1970 (10) TMI 21 - HC - Income Tax

Interest on excess profits tax refunded to the assessee - Whether,the interest was liable to be assessed under the head Other sources - Whether,the assessee continued to be the owner of the property for the purposes of computation of income under section 9 of the Indian Income-tax Act, 1922

Summary

Issues:
1. Assessment of interest under the head 'Other sources' in the assessment year 1957-58
2. Ownership status of the property for income computation under section 9 of the Indian Income-tax Act, 1922

Analysis:

Ownership status of the property (Issue 2):
The case involved a property acquisition in 1946, where the assessee obtained a loan and shared ownership with another party in 1951. The issue was whether the assessee continued to be the owner for income computation purposes. The Tribunal initially ruled in favor of the assessee, but referencing a previous case, the High Court held that the property's annual letting value could not be included in income computation under section 9.

Assessment of interest (Issue 1):
The dispute centered around the taxation of interest received by the assessee in 1957-58. The interest arose from a refund related to excess profits tax paid during the Second World War. The Income-tax Officer sought to tax the interest amount under 'Other sources,' but the assessee argued it should be assessed as business income under section 10. The court analyzed the nature of the refunded amount and concluded that it retained its original character of business income, following precedents and statutory provisions. Therefore, the court ruled that the interest amount was not liable to be assessed under 'Other sources' but should fall under section 10 of the Income-tax Act, 1922.

The judgment was delivered by Judge S. S. Sandhawalia and supported by Judge Prem Chand Pandit, affirming that the interest amount should be treated as business income and not under 'Other sources.' The decision provided detailed reasoning based on statutory provisions, precedents, and the nature of the refunded amount, ensuring a comprehensive analysis of both issues raised in the case.