2005 (1) TMI 62 - HC - Income Tax

Taxation of Interest Income on Fixed Deposit Receipts in Acquisition Dispute

Commissioner of Income-Tax Versus Dr. MR Sapra.

Commissioner of Income-Tax Versus Dr. MR Sapra. - [2005] 276 ITR 41, 197 CTR 207, 148 TAXMANN 292 Issues involved:1. Whether the Income-tax Appellate Tribunal erred in confirming the deletion of interest income accrued on fixed deposit receipts (FDRs) of the assessee, which was free from encumbrances and liable to be taxed under the Income-tax Act, 1961Rs.Comprehensive Analysis:The judgment pertains to an appeal under section 260A of the Income-tax Act, 1961, filed by the Revenue regarding the deletion of interest income accrued on FDRs of the assessee. The assessee, a surgeon, declared an income for the assessment year 1994-95, including interest accrued on FDRs in the total income. The Commissioner of Income-tax (Appeals) deleted the addition of Rs. 10,79,858, which was upheld by the Income-tax Appellate Tribunal, leading to the current dispute.The controversy revolves around the acquisition of the assessee's land by the Government of Haryana, where the compensation amount was deposited in FDRs. The interest accrued on these FDRs became the subject of challenge in the appeal. The Revenue argued that the interest was free from encumbrances and should be taxed immediately to avoid limitation issues. On the other hand, the assessee contended that as the ownership of the principal amount itself was disputed, the interest should not be considered income until the case is finalized.The court analyzed previous judgments, including the Supreme Court's decision in Hindustan Housing and Land Development Trust Ltd.'s case, which distinguished cases where the right to receive payment was in dispute from cases where only the quantification was in dispute. The court also considered the Gujarat High Court's decision in CIT v. Bavla Gopalak Vividh Karyakarisahakari Mandli Ltd., which emphasized that income does not accrue if the grant of subsidy itself is under dispute.Ultimately, the court held that the interest accrued on the FDRs was not encumbered, as there was no lien or guarantee by the bank on the interest amount. Therefore, the Tribunal erred in confirming the deletion of the interest income. The appeal was allowed, and the substantial question of law was answered in the affirmative, directing the inclusion of the interest income in the assessee's total income for taxation purposes.In conclusion, the judgment clarifies the taxability of interest income accrued on FDRs in a disputed acquisition scenario, emphasizing the absence of encumbrances as a key factor in determining tax liability.