ORDER
R. D. AGRAWALA, J.M. :
This order will dispose of 3 appeals, one by the assessee while the other two by the Department, all pertaining to asst. yr. 1982-83.
2. To state the facts succinctly, the Assessing Officer, based on his Inspector’s report, noted that the assessee had sold some land to M/s. Kirloskar Brothers, Dewas, on 6th July, 1961. They received an amount of Rs. 2,33,804 on 20th January, 1982. Assessee-HUF consisted of seven members, who owned agricultural land admeasuring 125 acres approximately. This land was compulsorily acquired by the Govt. for an industry to be set up by M/s. Kirloskar Bros., Dewas.
3. In respect of the acquisition of land, the compensation was finally determined by the Madhya Pradesh High Court in a sum of Rs. 2,33,169 vide its order dt. 25th November, 1980, which amount included a sum of Rs. 1,29,129 towards interest.
4. The Assessing Officer took the view that the amount of compensation and interest was assessable in the hands of the assessee in the year of receipt. A capital gain tax was worked out at Rs. 66,164 arising out of the sale of land of the assessee-HUF. The assessment was eventually completed under s. 144 of the IT Act.
5. The case of the assessee is that the possession of land that was acquired was handed over to M/s. Kirloskar Bros. on 6th July, 1961. An award was made on 22nd August, 1961, whereby a sum of Rs. 33,487.33 was determined as payable. This amount was paid to the assessee and others on 4th January, 1962.
6. Sri Reghunath Singh the head of the family expired during 1960 after which event the lands owned by the family stood divided amongst his 2 sons, S/Sri Bhimsingh and Ranjeetsingh and 5 grandsons of his third son late Kishansingh. The assessee’s HUF was out of the branch of late Kishansingh.
7. After the award was made, the assessee-HUF through its Karta Shivanath Singh, his 4 brothers and his 2 uncles filed an appeal to the District Court, Dewas, seeking enhancement of compensation. The District Court vide its order dt. 17th December, 1968, enhanced the compensation to Rs. 1,32,124.
8. The Govt. of M.P. obtained stay order against the enhanced compensation determined by the District Court by preferring an appeal before the High Court of Madhya Pradesh. The assessee and others simultaneously filed cross-objections for increase in the compensation and it was this order of the High Court dt. 25th November, 1980, by which the State Govt.’s appeal was dismissed and the cross-objections of the assessee accepted and compensation further increased.
9. Assessee’s case further is that they never challenged the acquisition which became final when the possession of the land in question was handed over by them on the 6th July, 1961, and the compensation of Rs. 33,847.33 awarded to them received. Only the quantification of the compensation was in dispute.
10. In amongst the heirs of late Raghunath Singh, the land stood divided by way of an old partition in respect of which a declaratory suit was filed on 17th March, 1969. As per this, the land under acquisition belonged to S/Sri Ranjeetsingh and Bhimsingh and the assessee and his 4 brothers belonging to the branch of late Kishansingh, the third son of Sri Raghunathsingh. Necessary entries to this effect were also made in the land records.
11. On the strength of these facts, the assessee pleaded that no capital gain arose on the sale of the agricultural land during the asst. yr. 1982-83; secondly that the capital gain arose consequent upon Government’s notification dt. 7th April, 1961, for acquisition of land and that this capital gain related to the sale of agricultural land belonging to the smaller HUF of the assessee Shivnathsingh, his 4 brothers and 2 uncles, the assessee’s share coming to only 1/5th of 1/3rd share as confirmed by the partition decree dt. 22nd April, 1969.
12. The learned CIT(A) accepted the assessee’s plea. According to him, the land was acquired by the Govt. on 6th July, 1961, under s. 6 of the Land Acquisition Act, and the assessee stood divested of the same on that very day on which the possession of land was delivered by the assessee. Further, s. 2(47) of the IT Act precluded the taxing of the capital gains on the agricultural land which was compulsorily acquired like this. Addition of Rs. 66,164 made by the Assessing Officer was thus deleted.
13. Coming to the taxability of the interest amount of Rs. 1,29,129 in the hands of the assessee, the learned CIT(A) proceeded to dispose of the issue in favour of the assessee in the following manner :
“From the facts discussed above, it is clear that the appellant’s HUF has come out of the third wing of the bigger HUF. Shri Raghunathsingh had three sons, namely, Sri Bhimsingh, Sri Ranjeetsingh and Sri Kishansingh. After the death of Sri Raghunathsingh, an oral partition was effected amongst the then existing members of the HUF. Since Sri Kishansingh had already expired in 1940, his five sons including the appellant, were made parties to this partition. This partition was recognised by the Ist Class Civil Judge, Dewas, vide his order dt. 22nd April, 1969, a copy of which has been filed on record. It, therefore, follows that the appellant’s HUF had only 1/5th of 1/3rd share in the interest amount so received at Rs. 1,29,129 which comes to Rs. 8,608 only. The learned counsel had also pleaded about the taxability of the amount so received on accrual basis and has relied upon the A.P. High Court’s decision in the case of CIT vs. Nawab Mahmood Jung Bahadur (1988) 70 CTR (AP) 77 : (1988) 172 ITR 592 (AP). However, without going into the same, I am convinced that at the most a sum of Rs. 8,608 can be taxed in the hands of the appellant-HUF. The balance amount of Rs. 1,20,521 has to be deleted from the hands of the appellant. The appellant accordingly gets a relief of Rs. 1,20,521 which brings its total income to Rs. 8,608 only, since there was no any other source of income to the appellant.”
