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Issues:
Assessment of interest income received by the assessee on Inam lands taken over by the Government for the assessment year 1982-83. Analysis: 1. The appeal was filed by the assessee against the order of the AAC A-Range, Hyderabad regarding the assessment year 1982-83. The assessee received interest on compensation for Inam lands taken over by the Government. The assessee claimed that the interest was of capital nature and not taxable. The ITO added the interest amount to the assessee's income for the assessment year 1982-83, resulting in a total income of Rs. 86,640. The AAC rejected the assessee's claim that the interest was not taxable, stating that it was received after the death of the assessee's mother from the Government. 2. The assessee contended that the interest should be taxed every year on an accrual basis. The AAC referred to the Andhra Pradesh (Telangana Area) Abolition of Inams Act, 1955, specifically Section 15 which deals with compensation and interest calculation. The AAC held that the interest accrued to the assessee only when the orders determining compensation and interest were passed by the R.D.O. on 31-3-1981 and 29-3-1982. The interest was quantified as per the proceedings on these dates. 3. The assessee argued that the interest should be assessed in the years to which they relate and not in a lump sum in any particular year. Citing a decision of the Andhra Pradesh High Court in CIT v. V. Janardhan Reddy [1984] 145 ITR 303, the assessee claimed that interest awarded with compensation should be assessed year by year from the date of dispossession. The Court in the referenced case distinguished between statutory interest and discretionary interest, holding that statutory interest should be assessed annually. 4. The Departmental Representative contended that interest accrued when compensation was determined and relied on a Kerala High Court decision in M. Jairam v. CIT [1979] 117 ITR 638. The distinction between obligatory statutory interest and discretionary interest was highlighted. The statutory interest under Section 34 of the Land Acquisition Act must be granted, unlike discretionary interest under Section 28. 5. Section 15(i) of the Andhra Pradesh (Telangana Area) Inam's Abolition Act, 1955, states that compensation shall carry interest at a specified rate from the date of vesting. The Tribunal concluded that the interest granted by the R.D.O. was statutory and not discretionary. Therefore, the interest awarded under Section 15(i) should be taxed in the year it accrued. The Tribunal held that the assessee should be taxed only on the interest amount of Rs. 32,047 and not the entire Rs. 49,306 as determined by the lower authorities. 6. Consequently, the appeal was partly allowed, granting relief to the assessee by reducing the taxable interest income to Rs. 32,047 for the assessment year 1982-83.
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