1983 (4) TMI 2 - HC - Income Tax

Summary

Issues:
1. Taxability of interest awarded by the city civil court on enhanced compensation.
2. Entitlement to appeal against the charge of penal interest under section 217 of the Income-tax Act.

Analysis:

Issue 1: Taxability of Interest on Enhanced Compensation
The case involved the question of whether the interest awarded by the city civil court on enhanced compensation should be assessed in the relevant previous year or spread over the years from the date of acquisition. The assessees argued that the interest accrued from the date of acquisition, while the Income-tax Officer contended that it accrued only when the civil court granted additional compensation. The Appellate Assistant Commissioner and the Tribunal upheld the taxability of the entire interest in the assessment year 1972-73. The court held that the interest was discretionary and not automatic from the date of acquisition, rejecting the assessee's theory of relating back to the date of disposition. Therefore, the interest awarded by the civil court was rightly assessed in the relevant previous year.

Issue 2: Entitlement to Appeal Against Penal Interest
The second issue revolved around whether an appeal could be made against the charge of penal interest under section 217 of the Income-tax Act, even though no explicit provision for such an appeal was provided under section 246. The court interpreted section 246(1)(c) broadly, stating that an assessee denying liability to be assessed under the Act could appeal against interest charges. The court reasoned that since the assessee objected to the assessment, including the charging of interest, it was competent to raise this issue in an appeal. Citing precedents and analogies, the court concluded that an appeal could be made against the charging of penal interest under section 217 when raised along with other grounds of appeal.

In conclusion, the court answered the first question affirmatively, holding the interest on enhanced compensation taxable in the relevant previous year. The second question was also answered affirmatively, allowing an appeal against the charge of penal interest under section 217. The court granted leave for the matter to be appealed to the Supreme Court due to its significance and similarity to a case already before the Supreme Court.