(1) AS similar questions of law and facts arise for consideration, this order shall also govern the disposal of the following petitions : Civil Writ Petitions Nos, 5562, 5477, 6018, 6019, 5476, 7457 and 7456 of 1988 ; C. W. P. Nos. 4617, 11494, 11490, 6868, 6585, 6584, 6869 of 1989 ; C. W. P. Nos. 4450, 8424, 8420, 6351, 1545, 1544, 9758, 11513, 5410 and 649 of 1990 ; and C. W. P. Nos. 10752, 10751, 10750, 11495, 13683, 5130, 1608, 14237, 13776, 13408, 12887, 13761, 14068, 15582, 13394, 13395, 13396, 13397, 13398, 7820, 13399, 13400, 13401, 14891, 12804, 12805, 12806, 12807, 12808, 12809, 12810, 12811, 12812, 12813, 12814, 12815, 12821, 12822, 13030, 12280, 12442, 10987, 10988, 6186, 649, 11413, 6206, 13422, 13511, 14456, 14429, 13039, 13042, 13043, 14745, 14752, 14177, 9819, 8279, 10100, 7823, 8042, 8039, 7842, 8038, 7822, 7821, 7816, 7819, 7818, 7817, 7829, 10555, 10556, 10557, 10558, 10559, 10560, 11898, 13291, 13292, 13293, 13294, 13295, 13296, 13297, 13298, 13299, 13300, 13301, 13302, 13303, 13304, 15134, 14574, 14390, 14392, 14389, 14369, 14370, 14368, 3446, 3445, 7814, 5586, 5585, 5584, 5583, 5582, 5581, 5580, 5579, 1671, 14391, 7816, 16043, 15135, 15314, 15917, 16989, 16730, 16731, 13776, 15556. 16240, 16481, 16900, 16918, 17219, 17101, 17311, 16600, 17350, 17351, 17352, 17353, 17354, 17387, 16270, 17557 and 17561 of 1991.

(2) EXTENSIVE agricultural land was acquired under the Land Acquisition Act after due process of law. The Land Acquisition Collector gave his award assessing the market value of the land. On a reference under Section 18 of the Land Acquisition Act, the District Judge enhanced the compensation. The claimants/landholders were awarded solatium and also interest calculated in terms of Sections 23 (1a) and 28a, as inserted by Amending Act No. 68 of 1984. The award made by the District Judge was challenged in appeal before this court and the compensation and interest payable to the claimants have been finally determined by the various judgments passed in Letters Patent appeals. The claimants received compensation. They were, however, not required to pay any income-tax on the amount so received as market value of their land as also on the inter est. Now, notices like annexure P4 have been issued to those landowners whose lands were acquired as aforesaid. By such notices, they have all been informed that a certain amount was required to be deducted on account of income-tax on the amount of interest so received by them. All such persons/claimants were required to deposit the amount mentioned in such cases towards the amount of income-tax chargeable on the amount of interest so received by them. These notices apparently have been issued in terms of Section 194a of the Income-tax Act, 1961 (Act No. 43 of 1961) (for short " the"), as amended by the Finance (No. 2) Act, 1967, effective from April 1, 1967. All the petitioners in these writ petitions have challenged these notices on the grounds which we shall presently consider and have prayed that these notices be quashed. They also pray that Clause (iii) in Sub-section (14) of Section 2 of thebe declared ultra vires. A further prayer is to declare that they are not liable to pay any tax on the amount received as compensation as capital gains on the acquisition of agricultural land and if any amount has been deducted at source on that account, it be refunded.

(3) BEFORE proceeding to consider the various arguments raised in support of these petitions, we may notice a few relevant provisions of the.

" Income " according to Section 2 (24) of the Act, includes,- (i) profits and gains ; [sub-clause (i)] (ii) dividend ; and [sub-clause (ii)] (iii) any capital gains chargeable under Section 45 [sub-clause (vi)] Section 2 (1a) of thedefines " agricultural income ".

