2000 (11) TMI 298 - AT - Income Tax

Issues Involved:
1. Legality of interest inclusion in total income for AY 1992-93.
2. Spreading of interest income over multiple years.
3. Taxability of interest received during pending litigation.
4. Validity of rectification application under Section 154.

Issue-Wise Detailed Analysis:

1. Legality of Interest Inclusion in Total Income for AY 1992-93:
The primary issue revolves around whether the interest amount of Rs. 2,06,863 awarded by the Court on delayed payment of contract receipts should be included in the total income for the assessment year 1992-93. The Assessing Officer (AO) included this amount in the total income, considering it a revenue receipt under Explanation 2 of Section 34(1) of the CPC. The CIT(A) set aside this inclusion, directing the AO to verify if there was any clause in the contract regarding interest on delayed payments and to decide based on the Supreme Court's decision in CIT vs. T.N.K. Govindrajulu Chetti (1967) 66 ITR 465 (SC). The Tribunal upheld that interest awarded under Section 34 CPC for delayed payments is taxable as income, following the legal principles established in Dr. Shamlal Narula vs. CIT (1964) 53 ITR 151 (SC).

2. Spreading of Interest Income Over Multiple Years:
The assessee contended that the interest amount should be spread over the years it accrued rather than being taxed in a lump sum in one year. The Tribunal referenced the Supreme Court's decisions in Ramabai vs. CIT and Bikram Singh vs. Land Acquisition Collector, which held that interest on compensation accrues year after year and should be spread over the relevant years. Consequently, the Tribunal agreed that the interest should be spread over the respective assessment years involved.

3. Taxability of Interest Received During Pending Litigation:
The interest amount was received during the pendency of an appeal by the State Government before the High Court. The Tribunal referred to the Supreme Court's decision in CIT vs. Hindustan Housing and Development Trust Ltd. (1987) 161 ITR 524 (SC), which held that if the right to receive the amount is disputed in appeal, it cannot be considered as accrued income. As the interest award was under appeal and the assessee had to furnish a bond to withdraw the amount, the Tribunal concluded that the interest did not accrue as income during the relevant assessment year and should be assessed only when the litigation is finalized.

4. Validity of Rectification Application under Section 154:
The assessee filed a rectification application under Section 154, arguing that the interest amount should be spread over the years it accrued. The AO rejected this application, but the CIT(A) set aside the AO's order and directed reconsideration following the procedures in Udasar cases. The Tribunal, considering the Supreme Court's rulings, upheld that the interest should be spread over the years it accrued, thus supporting the rectification application.

Conclusion:
The Tribunal concluded that the interest amount should be spread over the relevant years and not taxed in one lump sum. The taxability of the interest would be determined only after the final resolution of the pending litigation. The appeals by the Revenue (Nos. 1360/Jp/1994 and 1491/Jp/1996) and the assessee's cross-objections (Nos. 10/Jdpr/1998 and 1/Jp/1997) were disposed of accordingly. The appeal No. 967/Jp/1996 was dismissed as infructuous due to subsequent developments.

← Previous Next →