1985 (3) TMI 134 - AT - Income Tax

Summary

Issues Involved:
1. Taxability of interest accrued under the Compulsory Deposit Scheme (CDS) as income.
2. Nature of interest under CDS: Compensation vs. Interest.
3. Applicability of Section 2(24) of the Income-tax Act, 1961 to CDS interest.
4. Legislative intent and statutory interpretation of CDS interest.
5. Applicability of case law to the nature of CDS interest.

Detailed Analysis:

1. Taxability of interest accrued under the Compulsory Deposit Scheme (CDS) as income:
The primary issue is whether the interest accrued under the CDS is taxable. The Commissioner (Appeals) held that the interest of Rs. 12,194 and Rs. 349 accruing to the assessee under the CDS Act is taxable, subject to relief under section 80L of the Income-tax Act, 1961. The Tribunal upheld this view, emphasizing that the interest accrued under the CDS is indeed taxable.

2. Nature of interest under CDS: Compensation vs. Interest:
The assessee argued that the amount paid under CDS should be considered compensation rather than interest, citing that the compulsory nature of the deposit curtails the taxpayer's right to free choice of investment. The Tribunal, however, disagreed, stating that the Legislature has the power to deem any receipt as income or interest, and in this case, the CDS interest is clearly defined as interest by the statute. The Tribunal referenced several cases, including Simpson v. Maurice's Executors, to distinguish between compensation and interest, ultimately concluding that the interest under CDS does not constitute compensation.

3. Applicability of Section 2(24) of the Income-tax Act, 1961 to CDS interest:
The assessee contended that section 2(24) of the Act does not explicitly refer to interest on CDS as income. However, the Tribunal noted that the provisions of section 7(1) of the CDS Act are comprehensive enough to classify the interest as income. The Tribunal emphasized that the statutory provision leaves no ambiguity regarding the nature of the interest, thus making it taxable.

4. Legislative intent and statutory interpretation of CDS interest:
The Tribunal highlighted that the Legislature has full powers to describe as interest what may or may not amount to interest under other laws. The Tribunal referenced the case of Chandroji Rao v. CIT to support the view that the statutory description of the receipt as interest should be accepted as such. The Tribunal also pointed out that the compulsory nature of the deposit is not absolute, as taxpayers can opt out by paying a penalty, thus reinforcing the classification of the receipt as interest.

5. Applicability of case law to the nature of CDS interest:
The Tribunal analyzed various cases cited by both parties. The assessee's reliance on cases like Kettlewell Bullen & Co. Ltd. v. CIT and Senairam Doongarmall v. CIT was deemed inapplicable, as these cases dealt with different contexts of capital and revenue receipts. The Tribunal also considered the case of Maharajadhiraj Sir Kameshwar Singh No. 2, which dealt with interest on advance tax and supported the view that statutory interest is income. The Tribunal concluded that the case law supports the classification of CDS interest as taxable income.

Conclusion:
The Tribunal dismissed the appeals, affirming the taxability of interest accrued under the CDS as income. The Tribunal held that the interest paid under CDS is not compensation but interest, as clearly defined by the statute. The Tribunal emphasized that the statutory provisions leave no room for ambiguity, and the legislative intent is to classify such interest as taxable income. The Tribunal's decision is grounded in a thorough analysis of statutory interpretation and relevant case law, reinforcing the taxability of CDS interest.