(1.) THIS is a reference at the instance of the Revenue under s. 256(1) of the IT Act, 1961, by the Tribunal requiring this Court to give its opinion on the following question of law :
(2.) THE facts are these : Shri C. S. Angre, the assessee, was a jagirdar of the erstwhile Gwalior State. By the Madhya Bharat Abolition of Jagirs Act, 1951, the jagirs were Abolished w.e.f. December 4, 1952. Under s. 8 of the aforesaid Act, compensation was payable to the assessee in accordance with the principles laid down in Sch. 1. Under subs. (2) of that section, the compensation payable became due as from the date of the resumption of the jagir. Simple interest was payable at the rate of 21per cent per annum from that date up to the date of payment on the amount of compensation which was payable within a period of 10 years in annual instalments. By order dated January 11, 1958, of the CIT, land Reforms & jagirs, Gwalior, the compensation payable to the assessee was fixed at Rs. 12,03,972.36 which was payable in 10 annual instalments of Rs. 1,20,397,23 each. By a letter dated December 5, 1959, the Collector, District Dewas, informed the assessee that interest on the compensation amounting to Rs. 1,45,244.58 was paid on October 26, 1959. THE ITO brought to tax the interest of Rs. 24,809, Rs. 24,703, Rs. 22,621 and Rs. 14,076 for the asst. yrs. 1956-57, 1957-58, 1958- 59 and 1959-60, respectively. Similarly, for the asst. yrs. 1960-61 and 1961-62, interest of Rs. 11,075 and Rs. 6,160, respectively, was brought to tax on accrual basis. THE assessee claimed that the interest which accrued to him was a part of the compensation payable to him for the resumption of his jagirs and that it was a capital receipt not liable to tax under the IT Act. THE assessee's contention was, however, not accepted by the ITO and the AAC but was accepted by the Tribunal and at the instance of the CIT, the M.P. High Court in the judgment reported in CIT vs. Sardar C. S. Angre (1966) 61 ITR 636 (MP), held that the interest was not capital receipt. THE Supreme Court in Chandroji Rao vs. CIT (1970) 77 ITR 743 (SC), affirmed the judgment of the High Court.
(3.) THE previous year for the asst. yr. 1971-72 ended on December 31, 1970. Since the interest amounting to Rs. 91,943 was received in this year, the ITO brought to tax the entire amount as the income of the assessee for this year. THE assessee's submission was that the interest on compensation had been taxed from the assessment years 1956-57 to 1963-64 on accrual basis and, therefore, only that part of the interest out of Rs. 91,943, which pertained to this year, should be brought to tax. THE contention was, however, not accepted by the ITO because the ITO was of the opinion that no regular method was being followed by the assessee in respect of the taxability of interest received on compensation. Aggrieved by this order, the assessee filed an appeal to the CIT (A). THE CIT (A) did not accept the contention of the ITO that no method of accounting had been followed by the assessee in respect of the income from interest on compensation. He observed that it was patently clear that the interest income had always been taxed on accrual basis since the asst. yr. 1956-57. He, therefore, held that interest was to be taxed as follows : (i) the entire interest pertaining to the period prior to March 19, 1964, shall be taxed in the assessment year in which this date falls ; (ii) interest income pertaining to the period after March 19, 1964, shall be taxed on accrual basis in the respective assessment years. THE Revenue preferred an appeal before the Tribunal contending that the CIT (A) erred in deleting the interest on additional compensation amounting to Rs. 91,943 received by the assessee during this year. By cross- objection, the assessee submitted that the CIT (A) erred in not taking the interest on compensation on accrual basis for the period prior to March 19, 1964. THE Tribunal held that interest of Rs. 91,943 is liable to be spread over and taxed in the years to which this interest relates and only that part of the interest which relates to this year has to be taxed this year. THE Tribunal further held that on the basis of the judgments relied on behalf of the Revenue, it cannot be held that interest income is to be taxed only on the basis of receipt. So both the appeal and the crossobjection were partly allowed. THEn an application was moved by the CIT for a reference under s. 256(1) for referring two questions to this Court, but the Tribunal has referred the aforesaid question only for opinion of this Court.