"(1a) Agricultural income means,-- (a) any rent or revenue derived from land which is situated in India and is used for agricultural purposes ; (b) any income derived from such land by (i) agriculture ; or (ii) the performance by a cultivator or receiver of rent-in-kind of any process ordinarily employed by a cultivator or receiver of rent-in-kind to render the produce raised or received by him fit to be taken to market ; or (iii) the sale by a cultivator or receiver of rent-in-kind of the produce raised or received by him in respect of which no process has been performed other than a process of the nature described in paragraph (ii) of this sub-clause ;. . . . Explanation.--For the removal of doubts, it is hereby declared that revenue derived from land shall not include and shall be deemed never to have included any income arising from the transfer of any land referred to in item (a) or item (b) of Sub-clause (iii) of Clause (14) of this section ;"

(4) SECTION 2 (14) of the defines "capital asset" to mean property of any kind held by an assessee, whether or not connected with his business or profession, but does not include -. . . . Explanation.- -. . . . (iii) agricultural land in India, not being land situate

(a) in any area which is comprised within the jurisdiction of a municipality (whether known as a municipality, municipal corporation, notified area committee, town area committee, town committee, or by any other name) or a cantonment board and which has a population of not less than ten thousand according to the last preceding census of which the relevant figures have been published before the first day of the previous year ; or (b) in any area within such distance not being more than eight kilometres, from the local limits of any municipality or cantonment board referred to in item (a), as the Central Government may, having regard to the extent of, and scope for, urbanisation of that area and other relevant considerations, specify in this behalf by notification in the Official Gazette. "

(5) ACCORDING to Section 2 (47), " transfer " in relation to a capital asset, includes sale, exchange or relinquishment of the asset or extinguishment of any rights therein or compulsory acquisition thereof under any law. According to Section 10, " agricultural income " shall not be taken as the total income of a previous year of any person ; and by force of Section 45, any profits or gains arising from the transfer of a capital asset effected in the previous year shall, save as otherwise provided in Sections 53, 54, 54b, 54d, 54e, 54f, 54g and 5411, be chargeable to income tax under the head " Capital gains", and shall be deemed to be the income of the previous year in which the transfer took place. Section 194a, in so far as it is relevant for our purposes, may be quoted :

"194a. (1) Any person, not being an individual or a Hindu undivided family, who is responsible for paying to a resident any income by way of interest other than income by way of interest on securities, shall at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force : Provided that no such deduction shall be made in a case where the person (not being a company or a registered firm) entitled to receive such income furnishes to the person responsible for making the payment (a) an affidavit, or (b) a statement in writing, declaring that his estimated total income assessable for the assess ment year next following the financial year in which the income is credited or paid will be less than the minimum liable to income tax. "

(6) HAVING thus noted the relevant provisions of the Income-tax Act, we now proceed to consider the various arguments raised in support of the petitions. (7) LEGISLATIVE competence of Parliament to enact comprehends the power to tax agricultural income. The contention is that by force of item 82 of List I of the Seventh Schedule to the Constitution, Parliament is empowered to levy tax on income other than agricultural income. Income derived from agricultural land is, therefore, said to be covered by entry 46, List II of Schedule VII. Hence, it is the State Legislature (and not Parliament ) which is competent to legislate and make law relating to the levy and imposition of tax on agricultural income. The argument, therefore, is that Section 2 (14) (iii) of the Income-tax Act is ultra vires. The true meaning and scope of the relevant entries, namely, entries 82 of List I and 46 of List II of the Seventh Schedule to the Constitution has, therefore, to be ascertained. It is now well-settled that there is a presumption that the Legislature does not exceed its jurisdiction and the burden of establishing that an enactment is not within the competence of the Legislature or that it has transgressed the constitutional mandate as such is always on the person who challenges its vires. In Shell Company of Australia Ltd. v. Federal Commissioner of Taxation [1931] AC 275, 298, the rule in this regard appears in the following terms : " Unless it becomes clear beyond reasonable doubt that the legislation in question transgresses the limits laid down by the organic law of the Constitution, it must be allowed to stand as the true expression of the national will. "

(8) IN its application as a rule of construction, it would mean that if, on one construction, a given statute will become ultra vires the powers of the Legislature whereas, on another construction which may be open, the statute remains effective and operative, the court will prefer the latter on the ground that the Legislature is presumed not to have intended an excess of its jurisdiction : see Shah and Co. v. State of Maharashtra, AIR 1967 SC 1877 [LQ/SC/1967/122] and Rayala Corporation (P.) Ltd. v. Director of Enforcement, AIR 1970 SC 494 [LQ/SC/1969/226] . Since a statute is an edict of the Legislature, it must be construed according to the intent of those that make it and the duty of the judicature is to act upon the true intention of the Legislature : see S. Narayanaswami v. G. Panneerselvam, AIR 1972 SC 2284 [LQ/SC/1972/226] . The legislative intent often becomes a fiction representing the attitude of judges in arriving at a solution by striking a balance between the letter and spirit of the statute without acknowledging that they have in any way supplemented the statute. Judge Learned Hand tells us what Justice Cardozo said,-

