of receiving interest accrued to the assessee only during the assessment year 1961-62 for the whole amount or had accrued in regard to parts thereof in any previous year. The main point for determination, therefore, is as to when the interest accrued to the assessee. If it is found that the interest accrued during the previous year of the assessment year in question, i.e, 1961-62, the assessee would be liable for tax in respect of the entire amount. If, however, the conclusion is reached that during some of the previous years a part of the total amount of interest had accrued, then only such part out of the total amount of income which accrued to the assessee during the assessment year 1961-62 could be brought into the net of taxation. In the case of E.D Sassoon & Company Ltd. v. Commissioner of Income-tax, their Lordships stated:

“It is clear, therefore, that income may accrue to an assessee without the actual receipt of the same. If the assessee acquires a right to receive the income, the income can be said to have accrued to him though it may be received later on its being ascertained. The basic conception is that he must have acquired a right to receive the income. There must be a debt owed to him by somebody. There must be as is otherwise expressed debitum in praesenti, solvendum in futuro …. Unless and until there is created in favour of the assessee a debt due by somebody it cannot be said that he has acquired a right to receive the income or that income has accrued to him.”

10. Their Lordships again said:

“It is no doubt true that the accrual of income does not depend upon its ascertainment or the accounts cast by the assessee. The accounts may be made up at a much later date. That depends upon the convenience of the assessee and also upon the exigencies of the situation. The amount of the income, profits or gains may thus be ascertained later on the accounts being made up. But when the accounts are thus made up the income, profits or gains ascertained as the result of the accounts are referred back to the chargeable accounting period during which they have accrued or arisen and the assessee is liable to tax in respect of the same during that chargeable accounting period. ‘The computation of the profits whenever it may take place cannot possibly be allowed to suspend their accrual….’ ‘The quantification of the commission is not a condition precedent to its accrual’.”

11. In the case of Cit, Bombay City Ii v. Shri Goverdhan Ltd., Bombay dealt with the same concept and stated:

“It is, however, well-established that the income may accrue to an assessee without actual receipt of the same and if the assessee acquires a right to receive the income, the income can be said to have accrued to him though it may be received later on, on its being ascertained. The legal position is that a liability depending upon a contingency is not a debt in praesenti or in futuro till the contingency happens. But if it is a debt the fact that the amount has to be ascertained does not make it any the less a debt if the liability is certain and what remains is only a quantification of the amount: debitum in praesenti, solvendum in futuro.”

12. Some observations of their Lordships in the case of Commissioner Of Income Tax, Madras. v. A. Gajapathy Naidu, Madras throw guiding light on the point in dispute. It has been stated:

“Under this definition accepted by this court, an income accrues or arises when the assessee acquires a right to receive the same. It is common-place that there are two principal methods of accounting for the income, profits and gains of a business; one is the cash basis and the other, the mercantile basis. The latter system of accountancy ‘brings into credit what is due immediately it becomes legally due and before it is actually received; and it brings into debit expenditure the amount for which a legal liability has been incurred before it is actually disbursed’. The book profits are taken for the purpose of assessment of tax, though the credit amount is not realized or the debit amount is not actually disbursed. If an income accrues within a particular year, it is liable to be assessed in the succeeding year. When does the right to receive an amount under a contract accrue or arise to the assessee, i.e, come into existence? That depends upon the terms of a particular contract. No other relevant provision of the Act has been brought to our notice—for there is none which provides an exception that though an assessee does not acquire a right to receive an income under a contract in a particular accounting year, by some fiction the amount received by him in a subsequent year in connection with the contract, though not arising out of a right accrued to him in the earlier year, could be related back to the earlier year and made taxable along with the income of that year. But that legal position which is sought to be reached by a process of reasoning found favour with English courts. It is said that on the basis of proper commercial accounting practice, if a transaction takes place in a particular year, all that has accrued in respect of it, irrespective of the year when it accrues, should belong to the year of transaction and for the purpose of reaching that result closed accounts could be reopened. Whether this principle is justified in the English law, it has no place under the Indian Income-tax Act. When an Income-tax Officer proceeds to include a particular income in the assessment, he should ask himself, inter alia, two questions, namely:

(i) what is the system of accountancy adopted by the assessee? and

(ii) if it is the mercantile system of accountancy, subject to the deemed provisions, when has the right to receive that amount accrued?

