An arbitrator enhanced the compensation for my land, the State has appealed against the whole of it, and I have taken the money out of court against a security bond. Has that enhanced amount accrued to me?
Not while the whole of it is in dispute. The Supreme Court held that the extra compensation awarded by the arbitrator had not accrued in the year of the award, because the State Government's appeal put the entire amount in issue and the dispute was real and substantial - a point the Court underlined by the fact that the assessee could only withdraw the deposit on a security bond to refund it if the appeal succeeded. The right to compensation of that kind is inchoate until the amount is finally determined; there is no liability in praesenti, and so no enforceable right to any particular amount, and nothing accrues. The line the Court drew is between a case where the right to receive payment is itself in dispute and a case where the right is admitted and only quantification is left.
Decided by the Supreme Court (Supreme Court of India - R.S. Pathak and Sabyasachi Mukharji, JJ. (judgment by Pathak, J.), Civil Appeal No. 1126 (NT) of 1974) on 1986-07-29, reported as [1986] 161 ITR 524; Civil Appeal No. 1126 (NT) of 1974. It bears on section 5, section 45(5), section 155(16), section 145 of the Income Tax Act 1961, in Capital Gains, Assessment & Scrutiny and How Tax Law Is Read matters.
The department's standard move, when a court or an arbitrator has enhanced an award, is to tax the enhancement in the year it was pronounced and leave the assessee to chase a rectification if the appeal goes the other way. This is the answer to that, and it is not a plea for relief but a denial that anything accrued. The reasoning also gives the practitioner the one question that decides most timing disputes under section 5, which taxes income that accrues or arises as much as income received: is the right to receive under challenge, or is the right admitted and only the arithmetic open? Get that wrong in the other direction and the assessee under-declares, because an admitted right with an unsettled figure does accrue. The limit matters as much as the rule - for compensation on compulsory acquisition under the 1961 Act, section 45(5) supplies its own timing rule and this judgment was distinguished on that footing in CIT v Ghanshyam (HUF).
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The assessee was a limited company dealing in land, and it maintained its accounts on the mercantile system. By an order dated 21 June 1946 under rule 75A(1) of the Defence of India Rules, plots measuring about 19.17 acres in village Kankulia were requisitioned by the Government of West Bengal, and the land was later acquired permanently. The Land Acquisition Officer awarded Rs. 24,97,249 as compensation. On the assessee's claim an Arbitrator made an award dated 29 July 1955 fixing the compensation at Rs. 30,10,873 on account of the permanent acquisition, enhancing the original amount by Rs. 5,13,624, directing interest at five per cent per annum from 8 January 1953, the date of acquisition, to the date of payment, and directing further recurring compensation at Rs. 6,272/10/4 per mensem from the date of requisition to the date of acquisition. The State Government appealed against the award. During the pendency of that appeal, on 25 April 1956, it deposited Rs. 7,36,691, which the assessee was permitted to withdraw on 9 May 1956 on furnishing security. In the assessment for the assessment year 1956-57, the relevant accounting period being the year ended 31 March 1956, the Income Tax Officer brought to tax a sum of Rs. 7,24,914 in the assessee's business income, that figure being the difference between Rs. 7,37,190 payable under the award and Rs. 12,276 out of that amount which had already been assessed. On a reference the Calcutta High Court answered in favour of the assessee the question whether the extra amount of compensation of Rs. 7,24,914 was income arising or accruing to the assessee during the previous year relevant to the assessment year 1956-57, and the Revenue appealed by certificate granted by the High Court.
The appeal was dismissed with no order as to costs; the High Court's answer in favour of the assessee was upheld. The extra compensation did not accrue as income in the previous year relevant to the assessment year 1956-57. Although the Arbitrator had made his award enhancing the compensation, the entire amount was in dispute in the appeal filed by the State Government, and the dispute was real and substantial, as the assessee was not permitted to withdraw the deposited sum without furnishing a security bond for refunding the amount in the event of the appeal being allowed. There is no liability in praesenti to pay enhanced compensation until it is judicially determined by the final court, and it is only on the final determination of the amount that the right to such income arises or accrues; until then no enforceable right to a particular amount of compensation arises.