14. It is in this context that the assessee feeling aggrieved has filed this appeal.
15. Another appeal ITA 892/Ind/89 is filed by the Department against the deletion of Rs. 1,20,521 out of interest income of Rs. 1,29,129 in the hands of the assessee and the deletion of the addition of Rs. 66,164 as capital gains. A further offshoot arose, inasmuch as, the Assessing Officer issued a notice to the assessee and 6 other persons treating them as an ‘AOP’ in respect of the sale of this agricultural land. These 7 persons are no other Sri Shivnathsingh Choudhary and his 4 brothers and his 2 uncles. A protective assessment was made in the hands of this AOP. The learned CIT(A) took the view that since there was no AOP with reference to his order out of which ITA No. 866/Ind/89 arose, the protective assessment could not stand in law. Hence these appeals.
16. Before us, the learned Departmental Representative contended that the view taken by the learned CIT(A) was not sustainable, the learned counsel for the assessee while supporting the cancellation of the protective assessment and the deletion of the addition of Rs. 66,164 towards capital gains, assailed the exigibility of Rs. 8,608 to tax, being the amount of interest in the hands of the assessee.
17. We have considered the matter carefully.
A few facts as have emerged out remain totally undisputed. Certain lands were acquired by the Government vide Notification dt. 6th July, 1961, under s. 6 of the Land Acquisition Act. The possession was also delivered and there was nothing left in respect of the land in question with their owners except the right to get compensation or seek remedy to claim enhanced compensation. Incidentally, the original compensation granted by the award amounted to Rs. 33,847.33 was also received. The quantification was, however, disputed which was finally determined by an order dt. 25th November, 1990, rendered by the Hon’ble High Court of Madhya Pradesh whereby the total compensation granted came to Rs. 2,33,169 inclusive of interest amount of Rs. 1,29,129.
18. Coming to the other part of the story, there is no dispute that vide order dt. 22nd April, 1969, rendered by the learned First Class Civil Judge, Dewas, the oral partition in amongst the 3 branches of late Raghunathsingh, was confirmed. Assessee, Shivnathsingh and others together with his 4 brothers and two uncles no doubt presecuted proceedings for enhanced compensation but their rights inter se were clearly determined.
19. In so far as the protective assessment on the AOP is concerned, naturally, there was no AOP. Two sons of late Raghunathsingh and 5 grandsons of his third son, who predeceased him and who had partitioned their interest were simply claiming enhancement in the amount of compensation by joining together. We fully agree with the CIT(A) that there were no premises on which the protective assessment in the hands of AOP could stand as there was no AOP at all.
20. Now coming to the other aspect, in so far as the taxing of capital gains is concerned, the learned CIT(A) has correctly taken the view that the same was not taxable as it arose out of the compulsory acquisition of certain agricultural lands. Similarly, in so far as the taxing of interest is concerned, the assessee’s share, that is, Shivnathsingh Choudhury and others only came to Rs. 8,608, being 1/5th of the 1/3rd amount which was payable to all the 3 sons and their branches of late Raghunathsingh. In so far as the remainder of Rs. 1,20,521 is concerned, it cannot be taxed in the hands of the present assessee. As observed by the CIT(A), since there was no other source of income of the assessee, the amount of Rs. 8,608 became free from tax.
21. However, this is not the issue. The assessee’s challenge is on a different premise. According to the learned counsel for the assessee, in terms of a ratio of the High Court of Andhra Pradesh in the case of CIT vs. Nawab Mahmood Jung Bahadur (1988) 70 CTR (AP) 77 : (1988) 172 ITR 592 (AP), interest is taxable on accrual basis.
22. Similarly, in the case of CIT vs. Khorshed Shapoor Chinal & Ors. (1990) 84 CTR (SC) 164 : (1990) 181 ITR 400 (SC) the apex Court took the view that interest on enhanced compensation ordered by the Court accrues from the date when possession of land was taken. Further, such interest accrues from year to year and assessment of interest in the year in which the order was passed by the Court was not proper.
23. This being the law of the land, even the amount of Rs. 8,608 would not be taxable during the asst. yr. 1982-83 and would have to be bifurcated during the years in which the same has accrued, from the date of the possession of the acquired land which was handed over on the 6th July, 1961, as against the year in which it was finally determined by the High Court’s order. The plea of the assessee thus succeeds.
24. In the result, while assessee’s appeal ITA No. 866/Ind/89 is allowed, the 2 Departmental appeals ITA 891 and 892/Ind/89 stand dismissed.
However, if any part of the interest is found to be taxable in any earlier years in terms of the ratio of the apex Court decision in the case of CIT vs. Khorshed Shapoor Chinai & Ors. referred to supra, the Department would be free to do so in accordance with the provisions of law.