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2011 (5) TMI 826 - AT - Income TaxCompensatory non-statutory interest received in terms of the order of High Court - whether a capital receipt in nature and the authorities below should have not imposed tax on such capital receipt - whether the income determined by the AO on the basis of the return filed by the assessee can be a figure lower than the income returned by the assessee – Held that:- The principle for determining the taxable income of the assessee under the Income-tax Act should be within the purview of the law in force. If the taxable income determined by AO is not in accordance with such principle it is open to the assessee to contend the same before the higher authorities to follow the correct application of law to determine the actual taxable income of the assessee. Thus the lower authorities, are not expected, to say that merely because the assessee has returned income which is higher than the income determined in accordance with legal principles such returned income can be treated as lawfully assessed. An assessee is liable to pay tax only upon the taxable income. The law imposed by AO to assess the income according to law and determined the tax payable thereon but cannot assess the income of the assessee an amount which is not taxable as per law though shown by the assessee in the return. In the case of Charanjit Jawa (2004 (2) TMI 22 - PUNJAB AND HARYANA High Court) relied upon by assessee supports the views that the interest received as a result of the order of the hon'ble High Court was not a statutory interest and was in the form of damage/compensation and the same was not liable to tax & thus was not taxable as a capital receipt. We also take support from the circular issued by the Central Board of Direct Taxes vide Circular No. 14 (XL-35), dated April 11, 1955 which has directed the officers not to take advantage of the ignorance of the assessee - the appeal of the assessee is allowed.
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