TMI Blog1997 (12) TMI 54X X X X Extracts X X X X X X X X Extracts X X X X ..... gratia payment that cannot be liable to tax ?" The dispute pertains to the assessment year 1977-78. During that year the assessee was a registered firm engaged in the business of execution of works contract. It had executed a contract "Balimela Project" for the Government of Orissa. After the receipt of the said contract in the year 1974 certain disputes arose between the assessee and the contractee (i.e., the Government of Orissa). The assessee-claimed that it had to carry out certain work over and above the items stipulated in the agreement. It demanded payment for the additional work and also interest thereon at the rate of 15 per cent. from the date when the payment ought to have been made till July 13, 1974. The matter was ultimate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee an amount of Rs. 2,00,080 received by way of interest was not liable to be taxed." The case taken was that the interest payable by the contractee was neither under a statute nor under a contract and so it was only on an ex gratia basis and cannot be taxed as a revenue receipt. The Income-tax Officer, however, did not accept the claim of the assessee and completed the assessment on the income of Rs. 3,30,256. The assessee carried the matter in appeal. The appellate authority relying upon a decision of the Orissa High Court in Govinda Choudhury and Sons v. CIT [1977] 109 ITR 497, accepted the claim of the assessee on the view that in a case where interest was as dried neither under a statute nor under a contract, the same was not exig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed of the Orissa Government and, therefore, it was a capital receipt. We do not think that there is any justification for this argument. The controversy between a capital and revenue receipt has defied solution. A review of the reported decisions on the subject would indicate that the courts have enunciated various rules as furnishing a key to the solution of the controversy but the courts have not been able to lay down any single test as infallible which could be regarded as decisive in all eventualities in determining the question, which must ultimately depend on the facts of the particular case. The name given to the sum awarded have varied ; "damages", "interest", "compensation" but the label under which the amount is received, is no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion, call it by any name. It may be called interest, composition or damages. The basic consideration is as valid for the period the dispute is pending before the arbitrator as it is for the period prior to the arbitrator entering upon the reference. This is the principle of section 34 of the Civil Procedure Code and there is no reason or principle to hold otherwise in the case of arbitration. It was held that where the agreement between the parties does not prohibit grant of interest and where a party claims interest and that dispute (along with the claim for the principal amount or independently) is referred to the arbitrator, he shall have the power to award interest pendente lite. This is for the reason that in such a case it must be pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uality of the compensation is the same and the compensation is properly described as interest. The decision of the Orissa High Court in Govinda Choudhury's case [1977] 109 ITR 497, was appealed against by 203 ITR 881, and it was the Revenue before the Supreme Court in CIT v. Govinda Choudhury and Sons [1993] observed : "The assessee is a contractor. His business is to enter into contracts. In the course of the execution of these contracts, he has also to face disputes with the State Government and he has also to reckon with delays in payment of amounts that are due to him. If the amounts are not paid at the proper time and interest is awarded or paid for such delay, such interest is only an accretion to the assessee's receipts from the ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
