1999 (9) TMI 982

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... ase, is as follows: The assessee was constructing the Shipyard at Cochin during the assessment year 1975-76. It had engaged various contractors for carrying out the civil and other construction work. As per the terms of the contract, the assessee was required to provide sufficient funds to them from time-to-time to carry out the work without interruptions. The assessee charged interest on the amounts advanced to the contractors and during the previous year relevant to the assessment year in question, the interest so charged by the assessee amounted to ₹ 26,90,680 on the amounts advanced by the assessee to the contractors. The amounts relatable to the respective contractors so far as interest is concerned was adjusted by the assesse .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... Taxability of income is not dependent upon its destination or the manner of its utilisation. It has to be seen whether at the point of accrual, the amount is of a revenue nature. If so, the amount will have to be taxed. The question whether a particular receipt is of the nature of income and falls within the charge of section 4 of the Act, is a question of law which has to be decided by the Court, on the basis of the provisions of the Act and the interpretation of the term income given in a large number of decisions of the High Courts, the Privy Council and the Supreme Court. Interest income is always of a revenue nature, unless it is received by way of damages or compensation. If a person borrows money for business purposes but utilis .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... not be taxed. The company may keep the surplus funds in short-term deposits in order to earn interest. Such interests will be chargeable under section 56. In other words, if the capital of a company is fruitfully utilised, instead of being kept idle, the income, thus, generated will be of a revenue nature and not an accretion to capital. Whether the company raised the capital by issue of shares or debentures or by borrowing, will not make any difference to this principle. If borrowed capital is used for the purpose of earning income, that income will have to be taxed in accordance with law. Income is something which flows from the property. Something received in place of the property will be a capital receipt. The amount of interest receiv .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X