1995 (3) TMI 81 - HC - Income Tax

Court dismisses petition on tax treatment of interest on compensation, emphasizing established legal principles.

The High Court dismissed the petition in a case involving the tax treatment of interest accrued on compensation pending final determination. The court ... Accrual Of Income, Compensation On Compulsory Acquisition, Question Of Law, Supreme Court Issues involved:The judgment involves a reference application u/s 256(2) of the Income-tax Act, 1961, regarding the assessability of interest accrued on compensation before final determination.Summary:The case pertains to a trust formed under a deed of trust, where land owned by two individuals was acquired by the Government of Madhya Pradesh under the Land Acquisition Act. The compensation awarded was deemed inadequate, leading to a legal process for enhancement. The trust was party to the proceedings, allowed to withdraw enhanced compensation by providing a bank guarantee for the compensation and future interest. The dispute arose when the Income-tax Officer taxed the interest income of the trust, which was later deleted by the Commissioner of Income-tax (Appeals) and upheld by the Income-tax Appellate Tribunal.Upon the Revenue's appeal, the Tribunal dismissed the application for reference, stating no referable question of law arose. The High Court, considering relevant precedents, noted that the right to receive future interest and enhanced compensation was unsettled, as the trust was directed to withdraw both on providing security for restitution. The court found the principles from previous judgments applicable to the present case, concluding that the answer to the proposed question was evident, and no useful purpose would be served by a reference. Therefore, the petition was dismissed.This judgment clarifies the tax treatment of interest accrued on compensation pending final determination, emphasizing the unsettled nature of such amounts and the applicability of established legal principles in determining tax liability.