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Interpretation of interest income in land acquisition compensation case for assessment year 1966-67. Analysis: The case involved a question regarding the treatment of interest income in a land acquisition compensation award for the assessment year 1966-67. The Land Acquisition Collector acquired a property belonging to the assessee, awarding interest on the compensation amount. The issue was whether the entire interest amount should be included as income for the year or only the portion relatable to that year. The Income Tax Officer (ITO) initially treated the full interest amount as income, which was upheld by the Appellate Assistant Commissioner (AAC). However, the Tribunal, considering the accrual of interest over multiple years, held that only the portion of interest related to the assessment year should be included as income. The Tribunal referred to the decision of the Mysore High Court in a similar case and concluded that the method of accounting, whether cash or mercantile, was crucial in determining when the interest income should be taxed. The Mysore High Court's decision emphasized that income becomes taxable when it becomes legally due and recoverable, regardless of the accounting method used. This principle was upheld by the Calcutta High Court in previous cases, ensuring a consistent approach to the taxation of interest income. The Revenue argued that in the absence of a specified accounting method, the cash system should be presumed, leading to the taxation of the entire interest amount in the year received. However, the Court distinguished this argument by highlighting the unique nature of interest in land acquisition cases as compensation for deprivation of land use rights. The Court found the decision of the Gauhati High Court, which favored taxing receipts on the cash system in the absence of specified accounting method, not applicable to the specific context of interest in land acquisition cases. Ultimately, the Court ruled in favor of the assessee, affirming the Tribunal's decision to tax only the proportionate interest related to the assessment year 1966-67. The judgment aligned with previous decisions by the Mysore and Madras High Courts, ensuring a fair and equitable treatment of interest income in land acquisition compensation cases. The parties were directed to bear their own costs, and both judges concurred with the decision.
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