"A judge must think of himself as an artist, who although he must know the handbooks, should never trust to them for his guidance ; in the end, he must rely upon his almost instinctive sense of where the line lies between the word and the purpose which lay behind it. "

(Mr. Justice Cardozo by Learned Hand, 52, Harvard Law Review, pp. 361-363 ).

(9) THE rule which applies to interpretation of other statutes applies equally to the interpretation of a constitutional enactment subject to the reservation that their application is, of necessity, conditioned by the subject-matter of the enactment itself. None of the items in the Lists is to be read in a narrow or restricted sense and each general word should be held to extend to all ancillary or subsidiary matters which can fairly and reasonably be said to be comprehended in it. In Navinchandra Mafatlal v. CIT [1954] 26 ITR 758 [LQ/SC/1954/156] ; AIR 1955 SC 58 [LQ/SC/1954/156] , the law laid down is that, in construing an entry in a List conferring legislative powers, the widest possible construction according to their ordinary meaning must be put upon the words used therein. The words should be read in their ordinary, natural and grammatical meaning subject to the rider that, in construing words in a constitutional enactment conferring legislative power, the most liberal construction should be put upon the words so that the same may have effect in their widest amplitude. Venkatachaliah J. , speaking for the court, in Federation of Hotel and Restaurant Association of India v. Union of India [1989] 178 ITR 97 [LQ/SC/1989/300] ; AIR 1990 SC 1637 [LQ/SC/1989/300] , expressed the view that wherever legislative powers are distributed between the Union and the States, situations may arise where the two legislative fields might apparently overlap. Nevertheless, it could not have been the intention of the Legislature that a conflict should exist ; and, in order to prevent such a result, the two provisions must he read together and the language of one interpreted and, where necessary, modified by that of the other. It was further observed that it is the true nature and character of the legislation and not its ultimate economic result that matters. A Division Bench of the Karnataka High Court in Mysore Kirloskar Ltd. v. Union of India [1986] 160 ITR 50 [LQ/KarHC/1986/127] , while speaking on the interpretation of such entries, observed that the various entries in the three Lists of Schedule VII to the Constitution are not powers of legislation but fields of legislation. The power to legislate may be found in other articles of the Constitution. The entries have only an enabling character and specific legislative heads. Since such entries set up the machinery of the Government, they are entitled to be given the widest scope. At the same time, entries in different Lists should be read together without giving a narrow meaning to any one of them. It would, therefore, be not just to import any limitation on any other entry in the same List. The scope of the entries under consideration, namely, entry 46 in List II and entry 82 in List I of the Seventh Schedule to the Constitution, shall have to be construed in the light of the above principles.

(10) ARTICLE 560 (1) of the Constitution defines " agricultural income " to mean agricultural income as defined for the purposes of the enactments relating to Indian income tax. Therefore, the meaning to be assigned to the term "agricultural income" has to be gathered from the definition of that term as found in the income tax law at the time in force. Thus, " agricultural income " as defined in the Income tax Act becomes the definition of that term for the purpose of the Constitution also. Article 246 (1) of the Constitution clothes Parliament with jurisdiction to make laws with respect to any of the matters enumerated in List I in the Seventh Schedule (the Union List ). Thus, Parliament, in terms of entry 82, List I, of the Seventh Schedule to the Constitution, becomes competent to define the term " agricultural income " for the purpose of the Constitution and the Income-tax Act. At the same time, the power to define must be held to include in it the power to amend or modify the same. Applying the pith and substance theory, a Division Bench of the Karnataka High Court in B. S. Jayachandra v. ITO [1986] 161 ITR 190 [LQ/KarHC/1986/157] , held that Parliament was competent to define the terms " agricultural income ", " agricultural land " and " capital asset " and thus bring to tax capital gains arising or accruing from agricultural lands situated within municipal limits and eight kilometres of notified municipal areas, which had ceased to be agricultural lands. Taxation of capital gains is, in pith and substance, a tax on income other than agricultural income and, if and when a piece of legislation also affects lands which have ceased to have all the characteristics of agricultural land and thus acquire other characteristics, such encroachment on the other field of legislation is purely incidental. The entry " agricultural income ", appearing in item 82 in List I of the Seventh Schedule to the Constitution, has thus been given a wider scope which is not open to a narrow construction as learned counsel for the petitioners contends. The intention also appears to be to bring to tax capital gains arising out of the lands which ceased to have the characteristics of agricultural land and have acquired other characteristics. In substance, what is sought to be taxed is income not from agricultural land, but income from that land which has lost all its characteristics as agricultural land.

