2015 (11) TMI 1722 - AT - Income Tax

Nature of income - arbitration debt received - business receipt OR Income from Other Sources - CIT-A directed the AO to treat the interest amount as part of business income of the assessee for the purpose of computing income u/s 44AD - Held that - The assessee during the course of execution of contract had some disputes with M/s. Konkan Railway which went into arbitration and the assessee was awarded Rs. 11, 65, 889/- as claimed loss by assessee with interest for the delayed payment @ 10% p.a. of Rs. 26, 79, 266/-. In our opinion the interest is only the amount of addition and accretion to the assessee receipts from the contracts and it is obviously attributable and incidental to the business carried out by the assessee. In the decision referred to above in the case of Govinda Chaudhary and Sons (1992 (4) TMI 8 - SUPREME Court) similar issued came up for consideration before the Hon ble Supreme Court and it was held by the Hon ble Court that interest is also part of the business receipt of the assessee. We therefore do not find any infirmity in the order passed by the CIT(A) and upheld the same by dismissing the appeal of the revenue. - Decided in favour of assessee.

Summary

Issues:
1. Whether the interest component of an arbitration award should be treated as business income or income from other sources.

Analysis:
1. The appeal was against the order of the Commissioner of Income Tax (Appeals) for assessment year 2006-07, where the issue was the treatment of arbitration debt received as business receipt or income from other sources.
2. The assessee received an arbitration award from M/s. Konkan Railway, which included a claim amount and interest component. The original claim was treated as business income, but the interest was treated as income from other sources by the Assessing Officer.
3. The CIT(A) allowed the appeal, considering the interest as part of business income based on judicial precedents, including the Supreme Court's decision in the case of Govinda Chaudhary and Sons.
4. The dispute revolved around whether the interest received was attributable to the business carried out by the assessee, with the CIT(A) concluding that it was part of the business receipt.
5. The Tribunal upheld the CIT(A)'s decision, emphasizing that the interest was an accretion to the assessee's receipts from contracts and was incidental to the business, following the Supreme Court's ruling in a similar case.

Conclusion:
The Tribunal dismissed the Revenue's appeal, affirming the treatment of the interest component of the arbitration award as part of the assessee's business income. The decision was based on the principle that the interest was attributable to the business activities of the assessee and formed a part of the business receipt, in line with established legal interpretations and precedents.