1966 (10) TMI 38 - SC - Income Tax

Whether the interest receipt constitutes income ? Whether it is exempt under section 4(3)(vii) of the Income-tax Act as a receipt of a casual and non-recurring nature ? Held that - the interest paid to the assessee under the decree of the Supreme Court of Ceylon on the amount of estate duty directed to be refunded was income liable to be taxed under the Act. When the action was commenced by way of a petition in the District Court of Ceylon it was well within the contemplation and anticipation of the persons representing the estate that a successful termination of the action would not merely result in a decree for the tax illegally collected but would also make the Crown liable to pay interest on that amount from the date of the petition till the date of the payment. The receipt of interest in the present case by virtue of the decree of the Supreme Court of Ceylon bears no semblance therefore to a receipt of a casual character. It is not therefore possible to accept the argument of the appellant that the receipt of interest obtained under the decree of the Supreme Court of Ceylon was of a casual or non-recurring nature. Thus reject the submission of the appellant on this aspect of the case. Appeal dismissed

Issues Involved:
1. Whether the interest receipt constitutes income.
2. Whether the interest receipt is exempt under section 4(3)(vii) of the Indian Income-tax Act, 1922, as a receipt of a casual and non-recurring nature.
3. Whether the interest receipt was a capital receipt as part of the estate of the deceased.

Detailed Analysis:

1. Whether the interest receipt constitutes income:
The first issue addressed was whether the amount of Rs. 1,93,328 received by the assessee as his one-third share of the interest paid by the estate duty authorities of Ceylon could be taxed as income. The assessee contended that this amount was damages for the unlawful retention of money by the estate duty authorities and thus a capital receipt. The court rejected this argument, stating that the amount was paid under the judgment and decree of the Supreme Court of Ceylon. The relevant portion of the decree specified that the amount was interest, not damages. The court referenced the Ceylon Civil Procedure Code, which empowers the court to award interest, similar to section 34 of the Indian Civil Procedure Code. The court cited the case of Westminster Bank Ltd. v. Riches, where it was held that interest awarded by the court for the detention of money is taxable as income. The court also referenced Dr. Shamlal Narula v. Commissioner of Income-tax, where statutory interest paid under the Land Acquisition Act was considered a revenue receipt liable to tax. The court concluded that the interest paid to the assessee under the decree of the Supreme Court of Ceylon was income liable to be taxed under the Act.

2. Whether the interest receipt is exempt under section 4(3)(vii) of the Indian Income-tax Act, 1922, as a receipt of a casual and non-recurring nature:
The second issue was whether the interest receipt, even if it constituted income, was exempt under section 4(3)(vii) of the Act as a receipt of a casual and non-recurring nature. The court noted that although the appellant received a lump sum payment, the interest was granted from the date of the institution of the proceedings and calculated to accrue daily, giving it the essential quality of recurrence. The court defined "casual" as something produced by chance, accidental, or coming at uncertain times. The court found that the receipt of interest was foreseen and anticipated, as it was within the contemplation of the estate representatives that a successful action would result in both the refund of the tax and the payment of interest. Therefore, the receipt of interest did not bear the characteristics of a casual or non-recurring nature. The court rejected the appellant's submission on this point.

3. Whether the interest receipt was a capital receipt as part of the estate of the deceased:
The final issue was whether the payment of interest under the decree of the Supreme Court of Ceylon was made to the estate of Arunachalam Chettiar (senior) and thus received by the appellant as part of the estate, making it a capital receipt. The court noted that this argument was not raised before the Appellate Tribunal and was not part of the questions referred to the High Court. The court referenced the case of Commissioner of Income-tax v. Scindia Steam Navigation Co. Ltd., which held that the High Court can only decide questions referred to it. The court also mentioned the decision of the Madras High Court in Commissioner of Income-tax v. Veerappa Chettiar, which dealt with a similar issue but noted that the specific question of the disruption of the joint family status was not raised before the Tribunal in the present case. Thus, the court did not entertain this argument.

Conclusion:
The court upheld the judgment of the High Court, confirming that the interest receipt constituted income and was not exempt under section 4(3)(vii) of the Act. The argument that the receipt was a capital receipt as part of the estate was not considered as it was not raised at the appropriate stage. The appeal was dismissed with costs.

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