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TMI Blog2007 (8) TMI 201X X X X Extracts X X X X X X X X Extracts X X X X ..... of the character of compensation inasmuch as the award was made only on 28th February, 1995 and the question of payment of interest can arise only after the same is made ? 2. Whether on the facts and in the circumstances of the case the Tribunal in law ought to have held the Appellant having received interest of Rs.43,99,404/- under the Arbitration Award dated 28th February, 1995 at the rate of 12% on the amount of Rs.67,92,524/- for the period from 31st July, 1989 to 25th July, 1995, only the interest pertaining to the period 1st April, 1995 to 25th July, 1995 could be taxed in the year under consideration, that is, assessment year 1996-97 inasmuch as interest income accrues from year to year and that the entire amount of interest could ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hod of payment of compensation and was not decisive character of compensation as the Award was made only on 28/2/1995 and the payment of interest can only arise after the same is made. On facts it may be pointed out that the learned Arbitrator was considering the claims arising out of construction contract. The learned Arbitrator allowed the claim of Rs.67,92,524/-. Apart from that, the MDL was directed to pay to the appellants interest on that amount at the rate of 12% p.a. from 31st July, 1989 till payment or the date of decree on this Award, whichever is earlier. 5. In support of their contention, that the interest forms part of compensation, and as such the contract could not be treated as revenue receipt, our attention is invited to v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le to tax as income. The Court held that statutory interest payable under Section 34 of the Land Acquisition Act, is not compensation paid to the owner for depriving him of his right to possession of the land acquired, but that given to him for the deprivation of the use of the money representing the compensation for the land acquired. In deciding the issue, the Supreme Court apart from its earlier judgment in Dr. Shamlal Narula, [1964] 53 ITR 151, also referred to some English judgments which it distinguished. The ratio of the judgment would be that, if the interest was awarded and the arbitrator was not seeking to give effect to or to recognise a right to interest, conferred by statute or contract it would not be taxable. On the oth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ely, the loss he had suffered, because he had not had that use. If, on the other hand, the claim is for loss of property or loss of goods, or some other injury to capital and the element of interest comes in by way of estimating the compensation to be granted for such capital loss or capital injury, then, the receipt would be capital." 8. Considering the various tests, the Court held that mesne profits being an Award of compensation in the nature of damages are not taxable, interest thereon which is an integral part of the mesne profits is also not a revenue receipt and not taxable as income. 9. We may examine the judgments arising from Arbitration Awards. In Commissioner of Income-tax v. Govinda Choudhury & Sons reported in [1993] 203 IT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the next question of law as framed. In our opinion, the issue can be answered by applying the ratio of the judgment of the Supreme Court in Rama Bai v. Commissioner of Income-tax, Andhra Pradesh [181 ITR 400]. In proceedings under Land Acquisition Act on enhanced compensation interest of Rs.37,529/- was awarded. The ITO held while making assessment for assessment year 1967-68 and 1968-69 that the right to receive interest on enhanced compensation arose on the date when the City Civil Court passed the order. The assessee's contention was that the interest should be distributed over the period commencing from the date of dispossession of the assessee under the Land Acquisition Act till the date of payment. The Income-tax Officer did n ..... X X X X Extracts X X X X X X X X Extracts X X X X
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