The Court put the question as one of accrual rather than of receipt or of book-keeping. Following E.D. Sassoon, it proceeded on the footing that unless and until there is created in favour of the assessee a debt due by somebody, it cannot be said that he has acquired a right to receive the income or that the income has accrued to him. Applying Harish Chandra Raj Singh, the award made by the Collector in a compulsory acquisition is merely an offer or tender of the compensation determined by him to the owner of the property, and the owner's right to compensation is an inchoate right until the compensation has actually been determined and has become payable. On those principles, the Arbitrator's award did not settle anything while the State Government's appeal against it was alive. The entire amount was in dispute in that appeal. The whole question - whether the offer made by the Land Acquisition Officer was inadequate, and by how much - remained in flux until it was set at rest finally, and until then there was no liability in praesenti in respect of the additional amount claimed and no enforceable right to any particular sum. The distinction the Court drew is the part of the judgment that does the work elsewhere. The Court drew a clear distinction between cases such as the one before it, where the right to receive payment is in dispute and it is not a question of merely quantifying the amount to be received, and cases where the right to receive payment is admitted and the quantification only of the amount payable is left to be determined in accordance with settled or accepted principles. The first is this case. The second is not, and in the second the income can accrue even though the figure is not yet worked out. The assessee's withdrawal of the money was treated as supporting rather than defeating that conclusion. The Court regarded the dispute as real and substantial precisely because the sum deposited by the State Government on 25 April 1956 could not be withdrawn without a security bond for refunding it in the event of the appeal being allowed. Physical possession of the money against an undertaking to give it back is not the accrual of income.
There is a clear distinction between cases such as the present one, where the right to receive payment is in dispute and it is not a question of merely quantifying the amount to be received, and cases where the right to receive payment is admitted and the quantification only of the amount payable is left to be determined in accordance with settled or accepted principles.
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Handle my notice → Ask a CA on WhatsAppNot while the whole of it is in dispute. The Supreme Court held that the extra compensation awarded by the arbitrator had not accrued in the year of the award, because the State Government's appeal put the entire amount in issue and the dispute was real and substantial - a point the Court underlined by the fact that the assessee could only withdraw the deposit on a security bond to refund it if the appeal succeeded. The right to compensation of that kind is inchoate until the amount is finally determined; there is no liability in praesenti, and so no enforceable right to any particular amount, and nothing accrues. The line the Court drew is between a case where the right to receive payment is itself in dispute and a case where the right is admitted and only quantification is left. This was decided by the Supreme Court (Supreme Court of India - R.S. Pathak and Sabyasachi Mukharji, JJ. (judgment by Pathak, J.), Civil Appeal No. 1126 (NT) of 1974) and bears on section 5, section 45(5), section 155(16), section 145 of the Income Tax Act 1961. It is reported as [1986] 161 ITR 524; Civil Appeal No. 1126 (NT) of 1974. The department's standard move, when a court or an arbitrator has enhanced an award, is to tax the enhancement in the year it was pronounced and leave the assessee to chase a rectification if the appeal goes the other way. This is the answer to that, and it is not a plea for relief but a denial that anything accrued. The reasoning also gives the practitioner the one question that decides most timing disputes under section 5, which taxes income that accrues or arises as much as income received: is the right to receive under challenge, or is the right admitted and only the arithmetic open? Get that wrong in the other direction and the assessee under-declares, because an admitted right with an unsettled figure does accrue. The limit matters as much as the rule - for compensation on compulsory acquisition under the 1961 Act, section 45(5) supplies its own timing rule and this judgment was distinguished on that footing in CIT v Ghanshyam (HUF). If it applies to you, the first step is this: Ask what exactly is under challenge. If the appeal attacks the right itself, or attacks the whole of the enhancement, this case is yours. If the right is conceded and the argument is only about working out the figure on accepted principles, it is not - the Court drew that distinction in terms.
