TMI Blog1994 (3) TMI 83X X X X Extracts X X X X X X X X Extracts X X X X ..... ermination of its business in 1974 and consequently in holding that the interest amount received by the assessee during the accounting period relevant to assessment year 1979-80 is assessable in the said assessment year ? (iii) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee is not entitled to claim deduction during the assessment year 1979-80 of the interest paid by the assessee to the Federal Bank during the accounting periods relevant to earlier assessment years ? At the instance of the Department: (iv) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee is entitled to claim deduction of the interest paid by the assessee to the Federal Bank during the accounting period relevant to assessment year 1979-80 ?" The assessee was a contractor under the public works department. He was mainly engaged in the construction of sea wall near Kayamkulam. He stopped his work by April, 1974. At that time, a sum of Rs. 3,00,556 was due to the assessee from the Department and the payment of the same was withheld by the Department. Payment was also due for some work d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is a revenue receipt, on the basis of its decision in the case of Rockwell Engineering Company in Income-tax Appeal No. 715/(Coch.) of 1982. In Rockwell Engineering Company's case, the question whether the interest received by the assessee was a revenue receipt liable to be taxed was referred to this court for its decision. This court in Rockwell Engineering Co. Ltd. v. CIT [1989] 180 ITR 277, took the view that the interest portion of the amount awarded on the basis of the decision rendered by the arbitrator is a revenue receipt. As per the award in the instant case, amounts were payable to the assessee. Since the amounts were not paid at the proper time, interest was awarded for such delay. The interest so paid is only an accretion to the amounts due to the assessee under the contract. It is therefore attributable and incidental to the business carried on by him. Under no circumstance can it be said that this interest is de hors the contract business carried on by the assessee. As observed by the Supreme Court in CIT v. Govinda Choudhury and Sons [1993] 203 ITR 881, the interest paid to the assessee partook of the same character as the receipts for the payment of which he was oth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the person who carried on the business had such sum been received before such discontinuance. " The assessee in the instant case discontinued his business in 1974. He received the amount, with which we are concerned in these references, after the said discontinuance. The amounts so received should be deemed to be the income of the assessee. It is to be charged to tax as income in the year of receipt. It is to be so assessed if the sum received by the assessee would have been included in the total income had such sum been received before the discontinuance. Section 176(3A), therefore, lays down that where any business is discontinued in any year any sum received after the discontinuance shall be deemed to be the income of the recipient and charged to tax accordingly in the year of receipt. Any sum received after the discontinuance of the profession shall be deemed to be the income of the recipient. Will it be the income of the recipient arising out of business ? The statutory provision in sub-section (3A) is clear that the income so received should be charged to tax accordingly in the year of receipt. The words "charged to tax accordingly", according to us, are indicative of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ition of "total income" alone is to be charged to tax and not the whole of the receipt. In the same book, at page 623, the learned authors further state : " However, where a receipt from a discontinued business or profession is taxed under section 176(3A) or (4) as the income of a year subsequent to the year of the discontinuance, any expenditure incurred after the year of discontinuance to earn that income should be allowed." This makes it clear that the expenditure incurred after the year of discontinuance to earn that income should be deducted. By such deduction only the total income which is chargeable to tax can be found. The opinion expressed by the learned commentators is in tune with the view that for the sum received after discontinuance of the business to be charged to tax under sub-section (3A) of section 176, the same would have been included in the total income of the person. It means that only that portion of the sum received which would be total income of the assessee as found under the Act alone is to be charged to tax. The total income charged to tax under sub-section (3A) of section 176 must be one computed in the manner laid down in the Act. According to le ..... X X X X Extracts X X X X X X X X Extracts X X X X
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