(11) THE view that, we have taken is also shared by the Gujarat High Court in Ambalal Maganlal v. Union of India [1975] 98 ITR 237. [LQ/GujHC/1973/156] Repelling the argument that the power to impose tax on agricultural income which includes within its compass the power to impose a tax on capital gains derived from the transfer of agricultural lands is within the exclusive legislative power of the State Legislature, it was held, following the reasoning of the Supreme Court in GTO (Second) v. D. H. Nazareth [1970] 76 ITR 713 [LQ/SC/1970/177] , that the tax on the capital gains resulting from transfer of agricultural land is not a tax imposed directly on lands and buildings but is a tax upon the profits or gains arising from the transfer of a capital asset which may include lands and buildings. There is no tax upon lands or buildings as units of taxation, and since entry 46 of the State List contemplates a tax directly levied on agricultural income, it cannot include the tax on capital gains arising from the transfer of land which includes such agricultural land. Referring to the decision of the Supreme Court in Navinchandras case [1954] 26 ITR 758 [LQ/SC/1954/156] , it has been observed that Parliament has, by virtue of entry 82 in List I of the Seventh Schedule, the power to enact a law relating to tax on capital gains and, therefore, also to amend the law relating to tax on capital gains. Such a tax would be a tax on income. Parliament has the power to define what is meant by " agricultural income " and, by virtue of entry 82, it has the power to levy tax on income other than agricultural income thus defined. It has, therefore, been specifically held that Parliament is competent to enact Section 2 (14) (iii) of theso as to provide for tax on capital gains arising from agricultural land. It was pointed out that, to adjudge the competency of Parliament to tax income other than agricultural income is to see whether the land on the transfer of which the profits or gains are said to arise is possessed of all the characteristics of agricultural land and has not acquired the potentialities of being put to industrial or residential or commercial use. Applying the doctrine of pith and substance, the observation is that the legislation by Parliament providing for taxation on capital gains, that is, on income, within the scope of entry 82 in List I of the Seventh Schedule, would be a valid piece of legislation. Thus viewed, we have little hesitation in holding that Parliament is competent to enact Section 2 (14) (iii) of the.