The assessee was a limited company dealing in land, and it maintained its accounts on the mercantile system. By an order dated 21 June 1946 under rule 75A(1) of the Defence of India Rules, plots measuring about 19.17 acres in village Kankulia were requisitioned by the Government of West Bengal, and the land was later acquired permanently. The Land Acquisition Officer awarded Rs. 24,97,249 as compensation. On the assessee's claim an Arbitrator made an award dated 29 July 1955 fixing the compensation at Rs. 30,10,873 on account of the permanent acquisition, enhancing the original amount by Rs. 5,13,624, directing interest at five per cent per annum from 8 January 1953, the date of acquisition, to the date of payment, and directing further recurring compensation at Rs. 6,272/10/4 per mensem from the date of requisition to the date of acquisition. The State Government appealed against the award. During the pendency of that appeal, on 25 April 1956, it deposited Rs. 7,36,691, which the assessee was permitted to withdraw on 9 May 1956 on furnishing security. In the assessment for the assessment year 1956-57, the relevant accounting period being the year ended 31 March 1956, the Income Tax Officer brought to tax a sum of Rs. 7,24,914 in the assessee's business income, that figure being the difference between Rs. 7,37,190 payable under the award and Rs. 12,276 out of that amount which had already been assessed. On a reference the Calcutta High Court answered in favour of the assessee the question whether the extra amount of compensation of Rs. 7,24,914 was income arising or accruing to the assessee during the previous year relevant to the assessment year 1956-57, and the Revenue appealed by certificate granted by the High Court. The matter was decided on 1986-07-29 by the Supreme Court (Supreme Court of India - R.S. Pathak and Sabyasachi Mukharji, JJ. (judgment by Pathak, J.), Civil Appeal No. 1126 (NT) of 1974). On those facts the Supreme Court held as follows. The appeal was dismissed with no order as to costs; the High Court's answer in favour of the assessee was upheld. The extra compensation did not accrue as income in the previous year relevant to the assessment year 1956-57. Although the Arbitrator had made his award enhancing the compensation, the entire amount was in dispute in the appeal filed by the State Government, and the dispute was real and substantial, as the assessee was not permitted to withdraw the deposited sum without furnishing a security bond for refunding the amount in the event of the appeal being allowed. There is no liability in praesenti to pay enhanced compensation until it is judicially determined by the final court, and it is only on the final determination of the amount that the right to such income arises or accrues; until then no enforceable right to a particular amount of compensation arises.
The Court put the question as one of accrual rather than of receipt or of book-keeping. Following E.D. Sassoon, it proceeded on the footing that unless and until there is created in favour of the assessee a debt due by somebody, it cannot be said that he has acquired a right to receive the income or that the income has accrued to him. Applying Harish Chandra Raj Singh, the award made by the Collector in a compulsory acquisition is merely an offer or tender of the compensation determined by him to the owner of the property, and the owner's right to compensation is an inchoate right until the compensation has actually been determined and has become payable. On those principles, the Arbitrator's award did not settle anything while the State Government's appeal against it was alive. The entire amount was in dispute in that appeal. The whole question - whether the offer made by the Land Acquisition Officer was inadequate, and by how much - remained in flux until it was set at rest finally, and until then there was no liability in praesenti in respect of the additional amount claimed and no enforceable right to any particular sum. The distinction the Court drew is the part of the judgment that does the work elsewhere. The Court drew a clear distinction between cases such as the one before it, where the right to receive payment is in dispute and it is not a question of merely quantifying the amount to be received, and cases where the right to receive payment is admitted and the quantification only of the amount payable is left to be determined in accordance with settled or accepted principles. The first is this case. The second is not, and in the second the income can accrue even though the figure is not yet worked out. The assessee's withdrawal of the money was treated as supporting rather than defeating that conclusion. The Court regarded the dispute as real and substantial precisely because the sum deposited by the State Government on 25 April 1956 could not be withdrawn without a security bond for refunding it in the event of the appeal being allowed. Physical possession of the money against an undertaking to give it back is not the accrual of income. In the words reproduced by the source cited on this page: "There is a clear distinction between cases such as the present one, where the right to receive payment is in dispute and it is not a question of merely quantifying the amount to be received, and cases where the right to receive payment is admitted and the quantification only of the amount payable is left to be determined in accordance with settled or accepted principles." The decision followed or applied E.D. Sassoon & Company Ltd. v. Commissioner of Income-tax, Bombay City [1954] 26 ITR 27 - applied, that a right to receive income requires a debt due by somebody; Harish Chandra Raj Singh v. The Deputy Land Acquisition Officer [1962] 1 SCR 676 - applied, that the Collector's award is an offer and the owner's right is inchoate until determination; Kedarnath Jute Mfg. Co. Ltd. v. Commissioner of Income-Tax (Central), Calcutta [1971] 82 ITR 363 - considered; Khan Bahadur Ahmed Alladin & Sons v. Commissioner of Income-tax [1969] 74 ITR 651 - considered; Topandas Kundanmal v. Commissioner of Income-tax, Gujarat [1978] 114 ITR 237 - considered; Additional Commissioner of Income-tax, Gujarat v. New Jehangir Vakil Mills Co. Ltd. (1979) 117 ITR 849 - considered; Pope The King Match Factory v. Commissioner of Income-tax [1963] 50 ITR 495 - considered; Commissioner of Income-tax v. Jai Parkash Om Parkash Co. Ltd. (1961) 41 ITR 718 - considered.
