TMI Blog1992 (1) TMI 158X X X X Extracts X X X X X X X X Extracts X X X X ..... Execution of the said contract work had been started in the year 1961 but the same could be completed in July 1965. During that period the assessee-firm received payments of its interim bills but dispute arose with regard to the payment of the Final Bill. As per clause 70 of the Contract Agreement the dispute was referred for adjudication to Brig. S.R. Bagga, the sole Arbitrator. Both the parties preferred their cross-claims before the Arbitrator. The claims preferred by the assessee firm included demand of interest @ 12 per cent per annum on,------ (a) amount withheld from 1965 to 1980, (b) award amount from date of claim to the date of award, (c) security deposit of Rs. 25,000 held up from 1966 to 1980, and (d) on award amount fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons the ITO distinguished the case of Govinda Choudhury Sons and, instead, relied upon the decisions in the cases of CIT v. South India Pictures Ltd. [1956] 29 ITR 910 (SC), CIT v. Rai Bahadur Jairam Valji [1959] 35 ITR 148 (SC) and CIT v. Manna Ramji Co. [1972] 86 ITR 29 (SC). The assessee-firm appealed to the CIT (Appeals). 6. The CIT (Appeals) held that the interest had been awarded as ex-gratia by the Arbitrator as there was neither a contractual nor a statutory obligation to pay such an interest in the instant case. He, therefore, treated the interest payment on capital account and excluded the same from computation of assessee's total income. 7. The learned departmental representative vehemently urged that the amount in questi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is contention reliance was placed on Govinda Choudhury Son's case. In our opinion the order under appeal calls for a slight modification only. 9. Payment of interest is generally made on account of loss of one's earnings from his funds withheld by the other. The right of the creditor to receive interest on his funds which have been withheld by the debtor originates from either a contract between the parties or from some statutes like Civil Procedure Code, 1908, Interest Act of 1839, Land Acquisition Act, 1894, etc. When the right to interest so originates the source of obligation of the debtor to pay interest lies in the contract or the relevant statute. When the interest is earned from either of the two sources, i.e., contract and/or s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court in the case of Govinda Choudhury Sons relied upon by Dr. Narayanan. The cases relied upon by the ITO are totally besides the point though the principles enunciated therein are subject to no dispute. 11. In the instant case the position comes to this. The relationship between the creditor (the assessee) and the debtor (Union of India) was no doubt governed by the terms and conditions of the Contract Agreement which made a specific provision for referring the dispute to a sole Arbitrator but it made no provision either creating a right in favour of the creditor-assessee to receive interest on the withheld amount or a corresponding obligation on the debtor Union of India to pay such interest. Moreover, it did not empower the Arbitra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the sale of a sufficient part of the Security Deposit or from the interest arising therefrom or from any sums which may be due or may become due to the Contractor by the Govt. on any account whatsoever and in the event of his Security Deposit being reduced by reason of any such deduction, or sale as aforesaid, the Contractor shall within 10 days thereafter, make good in cash or securities, endorsed as aforesaid, any sum or sums which may have been deducted from or realised by the sale of, his Security Deposit or any part thereof. " 13. In the words "or from the interest arising therefrom" occurring in the language of paragraph 22 above, we read an implied obligation of Union of India to pay, with a corresponding right of the assessee to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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