JUDGMENT
S.C. Mohapatra, J.
1. In an application under Section 256(2) of the Income-tax Act, 1961 (hereinafter referred to as “the Act”), a statement of case has been made by Income-tax Appellate Tribunal on being called for on the following question of law :
“Whether, on the facts and in the circumstances of the case, the Tribunal was justified in giving the direction that the amount of interest received by the assessee on the compensation awarded under the Land Acquisition Act should be taxed in the assessment years in which that was deemed to have been earned or accrued ?”
2. Despite valid service of notice, the assessee has not entered appearance. The assessee is a Hindu undivided family. It pays income-tax on cash basis. In the year 1962, land belonging to the assessee was compulsorily acquired under the Land Acquisition Act, 1894, possession of which was taken on May 20, 1962. Compensation with interest was offered on July 31, 1963. Receiving the amount under protest, the assessee claimed higher compensation for which a reference to the court was made under Section 18 of the Land Acquisition Act. The trial court awarded higher compensation on December 23, 1968. In appeal by the State Government, this court reduced the compensation awarded by the trial court in its judgment dated April 18, 1975. In accordance with the judgment of the High Court, Rs, 75,251 was paid during the year of assessment out of which interest was Rs. 26,253. Although accounts revealed receipt of the interest amount, the assessee claimed exemption of the same from assessment for the year relying upon a decision of this court in Joyanarayan Panigrahi v. CIT [1974] 93 ITR 102. This decision was distinguished by the Assessing Officer on the ground that Sri Panigrahi was not being assessed earlier till receipt of compensation amount whereas the assessee under consideration was being assessed since 1961-62. Since the assessee never reflected the interest on accrual basis in its returns for past years, the Assessing Officer demanded tax in the year under assessment in respect of the entire interest received. In appeal, the assessee urged that it is not liable to pay tax on the amount
of interest in dispute which it received on account of late payment of compensation. The Appellate Assistant Commissioner did not accept the submission in view of the decisions of this court in CIT v. Raja S. N. Bhanja Deo [1977] 106 ITR 748 and CIT v. Raja S. N. Bhanja Deo [1978] 111 ITR 178. In appeal before the Income tax Appellate Tribunal, applying the principle of Joyanarayan’s case [1974] 93 ITR 102 (Orissa), the appellate order was reversed and the Income-tax Officer was directed to reassess the amount of Rs. 26,253 in the assessment years in which they asked for deleting the amount from the year of assessment.
3. There is no dispute that the amount of Rs. 26,253 is income liable to tax. The only question is whether it should be assessed during the year of receipt or during the years of its accrual.
4. Income is assessed on the basis of cash received or amount accrued during the year. The first one is called cash system and the second one is called mercantile system. The choice remains with the assessee to accept any method which is to be considered by the Assessing Officer. If the method adopted by the assessee is acceptable, the Income-tax Officer shall not reject the same merely because the said method would yield less tax. However, the assessee shall not be permitted to change his method during the assessment year at the stage of the assessment to get the benefit.
5. In this case, the assessee had no knowledge of the amount which he would receive towards interest. He had received the interest offered to him along with the compensation under protest, His claim was for a higher compensation and, accordingly, interest payable would be much higher. If the assessee is not an income-tax payee and interest accrued on the compensation demanded is also not taxable in the hands of the assessee that year, there would be no scope for his claiming before the Income-tax Officer that the interest has accrued and, on account of the quantum, he is not liable to pay tax. Therefore, when he actually receives the amount of interest and the Income-tax Officer demands that he is to pay tax on the interest received, the assessee can explain to the Income-tax Officer that, because he was not liable to pay tax, he could not claim that the interest which accrued on his demand for higher compensation was not within the scope of assessment. However, on the first available opportunity, the assessee is required to disclose the interest that has accrued to him. If he is an assessee otherwise, there is no difficulty for him to disclose that, as per his demand, the interest which is to be quantified by him in the return has accrued. If the assessee himself chooses to pay tax on the basis of cash receipt, he cannot later on claim that the amount received by him as interest may be spread over the years in which it had accrued. The Income-tax Officer, however, can, in such a situation, permit the assessee to adopt the accrual method. In the decision in Joyanarayan Panigrahi’s case (1974] 93 ITR 102, the
assessee was not liable to pay tax earlier than the year when he received compensation with interest and keeping the said fact in mind, the court held that interest received is to be spread over the years of accrual. Besides, the amount of interest was paid on January 30, 1961, at a time when the Indian Income-tax Act, 1922, was in force and the 1961 Act had not come into force. Taking into consideration the provision of Section 4(1)(b)(i) of the 1922 Act, it was held that tax is to be paid during the year it accrues or is deemed to accrue. In Section 5 of the 1961 Act, two methods were provided. Either it is received or is deemed to have been received or has accrued or is deemed to have accrued or arisen. The said decision has no application to the facts of this case since the assessee here is already paying tax from earlier years and has never disclosed that the interest as per his claim for compensation has accrued to him.
6. The decision in Joyanarayan Panigrahi v. CAT [1974] 93 ITR 102 (Orissa) was taken into consideration by this court, in the decision in CIT v. Raja S. N. Bhanja Deo [1977] 106 ITR 748. It was observed (at p. 751) :
“Reliance was placed on behalf of the assessee on a decision of this court in the case of Joyanarayan Panigrahi v. CIT [1974] 93 ITR 102 (Orissa). On facts, we find difference between tbe reported case and the case in hand. There is no material here at all to hold that before compensation was finalised, the quantum of interest could at all be worked out because under the statutory provision interest is a percentage of the compensation that becomes due. Therefore, as long as the compensation is not quantified, it is difficult to hold that interest was accruing on yearly basis. On the terms of tbe statute, the 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.”
7. Although the aforesaid observation was made with reference to compensation payable under the Orissa Estates Abolition Act, 1951, the general principle laid down that the right to interest would accrue only when the compensation gets quantified is applicable to the present case. Besides, the assessee was paying tax for earlier years on cash basis as in the present. case and not having indicated that the interest had accrued, the Income-tax Officer called upon him to pay tax on the total interest received which was approved by this court. In the decision of the Gujarat High Court in Topandas Kundanmal v. CIT [1978] 114 ITR 237 (Gujarat) it has been observed that compensation under the Land Acquisition Act is offered only by Land Acquisition Collector and on a claim for higher compensation, an assessee has only an inchoate right and no vested right to higher compensation until the same is awarded by the court for which it cannot be said that he has a vested and complete right to the interest on such amount.
8.
In view of the aforesaid discussion, we are of the opinion that the assessee who was paying tax on cash basis under the Income-tax Act, 1961, is liable to pay tax on the receipt of interest in cash during the year. Accordingly, our answer to the question of law is in the negative and in favour of the Revenue by stating that the Tribunal was not justified in giving a direction that the amount of interest received by the assessee on the compensation awarded under the Land Acquisition Act would be taxed in the assessment years to which they are relatable on the facts and in the circumstances of this case. There being no appearance of the assessee, there shall be no order as to costs.
J. M. Mahapatra, J.
9. I agree.