It was decided by the Supreme Court on 1986-07-29 and is reported as [1986] 161 ITR 524; Civil Appeal No. 1126 (NT) of 1974. Binding on every court and authority in India. A Supreme Court decision binds every assessing officer, every Commissioner (Appeals), every bench of the Income Tax Appellate Tribunal and every High Court in India. An officer who declines to follow it is acting contrary to law, and that refusal is itself a ground of appeal. On section 5, section 45(5), section 155(16), section 145, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. The appeal was dismissed with no order as to costs; the High Court's answer in favour of the assessee was upheld. The extra compensation did not accrue as income in the previous year relevant to the assessment year 1956-57. Although the Arbitrator had made his award enhancing the compensation, the entire amount was in dispute in the appeal filed by the State Government, and the dispute was real and substantial, as the assessee was not permitted to withdraw the deposited sum without furnishing a security bond for refunding the amount in the event of the appeal being allowed. There is no liability in praesenti to pay enhanced compensation until it is judicially determined by the final court, and it is only on the final determination of the amount that the right to such income arises or accrues; until then no enforceable right to a particular amount of compensation arises. It arises in Capital Gains, Assessment & Scrutiny and How Tax Law Is Read matters, on section 5, section 45(5), section 155(16), section 145 of the Income Tax Act 1961, and was decided by Supreme Court of India - R.S. Pathak and Sabyasachi Mukharji, JJ. (judgment by Pathak, J.), Civil Appeal No. 1126 (NT) of 1974. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Do not treat withdrawal of the money as fatal. The assessee here had the money in hand and still won, because it came out against a security bond for refund; what the bond shows is that the dispute was real, not that the income had accrued. Check the head before you use it. For compensation on compulsory acquisition the Income-tax Act, 1961 now has its own rule in section 45(5), which taxes enhanced compensation in the year of receipt, and in CIT v Ghanshyam (HUF) the Supreme Court distinguished this judgment on that ground; the library's page on Ghanshyam sets out the three grounds it gave. Use this case where no special statutory timing rule displaces it - a decreed claim under appeal, mesne profits, arrears of rent still in litigation, a disputed award of damages. That is the field it still governs. If you are on the receiving end of an addition made in the year of the award, put the appeal memorandum and the security bond on record. The reasoning is fact-led and those two documents are what carried it. For the general doctrine of when income accrues, go to the library's concept page 'Real income: an entry in the books is not an accrual'. This case is the accrual point that page needs for a right under challenge; it is not a restatement of the doctrine.
Still good law. Followed and applied since, with one field carved out of it by statute. In K.C.P. Limited v Commissioner of Income Tax, decided 9 August 2000, the Supreme Court set this decision out in full - the requisition and acquisition, the arbitrator's award, the State Government's appeal, the deposit and the withdrawal on a security bond - and recorded the holding as being that there was no absolute right to receive the enhanced amount at that stage, since if the appeal were allowed in its entirety the right to payment of the enhanced amount would have fallen altogether. That judgment prints the citation [1986] 161 ITR 524, and the distinction quoted on this page is reproduced in the same words by the Allahabad High Court in CIT v Dhampur Sugar Mills Ltd. The Delhi High Court applied the same reasoning to mesne profits and arrears of rent in CIT v Uberoi Sons (Machines) Ltd, through the Supreme Court's decision in P. Mariappa Gounder, and the library carries that case. The carve-out is compulsory acquisition under the Income-tax Act, 1961. Section 45(5) was inserted with effect from 1 April 1988 and taxes enhanced compensation in the year of receipt, with section 45(5)(c) and section 155(16) providing for recomputation if the amount is later reduced. In CIT v Ghanshyam (HUF) the Supreme Court held that this judgment does not apply in that setting, distinguishing it on three grounds: it was decided on 29 July 1986, before section 45(5) came into force; it concerned assessment year 1956-57 under the 1922 Act; and section 12B of the 1922 Act carried no reference to compulsory acquisition of the kind section 2(47) of the 1961 Act now carries. A reader with an acquisition matter should start from Ghanshyam and the statutory scheme, not from here. Outside that field the decision stands untouched, and nothing found overrules or doubts it. No citator service was consulted. On the years still live: the 1961 Act was repealed on 1 April 2026 by section 536(1) of the Income-tax Act, 2025 and continued by section 536(2)(c) for proceedings about any tax year beginning before that date, so accrual questions for those years are still decided on this reasoning. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