(12) THE next question which falls for our consideration is whether the amount received as compensation on compulsory acquisition of agricultural land--whether under the Land Acquisition Act or under the Requisition and Acquisition of Immovable Property Act, 1952 (No. 30 of 1952)--is a capital asset within the meaning of Section 2 (14) of theand, if so, whether the profits and gains arising therefrom are exigible to income tax. Undoubtedly, such a compulsory acquisition of agricultural land under any law for the time being in force is a transfer within the meaning of Section 2 (47) of the. The expression " capital asset " means property of any kind held by the assessee, whether or not connected with his business or profession. It, however, does not include agricultural land in India, except the classes of land included in items (a) and (b) of Section 2 (14) (iii) of the. In order to qualify for such exemption, it is not enough that the land was once agricultural land. It must be agricultural land even at the time of sale/transfer. By the Finance Act, 1970, with effect from the assessment year 1970-71, certain specified lands situate in urban areas or semi-urban areas were brought within the definition of a capital asset. However, Clause (viii) (sic) inserted in Section 2 (47) exempts capital gains on any transfer of agricultural land in India made before April 1, 1970. Learned counsel for the petitioners argued that what is received on such compulsory acquisition of land is revenue derived from the land and is, therefore, agricultural income. This argument was expressly repelled in the case of CIT v. T. K. Sarla Devi [1987] 167 ITR 136 (Ker ). It was held that when a capital asset is sold, what is realised is a capital receipt and not a revenue receipt. If profit or gain results from such a sale, it is chargeable, not because it is revenue, but because the statute specifically charges the resulting capital gain by including it as income. Although land is the source of income, income is derived not by the use of the land, but by the sale of the land, that is, by conversion of the land into cash. The resultant income is not agricultural income. The Explanation inserted in Section 2 (1a) by the Finance Act, 1989, with effect from April 1, 1970, makes the position clear when it declares that revenue derived from land shall not include and shall be deemed never to have included any income arising from the transfer of any land referred to in item (a) or item (b) of Sub-clause (iii) of Clause (14) of Section 2 of the. In Sarla Devis case [1987] 167 ITR 136 (Ker), the decision of the Bombay High Court in Manubhai A. Sheth v. JV. D. Nirgudkar, Second ITO [1981] 128 ITR 87 [LQ/BomHC/1980/187] , taking a contrary view, has boen expressly dissented from and, in our opinion, rightly. No doubt the decision in Manubhais case [1981] 128 ITR 87 (Bom) [LQ/BomHC/1980/187] , does support the case of the petitioner. But, in our opinion, the Explanation completely renders ineffective the ratio of the decision in Manubhais case [1981] 128 ITR 87 (Bom [LQ/BomHC/1980/187] ). The view taken in Sarla Devis case [1987] 167 ITR 136 (Ker) was reiterated in Kalra Glue Factory v. Sales Tax Tribunal [1987] 167 ITR 498 (SC) [LQ/SC/1987/266] and again in CIT v. K. Damodaran Pillai [1991] 189 ITR 414 (Ker ). It has, therefore, to be held that the amount received as compensation on account of compulsory acquisition of agricultural land specified in Section 2 (14) (iii) of the Act, either under the Land Acquisition Act or under the Requisition and Acquisition of Immovable Property Act, 1952 (No. 30 of 1952), is a capital asset and not agricultural income and the profits and gains arising therefrom are exigible to income-tax.

(13) LEARNED counsel for the petitioners in certain writ petitions involving agricultural lands acquired under the Requisition and Acquisition of Immovable Property Act, tried to distinguish the case from those where the lands have been acquired under the Land Acquisition Act. The submission has been that compensation paid or payable under such cases has a different character from that payable for acquisition of land under the Land Acquisition Act. According to learned counsel, it is agricultural income not assessable to tax. We do not agree. According to Section 8 (3) of the Requisition and Acquisition of Immovable Property Act, the compensation payable for the acquisition of any property under Section 7 of that Act shall be the price which the requisitioned property would have fetched in the open market, if it had remained in the same condition as it was at the time of requisitioning and been sold on, the date of acquisition. It will thus appear from this provision that what is payable as compensation is the price the property would have fetched in the open market, if sold on the date of acquisition. This price has to be ascertained for the land as it existed on the date of acquisition. The compensation being thus the market price/value of the land, there appears to be little distinction between the character of compensation awarded under the Land Acquisition Act and the one under the Requisition and Acquisition of Immovable Property Act. Indeed, as we shall presently see, interest has been made payable on the amount of compensation so determined even under the Requisition and Acquisition of Immovable Property Act. See Abhay Singh Surana v. Secretary, Ministry of Communication, AIR 1987 SC 2177 [LQ/SC/1987/601] . Reliance was, however, placed upon a Division Bench decision of the Calcutta High Court in CIT v. All India Tea and Trading Co. Ltd. [1978] 113 ITR 545 [LQ/CalHC/1977/304] , where the view taken is that the amount of compensation paid under the Assam Land (Requisition and Acquisition) Act, 1948, is agricultural income and exempt from income-tax. In that case, land was requisitioned under the Assam Land (Requisition and Acquisition) Act, 1948. Certain compensation was paid for acquisition of the land. Counsel for the Revenue admitted that the compensation so paid/payable is revenue. The court held that the requisition and acquisition go together under that Act and cannot be dissected from each other. The court further held that the source of compensation is the land itself which is requisitioned under the. The liability, though statutory, arises directly from the requisition of the land itself and, as the land was being used by the assessee for the purpose of agriculture in the relevant accounting year, the compensation was agricultural income. It appears from the decision that it related only to the compensation paid for requisition of the property under the local Act. Further, counsel admitted that what was paid was revenue. These considerations weighed with the court in holding that the compensation paid was agricultural income. In cases of acquisition of property, compensation payable under Section 8 (3) of the Requisition and Acquisition of Immovable Property Act is the market price. In our opinion, this compensation cannot be termed as revenue in view of our findings recorded in the earlier part of this judgment. The Calcutta decision, therefore, is distinguishable on its own facts.