If he comes to the conclusion that such a right accrued or arose to the assessee in a particular accounting year, he shall include the said income in the assessment of the succeeding assessment year. No power is conferred on the Income-tax Officer under the Act to relate back an income that accrued or arose in a subsequent year to another earlier year on the ground that the said income arose out of an earlier transaction.”

13. The sine qua non of liability in the present case, therefore, is a determination as to when the income by way of interest accrued to the assessee. In the case of Commissioner Of Income Tax, Gujarat v. Ashokbhai Chimanbhai, the test to answer the question was thus indicated:

“When the right to receive the income becomes vested in the assessee, it is said to accrue or arise.”

14. According to the assessee, interest is payable under the Act on the amount of compensation from the date of taking over of possession till the date of payment of the compensation. Therefore, when possession was taken in the acquisition proceeding under the Orissa Act, both compensation as also interest on a prescribed basis became payable. Payability is not dependent upon quantification though there may not be any payment until quantification is final. The amount of interest has been apportioned by arithmetical process by the assessee thus:

Accounting year Interest accrued Lands in Pudapara Lands in Baunsamura Total Rs. Rs. Rs. 1956-57 2,510.89 Nil 2,510.89 1957-58 3,393.42 131.48 3,524.90 1958-59 3,393.42 291.72 3,685.14 1959-60 3,393.42 291.72 3,685.14 1960-61 2,82.85 226.08 3,053.93 (10 months only ending 30-1-61) Total 15,519.00 941.00 16,46000

15. According to the assessee, the total interest paid to him of Rs. 16,460 related to five accounting years as indicated above and interest had accrued to the assessee to the extent indicated during each of the years. As such, portions of the total amount of interest received by him to the extent indicated during the different accounting years can only be taken into account for the purposes of assessment under the Act in the respective years. On such basis, the proportionate income during each year falls below the taxable limit and, therefore, the assessee had no liability under the Act; either to make a return or suffer an assessment.

16. The revenue has taken the stand that the assessee does not maintain any books of account and, therefore, cannot as a matter of right ask for a particular method of accounting to be followed. The assessee had not offered for assessment the income as and when it accrued. In other words the assessee had not chosen the accrual method. Therefore, he cannot be permitted to adopt the stand that he should be allowed to choose the accrual method. The Appellate Tribunal relied upon the decision in the case of Whitworth Park Coal Co. Ltd. v. Inland Revenue Commissioners where the House of Lords took the view that in the case of non-traders, the income does not arise until the date of its receipt.

17. Mr. Mohapatra for the assessee contends that the Tribunal went wrong in adopting the English decision referred to above. We find some substance in the criticism of Mr. Mohapatra. The Indian Income-tax Act is not in pari materia with the British Income Tax Statute. This fact was noticed by their Lordships of the Supreme Court in the case of Commissioner of Income-tax v. Vazir Sultan & Sons. Dealing with this aspect, their Lordships have stated;

“While considering the case law it is necessary to bear in mind that the Indian Income-tax Act is not in pari materia with the British Income tax statutes, it is less elaborate in many ways, subject to fewer refinements and in arrangement and language it differs greatly from the provisions with which the courts in England have had to deal. Little help can, therefore, be gained by attempting to construe the Indian Income-tax Act, in the light of decisions bearing upon the meaning of the income-tax legislation in England.”

