TMI Blog1953 (1) TMI 23X X X X Extracts X X X X X X X X Extracts X X X X ..... which included the principal, law charges expenses as also interest. Out of the amount of ₹ 25,530 realised by the assessee the Income-tax Officer calculated the interest to be ₹ 10,497. The assessee claimed that this amount should be treated as accretion to capital because the mill business having been closed the sale proceeds of the machinery could not be profits arising from that business. The contention was rejected by the Income-tax Appellate Tribunal who held that the price of the machinery was only ₹ 13,000 and odd, which was deducted from the amount decreed to the Maharaja. After making other deductions the interest was computed to be ₹ 10,497 which, the Income-tax Appellate Tribunal held, was taxable in the hands of the assessee. A second objection was also preferred by the Maharaja with respect to the 1947-48 assessment. It appears that the Maharaja had made advance payment of tax under Section 18A of the Indian Income-tax Act. Under the provisions of this section the Maharaja was entitled to interest at the rate of 2 per cent. on the amount deposited. A sum of ₹ 41,813-6-0 was thus due to the Maharaja as statutory interest on the amount o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not whether the amount in dispute is interest in its proper sense or interest by way of damages, but the question is whether the amount is of an income or capital nature. In the present case the textile mills were sold by Gokulchand who retained the sale proceeds and did not make them over to the assessee. A suit was brought and ultimately the assessee was granted a decree for ₹ 25,530 which included the principal amount of ₹ 13,363 and interest calculated to be ₹ 10,497 and certain other expenses. Mr. S.K. Majumdar argued that as the mills have been closed down the amount of ₹ 10,497 cannot be said to be income arising from the textile mills. Learned counsel is correct when he states that the amount is not income from business. But the amount is nevertheless income for the reason that it constitutes interest on the sale proceeds which Gokulchand ought to have made over to the Maharaja. In my opinion the taxing authorities rightly treated this amount as taxable income in the hands of the assessee. This opinion is supported by the decision of the House of Lords in Westminster Bank, Ltd. v. Riches [1947] 28 Tax Cas. 159. R brought an action against the Westm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was merely used as a means of arriving at a capital sum of damages, the interest calculation being in modum aestimationes. In the present case, the material facts are obviously different. In a case of this description the crucial question is whether interest calculation is used as a means of estimating a capital sum of damages or not. In other words, the question is whether the amount sought to be taxed is damages by way of interest or interest by way of damages. For instance, in Commissioners of Inland Revenue v. Ballantine [1924] 8 Tax Cas. 595 the arbitrators to whom a claim for additional costs, loss and damages was referred, awarded an amount which included a sum described as interest. The Court of Sessions, having concluded that what was described as interest was in fact part of the total sum awarded by way of damages, rejected the claim of the Revenue to tax upon it. As Lord President said: If the decree was substantially one of damages, the interest ordered to run on it was just part of the damages, and not therefore chargeable to income-tax. Again in Simpson v. Executors of Bonner Maurice [1929] 14 Tax Cas. 580, tax was held not to be payable upon any part o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d have earned. That has been done, but the sum that was paid has not been turned into interest so as to attach income-tax to it. It remains compensation and, for these reasons, it appears to me that it is not a sum which attracts or attaches income-tax to it. Mr. Majumdar then submitted that the amount of ₹ 10,497 was receipt which was of a casual and non-recurring nature and so was exempt from income-tax under Section 4(3)(vii) of the Indian Income- tax Act. Learned counsel said that the amount in question was a lump sum payment awarded to the Maharaja and there was no quality of recurrence about it. I do not think this submission is correct. It is true that the Maharaja received a lump sum payment on account of interest. That does not, however, necessarily mean that the amount of interest is not a receipt of a recurring nature. On the other hand, the interest is calculated upon the footing that it accrues de die in diem, and hence it has the essential quality of recurrence which is sufficient to bring it within the scope of income-tax. The argument of the learned counsel for the assessee on this aspect of the case must, therefore, be rejected. It was also contended tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which he had been ordered to make good to the trust estate was liable to income-tax. It was held by the Court of Sessions that the amount was rightly assessed under Schedule D in respect of the interest. The reason was that the trustee having duly paid the interest, it was in the words of Lord Johnston a surrogatum for that which ought to have termly reached the hands of the trustees and have been applied by them as income. In Commissioners of Inland Revenue v. Barnato [1934-36] 20 Tax Cas. 455 the facts were very similar. There too the defendants became bound under a consent Order, founded on certain admissions, to pay not only a principal sum but interest upon it. It was held that such interest was liable to tax. These cases illustrate the proposition that that which reaches the hand of the recipient as interest upon a principal sum is income liable to income-tax, notwithstanding that it may come to him in a single sum and as the result of a hostile suit. Applying the principle to the present case it is manifest that the amount of ₹ 41,813 and odd awarded as interest under Section 18A was undoubtedly income in the hands of the Maharajah. In this connection learned cou ..... X X X X Extracts X X X X X X X X Extracts X X X X
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