2001 (2) TMI 93 - HC - Income Tax

Summary

Issues involved: Taxation of interest on enhanced compensation u/s Income Tax Act, 1961

Summary:
The High Court of Andhra Pradesh addressed the issue of taxing interest on enhanced compensation received by the assessee following the acquisition of lands by the Government. The initial compensation was increased on reference, leading to a dispute over the taxation of the accrued interest. The Income-tax Officer sought to tax the entire interest amount for the assessment year 1976-77, which was challenged through appeals. The Appellate Assistant Commissioner and the Tribunal relied on precedent judgments but reframed the question to determine whether the Assessing Officer must wait for the final disposal by the court before taxing the accrued interest.

The High Court, after detailed consideration, rephrased the question to align with legal principles and cited the Supreme Court's ruling in Rama Bai v. CIT [1990] 181 ITR 400. It was established that the assessee is liable to pay tax on the interest accrued from the enhanced compensation, spread over the period it was received, even if the Supreme Court reverses the judgment in the future. The Tribunal's reliance on the earlier judgment was deemed incorrect in light of the Supreme Court's decision. Consequently, the Court ruled in favor of the Revenue, affirming the tax liability on the accrued interest.