18. That view has been reiterated by their Lordships of the Supreme Court in the case of Commissioner Of Income Tax, Madras. v. A. Gajapathy Naidu, Madras. After referring to what their Lordships had stated in Commissioner of Income-tax v. Vazir Sultan & Sons on this occasion, their Lordships said:

“The caution administered by this court shall always be borne in mind in construing the provisions of the Indian statute. The provisions of the Indian Income-tax Act shall be construed on their own terms without drawing any analogy from English statutes whose terms may superficially appear to be similar but on a deeper scrutiny may reveal differences not only in the wording but also in the meaning a particular expression has acquired in the context of the development of law in that country.”

19. We, therefore, propose to deal with the matter by reference to the Income-tax Act of 1961 and the law as applied in India to the points in issue.

20. It is admitted that the assessee does not maintain any accounts. No adverse inference can be drawn against the assessee on that score, because the law did not cast any duty on the assessee to maintain accounts in this case. The assessee is a non-trader and but for the acquisition of his capital assets, namely, the agricultural lands, and payment of compensation in lieu thereof together with interest, the assessee would have had no liability to be dealt with under the Act.

21. As already indicated, the right to receive interest under the Land Acquisition Act is based on the concept that the owner of the land entitled to receive compensation is kept out of the land by being dispossessed and is not paid the compensation representing the market value of such land. Interest accrues during the intervening period between dispossession on one side and payment of compensation on the other. Thus the right to receive interest flows out of the statutory provision and at the rate of six per cent on the total amount of compensation and such interest is payable for the period between the two events indicated above. Quantification of interest is dependent upon what the compensation ultimately turns out to be. In the instant case, the assessee was dispossessed long before the actual quantification of the compensation by the arbitrator. Thus, the right to receive interest had accrued and the competent authority representing the State of Orissa had already been in debt to the assessee in regard to the payment of interest which was yet to be quantified. The right to receive interest was not contingent but absolute. The amount thereof awaited quantification. Thus, in respect of the assessee there was a debitum in praesenti and the solvendum was in futuro. In the circumstances, the right to receive interest at the rate prescribed under section 34 of the Land Acquisition Act, 1894 (1 of 1894), was already vested in the assessee and the interest was payable though the actual disbursement could not have been made until final quantification of compensation by the arbitrator.

22. Mr. Mohapatra for the assessee placed reliance on a decision of the Mysore High Court in the case of Commissioner Of Income-Tax, Mysore v. V. Sampangiramaiah.* High Court was dealing with a similar case as is before us. The question referred for determination was:

“Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the entire interest amount of Rs. 87,265 was not assessable in the assessment year 1962-63 and that only the proportionate interest referable to the assessment year 1962-63 was assessable in that year?”

23. A total compensation of Rs. 1,15,000 was paid to the assessee in that case. Rs. 87,265 was also paid by way of interest for the period between dispossession on February 19, 1949, and October 12, 1961, when the compensation amount was paid. The Income-tax Officer assessed the entire interest as income earned in the assessment year 1962-63. The assessee succeeded before the Tribunal which accepted his contention that the interest related to different years between the event of dispossession and payment of compensation and had to be apportioned year-wise. In the reference at the instance of the revenue, the learned judges of the High Court upheld the view of the Tribunal; the proposition that the accrual of the right to interest stood postponed until determination of the quantum of compensation was negatived. Reliance was placed upon several decisions of the Supreme Court to hold that the accrual of income which had become due did not await quantification. It was said thus:

“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 February 28, 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 …..”

24. So, the premise 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 cannot have the support of reason.

25. There was thus a complete acquisition of the right to recover the accumulated interest on the amount awarded by the Land Acquisition Officer when possession was taken, and on the enhancement, when the appropriate decree made such enhancement and to subsequent interest so long as it ran but was not paid. Such interest became income which accrued in the year in which it became so recoverable within the meaning of section 4(1)(b)(i) of the Income-tax Act, 1922, so long as that Act was in force, and of section 5(1)(b) of the Income-tax Act, 1961, when that Act commenced to operate. The attribution of the whole of that interest to the year of receipt is manifestly impossible.

