S.C : Whether, on the facts and in the circumstances of the case, interest awarded by an arbitrator is income to be assessed to tax under the Act ?

Supreme Court Of India

CIT vs. B.N. Agarwala & Co.

Sections 4, 28(i)

B.P. Jeevan Reddy & Suhas C. Sen, JJ.

Civil Appeal Nos. 9172 & 9173 of 1996

12th July, 1996

Counsel Appeared

Dr. V. Gaurishankar with S. Rajappa & P. Parameswaran, for the Appellant : Raju Ramachandran, Sanjiv Das & Ms. Manjula Gupta, for the Respondent

ORDER

BY THE COURT :

Delay condoned.

2. Special leave granted.

3. We have heard counsel for the parties. The respondent-assessee entered into a contract with the Government for executing certain works. A dispute arose between the assessee and the Government which was referred to arbitration. The arbitrator awarded certain amount by way of compensation for the work done and also awarded interest. Question arose in the assessment proceedings, whether the interest awarded is income and is liable to be included in his assessment. The ITO treated the same as income and included it after deducting the expenses. The appeal preferred by the assessee was allowed holding that interest is not income. An appeal preferred by the Revenue was dismissed by the Tribunal. On a reference, the Orissa High Court answered the following question in favour of the assessee, following its earlier decision in Govinda Choudhury & Sons vs. CIT 1977 CTR (Ori) 190 : (1977) 109 ITR 497 (Ori) : “Whether, on the facts and in the circumstances of the case, interest awarded by an arbitrator is income to be assessed to tax under the Act ?”

4. It is now brought to our notice that the decision of the Orissa High Court in Govinda Choudhury & Sons vs. CIT (supra) was brought to this Court in appeal and has since been disposed of, which is reported in CIT vs. Govinda Choudhury & Sons (1994) 116 CTR (SC) 61 : (1993) 203 ITR 881 (SC). In the said decision, it is recorded that learned counsel for the assessee conceded that interest did constitute a revenue receipt. The Court, however, held on the other question (arising in that appeal) that the said amount of interest cannot be taxed under the head “Income from other sources” which necessarily meant that it has to be taxed as a business receipt. It is true that on the question whether the interest constitutes income or not, the said decision is based upon a concession but we are of the opinion that it was a concession rightly made and is correct in law. Accordingly, we hold that interest is income and it has to be assessed as a business receipt. The question referred is accordingly answered in favour of the Revenue and against the assessee in the above terms. The appeals are disposed of accordingly.

No costs.

[Citation : 259 ITR 754]

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