(14) 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. 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 Dr. Shamlal Narula v. CIT [1964] 53 ITR 151 SC ; AIR 1964 SC 1878 [LQ/SC/1964/135] , 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 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, AIR 1928 PC 287 [LQ/PC/1928/71] . This decision of the Privy Council as also the decision in Abhay Singh Surana v. Secretary, Ministry of Communication, AIR 1987 SC 2177 [LQ/SC/1987/601] 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 Narulas case [1964] 53 ITR 151 (SC) has subsequently been applied by the Supreme Court in a later decision in T. N. K. Govindaraju Chetty v. CIT [1967] 66 ITR 465 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 determined. It was held that, in the determination of compensation, the application of Sections 28 and 34 of the Land Acquistion 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 Shamlal Narulas case [1964] 53 ITR 151 (SC), 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 in retaining the amount of interest payable to the holders of agricultural lands compulsorily acquired in terms of Section 194a of the. The Land Acquisition Collector is also justified in demanding the sum paid on account of interest under Section 194a of the. The notices issued and challenged in these petitions are, therefore, valid and perfectly justified.

(15) BEFORE parting with the case, we would like to mention and indeed learned standing counsel for the Department duly assisted by responsible officers of the Department, candidly conceded before the courts that the income by way of interest so received as above shall have to be spread over all the years for the purpose of assessment of income-tax from the time it became due. This course has to be adopted for assessment of income-tax as indicated by the Supreme Court in Rama Bai v. CIT [1990] 181 ITR 400 [LQ/SC/1989/552] and K. S. Krishna Eao v. CIT [1990] 181 ITR 408. [LQ/SC/1989/551] The observation is that, where the compensation awarded under the Land Acquisition Act is enhanced by the order of the court on a reference under Section 18 of theor on further appeals, interest on the enhanced compensation cannot be taxed all in a lump sum as having accrued on the date on which the court passes the order for enhanced compensation ; the interest has to be spread over on an annual basis right from the date of delivery of possession till the date of the order of the court on a time basis. Earlier also, the same view was expressed by the Supreme Court in CIT v. T. N. K. Govindarajulu Chetty [1987] 165 ITR 231 [LQ/SC/1987/167] , stating that the interest accrued to the assessee when the compensation amount due to him had not been paid in each of the relevant years and had to be spread over the years between the date of acquisition and the date of actual payment. At the time of actual assessment to income-tax of the amount of interest received by the different petitioners, regard shall be had to this aspect of the matter of spreading over on year to year basis the entire amount of interest from the date of acquisition till the date of actual payment. Counsel for the Department stated at the Bar that, after the assessment of income-tax for the year when the amount of interest was paid, the balance shall be returned to the assessee/petitioners and regular reassessment proceedings shall be initiated against them for payment of additional amount of income-tax on the amount of interest received for the particular year. We also make it clear that in cases where income-tax is to be charged on the " profits and gains ", regular proceedings under the law shall be initiated by issuance of due notices.

(16) OUR Conclusion is that interest received as a consequence of compulsory acquisition of land/agricultural land is income exigible to tax. Our further conclusion is that, by force of Section 194a, at the time of credit of such income to the account of the payee or at the time of payment either in cash or by issue of cheque or draft or other mode, the payer is entitled to deduct income-tax thereon at the rates in force. No deduction, however, shall be made in a case where the person (not being a company or a registered firm) entitled to receive such income furnishes to the person responsible for making the payment-- (a) an affidavit ; or (b) a statement, in writing, declaring that his estimated total income assessable for the assessment year next following the financial year in which the income is credited or paid would be less than the minimum liable to income-tax. We, therefore, hold that the impugned notices have been validly issued. The petitions are, therefore, dismissed subject, of course, to our observations made above. The income so accrued or accruing as interest shall be spread over for the purpose of assessment of income-tax for the relevant accounting years. There shall be no order as to costs.