- (1.) Leave granted.
(2.) We have heard learned counsel on both sides.
(3.) This appeal by special leave arises from the judgment of the High court of Punjab and Haryana made in CWP No. 1558 of 1991 and batch on 13/12/1991. The admitted facts are that the appellants had received notice on 31/7/1991 for payment of income tax on the delayed interest amount recovered under the Land Acquisition Act, 1894 (for short "the LA Act"). Calling that notice in question, they filed writ petitions. The High court relying upon decisions of this court dismissed the petitions with a finding as under: "This now leads us to the consideration of the question whether interest paid on the amount of compensation for compulsory acquisition of land is 'income' and, therefore, taxable under the Act. Matters which have to be considered for awarding compensation for compulsory acquisition of land are enumerated in Section 23 of the Land Acquisition Act. While sub-section (2 of that section provides for payment of certain solatium for acquisition of compulsory nature, interest is not included as an item of compensation. Instead, interest is payable by force of Section 34 of the Act, if compensation is not paid or deposited on or before taking possession of the land. By force of Section 28 also, the court, on a reference if it enhances the compensation offered by the Collector, is entitled to award interest on the amount of such enhanced compensation. Section 28 also provides that the court, on a reference, shall award interest on the amount of enhanced compensation. It will thus appear from the text of Section 34 of the Land Acquisition Act that interest is not payable as compensation but is paid if the compensation is not paid before taking possession of the land. Interest is thus payable because of the deprivation of the possession of the land before compensation for compulsory acquisition of that land is paid. This position is now well-settled. In Sham Lal Narula (Dr) v. Commissioner of Income Tax, the observation is that interest has to be paid on the amount awarded from the time the Collector takes possession until the amount is paid or deposited. Interest is not an item of compensation. Nor is it 245 consideration for acquisition of land. Payment of interest has been provided for separately under Section 34 of the Land Acquisition Act. This is so because interest is paid after the compensation has been determined. It is something in addition to the capital amount though it arises out of it. It has expressly been held that interest under Section 34 of the Land Acquisition Act is not compensation paid to the owner for depriving him of his right to possession of the land acquired, but is given to him for the deprivation of the use of the money representing the compensation for the land acquired. This interest under Section 34 of the Land Acquisition Act is thus paid for the delayed payment of the compensation amount and, therefore, a revenue receipt liable to tax under the Income Tax Act. The Supreme court expressly distinguished the decision of the Privy council in Inglewood Pulp and Paper Co. Ltd. v. New Brunswick Electric Power Commission. This decision of the Privy council as also the decision in Abhay Singh Surana v. Secy. , Ministry' of Communication are authorities only for the proposition that interest is payable on the amount of compensation determined either under the Land Acquisition Act or under the Requisition and Acquisition of Immovable Property Act, 1952. Neither of these authorities considered the question of exigibility of such interest to income tax. This principle in Narula case has subsequently been applied by the Supreme court in a later decision in T. N. K. Govindaraju Chelly v. commissioner OF INCOME TAX also, where the property was acquired under the Requisition and Acquisition of Immovable Property Act which did not make any specific provision for the award of interest on the amount of compensation, the application of S. 28 and 34 of the Land Acquisition Act, 1894, dealing with the payment of interest on the amount awarded as compensation could not be deemed to be excluded. When the owner of property was dispossessed pursuant to an order for compulsory acquisition, an agreement that the acquiring authority will pay interest on the amount of compensation was implied. It has been expressly held that the view in Sham Lal Narula case that the interest received is chargeable to tax as income, will apply if interest is payable under the terms of an agreement, express or implied, and the court or the arbitrator gives effect to the terms of the agreement and awards interest which has been agreed to be paid. It has, therefore, to be held that the amount received as interest on the amount of compensation assessed under the Land Acquisition Act or under the Requisition and Acquisition of Immovable Property Act is income taxable under the Income Tax Act. Certainly, it is not agricultural income since it is neither rent nor revenue derived from the land used for agricultural purposes. It is, therefore, not exempt from income tax under Section 10 (1 of the Income Tax Act as agricultural income. The Land Acquisition Collector is, therefore, perfectly justified 246 in retaining the amount of interest payable to the holders of agricultural lands compulsorily acquired in terms of Section 194-A of the Act. The Land Acquisition Collector is also justified in demanding the sum paid on account of interest under Section 194-A of the Act. The notices issued and challenged in these petitions are, therefore, valid and perfectly justified. ";