COMMISSIONER OF INCOME TAX Vs. RANI PRAYAG KUMARI DEBI

JUDGEMENT

(1.) THIS is a reference by the Commissioner of Income Tax under Section 66(2) of the Indian Income Tax Act asking for the opinion of this Court upon the question formulated at page 8 Whether such part of the installment payment made under the terms of the Exhibit compromise as corresponds to the award of Interest up to decree described in column 2 of the analysis in Paragraph 5 of this Statement, is income within the charge of Section 3 of the Act read with Section 4(3) (vii) which arose out of the following facts.

(2.) THE assessee is one of the widows of the Raja of Jharia who died in 1916 leaving an impartible Raj consisting of a large number of moveable and immovable properties some of which were the self-acquisitions of the then Raja. Upon his death Raja Shiva Prasad Singh, a collateral, took possession of all these properties as the owner of the Jharia Raj. In 1919 the assessee along with two other co-widows of the late Raja instituted a suit for recovery of possession of the whole of the impartible Raj including the moveable and immovable properties thereof chiefly on the ground that Raja Shiva Prasad Singh was not the rightful owner and that the three Ranis as heirs of their deceased husband were entitled to succeed to the Raj and all other properties left by the previous Raja. THE defendant, Raja Shiva Prasad Singh, claimed to be in rightful possession of all the properties in suit as the rightful Raja and also relied upon certain deeds called bantannamas executed by the plaintiffs by which the Ranis were alleged to have relinquished their claims for consideration. He also pleaded that the acquisitions made by the Raja were accretions to the Raj and therefore belonged to the defendant by virtue of his right of ownership to the impartible Raj. THE history of the litigation is elaborately set out in Shiva Prasad Singh v. Prayag Kumari Debi (I.L.R. 61 Cal. 711). THE decision of the Calcutta High Court was affirmed substantially by the Privy Council in the case of Shiva Prasad Singh v. Rani Prayag Kumari Debi (L.R. 59 I.A. 331). THE decree granted by the Calcutta High Court so far as it is relevant to the present dispute was passed in 1933 and awarded to the assessee a number of moveable properties which were held not to belong to the Raj such as tents, jewelleries and cash in till or deposits in the Bans or money lent out to various debtors. In case the moveables could not be returned in specie the Court fixed a valuation thereof. THE total of the moveables, including arrears of maintenance, came to Rs. 25,40,401. THE Court also awarded sums as damages for each item of moveables which were ordered to be returned, the damages being damages for detention. THE total of such damages is stated to be Rs. 22,34,031. It also appears that during the pendancy of, or before the litigation was started the Raja had taken possession of the cash and bank deposits which were ultimately decreed to the assessee and had also realised loans from the debtors. After the decree was passed by the Subordinate Judge the defendant agreed to pay certain sums in part liquidation of the decretal dues. He paid Rs. 18,28,626 towards the principal amount and Rs. 8,47,611 towards damages. It may be stated here that the principal amount was to carry interest at 6 per cent. per annum generally but no interest was fixed on the damages. Subsequently there was a compromise between the parties by which the claim of the assessee was adjusted by fixing the total dues which then remained payable at a sum of Rs. 18,00,000, the assessee receiving Rs. 2 lakhs in cash and the Raja taking over the liability to pay Rs. 4,40,000 to the creditors of the assessee thus leaving the balance to be paid to the assessee of a total of Rs. 11,60,000. It was provided in the compromise petition by paragraph 6 that all payments which will be made by the judgment-debtor in the future would be credited in the proportion of six annas and ten annas, that is to say six annas will be set off towards the principal amount which was fixed at Rs. 7,16,463-1-9 and the remaining ten annas will be set off against the damages, balance amounting to Rs. 10,83,536-14-3.

(3.) IN Commissioners of INland Revenue v. Ballantine (8 Tax Cas. 595) a firm of contractors made a claim for costs, loss and damage against the railway company. The matter was referred to arbitration and the arbiter awarded the firm a certain sum mainly as damages, together with interest thereon at 5 per cent. The Lord President in considering the question of assessability of the damages said : I think it may be safely taken that the award was not an adjustment of a contract debt at contract rates, but was substantially an assessment of compensation to the contractors for their outlays and losses under the particular circumstances in which those outlays and losses were incurred. It is impossible of course to know precisely the reasons which influenced the arbiter in taking the plan of fixing three capital sums in the first instance as at the date of the lodging of the amended claim, and then adding interest on those sums from that date until payment. It is enough that that was the mode he thought fair for the purpose of assessing compensation to the contractors in the circumstances of the case before him. He then points out : Now it is familiar that an assessment of the kind may contain as one of its constituent elements an allowance in respect that the claimant has lain for a long time out of his remedy. The propriety of such an allowance may depend on the character of the claim, and its amount may depend on many considerations of which time is only one. But an interest calculation is a natural and legitimate guide to be used by an arbiter in arriving at what he things would be a fair amount. IN most cases in which such an allowance is a constituent of an award it does not separately appear, but is slumped along with the elements in the gross sum discerned for; but there is nothing to prevent an arbiter, if he thinks it just and reasonable in a particular case, to make the allowance in the form of an actual interest calculation from a past date until the sum fixed as at that date is paid. IN all such cases, however - whether the allowance is wrapped up in a slump award or is separately stated in the decree - the interest calculation is used in modem estimations only. The interest is such merely in name, for it truly constitutes that part of the compensation discerned for which is attributable to the fact that the claimant has been kept out of his due for a long period of time.