2012 (12) TMI 1131 - HC - Income Tax

Summary

Issues Involved:
1. Taxability of interest received on arbitration awards as revenue receipts.
2. Allowance of depreciation on cars in the absence of business activities.

Summary:

Issue 1: Taxability of Interest Received on Arbitration Awards

In I.T.A. no.4168/Del./2000 for AY 1997-98, the AO included Rs. 1,96,72,751/- received as interest from the Airport Authority of India as revenue receipt, citing the compensation for delayed payments. Similarly, in I.T.A. no.3443/Del./2001 for AY 1998-99, Rs. 3,33,59,343/- received from Maharashtra State Electricity Board was treated as revenue receipt. The AO relied on decisions such as Govinda Chowdhary & Sons, 203 ITR 881(SC), and others to support this stance.

The CIT(A) reversed the AO's decision, holding that the interest was not contractual or statutory but awarded at the discretion of the arbitrator, thus not taxable as revenue receipts. The CIT(A) referenced the ITAT Cuttuck Bench decision in J.C. Budhraja Vs. ITO and other precedents.

On appeal, the ITAT initially sided with the Revenue but later recalled the order. Upon re-evaluation, the ITAT upheld the AO's view, emphasizing that the interest awarded was a revenue receipt, citing the Supreme Court's decision in CIT v. Govinda Choudhury and Sons, 203 ITR 881, which established that interest awarded on compensation amounts is taxable income. Consequently, the appeals for AY 1997-98 and AY 1998-99 were allowed in favor of the Revenue.

Issue 2: Allowance of Depreciation on Cars

For AY 1998-99, the AO disallowed depreciation of Rs. 6,62,852/- on cars, arguing no business activity was conducted. The CIT(A) allowed the depreciation, noting the cars were used for business purposes and the assessee earned business income from arbitration awards.

The ITAT upheld the CIT(A)'s decision, finding no material evidence from the Revenue to dispute the findings. Thus, the ground regarding depreciation was dismissed, and the appeal was partly allowed for AY 1998-99.

Conclusion:

The appeal for AY 1997-98 was allowed in favor of the Revenue, confirming the taxability of interest as revenue receipts. For AY 1998-99, the appeal was partly allowed, affirming the taxability of interest but upholding the allowance of depreciation on cars.