This record is written to sit beside two pages the library already carries and not to repeat them. The doctrine of accrual is on the concept page 'Real income: an entry in the books is not an accrual', which sets out that a due date and a book entry are not enough and that there must be a corresponding liability on the other party. What this case adds to that page is the treatment of a right under challenge: the line between a disputed right to receive and an admitted right with an open quantification. The statutory displacement of the rule for compulsory acquisition is on the library's page for CIT v Ghanshyam (HUF), which carries the three grounds of distinction and the section 45(5) scheme. A reader with an acquisition file should go there; a reader with a decree, an award or an arrears claim under appeal belongs here. On the report. The judgment is not divided into numbered paragraphs, so the quotation is located by its place in the reasoning. The cause title is Commissioner of Income-Tax, West Bengal-II, Calcutta v. Hindustan Housing and Land Development Trust Limited; the appeal was Civil Appeal No. 1126 (NT) of 1974, brought by certificate granted by the Calcutta High Court, and it was decided on 29 July 1986 by R.S. Pathak and Sabyasachi Mukharji, JJ., Pathak J delivering the judgment. The Arbitrator's award is dated 29 July 1955 in the narrative of the facts; one sentence of the report explaining the figure of Rs. 7,24,914 gives the year of the award as 1956 instead. The 1955 date is the one used here because the report states it twice, because the sequence of events - award, appeal, deposit on 25 April 1956, withdrawal on 9 May 1956 - only works on that reading, and because the Supreme Court itself, in CIT v Ghanshyam (HUF), records the award as having been made on 29 July 1955. The figures repay a moment. The Land Acquisition Officer's award was Rs. 24,97,249 and the Arbitrator fixed Rs. 30,10,873, an enhancement of Rs. 5,13,624 on the permanent acquisition. The sum brought to tax, Rs. 7,24,914, is not that enhancement: it is the difference between Rs. 7,37,190 payable under the award and Rs. 12,276 out of that amount already assessed, and it takes in the recurring compensation for the requisition period as well. Anyone citing the case for a proposition about the quantum should quote the figure that matches the proposition. The judgment decides when the enhanced compensation did not accrue. It does not work out the consequences of that answer: it does not identify the year in which the amount would become taxable once the State Government's appeal was disposed of, beyond saying that the right arises on final determination, and it gives no direction about reopening or recomputing the earlier year. It does not deal with the tax treatment of the interest the Arbitrator directed at five per cent per annum, or of the recurring compensation for the period of requisition, although both appear in the facts. The assessee kept its accounts on the mercantile system and the Court noted that, but it did not rest the answer on the method of accounting under section 145 or say what difference a cash system would make - the reasoning is that nothing had accrued at all, which is anterior to the method. It says nothing about a part of an award that is not under challenge while the rest is, and nothing about what happens where an appeal is filed but the right itself is conceded. And it predates section 45(5), so it decides nothing about that provision. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The appeal was dismissed with no order as to costs; the High Court's answer in favour of the assessee was upheld. The extra compensation did not accrue as income in the previous year relevant to the assessment year 1956-57. Although the Arbitrator had made his award enhancing the compensation, the entire amount was in dispute in the appeal filed by the State Government, and the dispute was real and substantial, as the assessee was not permitted to withdraw the deposited sum without furnishing a security bond for refunding the amount in the event of the appeal being allowed. There is no liability in praesenti to pay enhanced compensation until it is judicially determined by the final court, and it is only on the final determination of the amount that the right to such income arises or accrues; until then no enforceable right to a particular amount of compensation arises.
TaxSphere, “CIT v Hindustan Housing and Land Development Trust Ltd”, https://taxnotice.vittsphere.com/caselaw/case/cit-v-hindustan-housing-enhanced-compensation-in-dispute/ (validity last checked 2026-09-23)
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