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Issues involved: Estimation of income for tax purposes based on an award amount including interest element.
Summary: The High Court of Kerala dismissed the department's appeal challenging the order of the Income Tax Appellate Tribunal regarding the estimation of income for tax purposes. The assessment in question pertained to the year 1993-94 and involved a contract awarded by the Kerala State Electricity Board for the construction of a tunnel. The contract was cancelled in 1970, leading to a legal process that culminated in an award with interest. The question at hand was whether the interest component of the award amount should be taxed at 10%, as determined by the Commissioner of Income Tax (Appeals) and upheld by the Tribunal. The Revenue argued that the interest should be fully taxable as it constituted an addition to the contract amount. However, the Court relied on a Supreme Court decision in Commissioner of Income Tax v. Govinda Choudhurg and Sons, where it was held that both compensation and interest should be treated as contract receipts. In light of this precedent, the Court found no merit in considering a different decision cited by the Revenue. Consequently, the appeal was dismissed, affirming the treatment of interest as part of the contract receipts for tax purposes.
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