26. Learned standing counsel contended that the decree made by the court on the reference under section 18 of the Land Acquisition Act, the decree of the High Court in appeal and the decree ultimately made by the Supreme Court were events which cannot be lost sight of and those decrees formed the real base for the decision of the Mysore High Court. They are certainly facts which have been taken into consideration by the learned judges. But even if those decrees were not in existence, there would have been no difference in the position in law. The principle indicated by their Lordships of the Supreme Court when put to work would certainly lead to the position that the right to earn interest accrued the moment the assessee was kept out of possession. Though the quantification of interest was interlinked with the total compensation to be determined, it cannot be said that the right to receive interest had not accrued during each of the years that intervened between dispossession and ultimate payment of compensation. On principle we are satisfied that the Mysore decision supports the stand of the assessee.

27. Assessee's counsel also relied upon a recent decision of the Punjab and Haryana High Court in the case of Commissioner of Income-tax v. Dr. Sham Lal Narula. The point in controversy was again apportionment of interest received under the Land Acquisition Act. Mahajan J. spoke for the court thus:

“There was thus a complete acquisition of the right to recover the accumulated interest on the amount awarded by the Land Acquisition Officer when possession was taken, and on the enhancement, when the appropriate decree made such enhancement and to subsequent interest so long as it ran but was not paid. Such interest became income which accrued in the year in which it became so recoverable within the meaning of section 4(1)(b)(i) of the Indian Income-tax Act, 1922, so long as that Act was in force and of section 5(1)(b) of the Income-tax Act, 1961, when that Act commenced to operate. The attribution of the whole of that interest to the year of receipt is manifestly impossible.

The omission by the assessee to include the interest which had so accrued to him in the returns of the earlier years cannot yield the deduction that he chose to treat the interest as the income of the year in which he received it. Indeed, no such theory was evolved at any stage. On the contrary, it should be remembered that the contention of the assessee has all along been that no part of the interest was a revenue receipt and it is not unintelligible that it is due to that reason that there was an omission to disclose the interest which had accrued due when he produced the returns for the earlier years.”

28. The explanation of the assessee in the instant case was also similar, namely, no part of the payment by the competent authority was taxable under the Income-tax Act. In the Punjab judgment, it has again been reiterated:

“The interest is definitely accruing each year and is payable as such after the possession is taken from the owner.”

29. We are satisfied that the assessee's stand is supported by the aforesaid decision. Both the Mysore and the Punjab judgments have relied upon the principles laid down by the Supreme Court and in our view have come to the correct conclusion on the facts arising in the two cases.

30. In the case of Rani Bhawani Devi v. Commissioner Of Income-Tax, U.P the dispute arose over the question of assessment of interest received from deposit in the bank. There was a civil dispute regarding title of parties over the money. There was injunction from the court against payment. The court came to hold:

“The last question raised in the application is with respect to the assessability of the sum of Rs. 1,16,259 not in one lump sum in the assessment year in question but in smaller sums of money in different assessment years from 1938-39 to 1947-48. This question also does not appear to have been raised before the Tribunal and, therefore, does not arise out of its order. In any case the title of the assessee having been established only in the assessment year 1948-49, and the entire sum also having been received in the accounting period relevant to that assessment year the whole amount was properly assessable in the year 1948-49.”

31. The facts of the case give out the distinctive feature. If the injunction was not there and if the payability of interest could be related to some feature which was not in dispute, the result would have certainly been different.

32. A number of citations were placed before us by learned counsel for both sides dealing with the system of accounting on mercantile and cash basis. We have not found it necessary to refer to them as in our view when the assessee maintained no accounts and by his position he was not required to have accounts, nothing useful would be available for the present case from such decisions.

33. Our answer to the question referred to us, therefore, shall be that in the facts and circumstances of the case, the income-tax authorities were not justified in including the sum of Rs. 16,460 on receipt basis for the assessment year 1961-62. The assessee shall have his costs of this reference. Hearing fee is assessed at Rs. 200.

K.B Panda, J.:— I agree.