Deferred sale consideration treated as capital gains where the so-called interest was part of transfer proceeds, not statutory interest.

An amount received on deferred payment of auction sale price, though described as interest, was treated as part of the transfer consideration because it was intrinsically connected with the transfer of a capital asset. The label used by the parties was not decisive; for capital gains purposes, sections 45(1) and 48 require inclusion of all sums accruing as a result of the transfer. The amount was not statutory interest under section 2(28A), since it did not arise from borrowed money or a debt. It was therefore assessable as capital gains, not as income from other sources, and the contrary assessment was unsustainable.

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Issues: Whether the amount received by the Official Liquidator, though described as interest on deferred payment of the auction price, was part of the sale consideration chargeable as capital gains or assessable as income from other sources.

Analysis: The amount was received in connection with the transfer of the capital asset and, for income-tax purposes, the label given by the parties was not decisive. Under section 45(1) and section 48 of the Income-tax Act, the full value of consideration for transfer of a capital asset includes all amounts accruing as a result of the transfer. Section 2(47)(v) applies only where possession is allowed in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act; here, possession was not transferred in that manner, and there was no actual or notional transfer until the sale certificate was issued. The amount, though termed interest in the company proceedings, was not interest in the statutory sense under section 2(28A) because it did not arise from money borrowed or debt incurred. Authorities treating true post-transfer interest as income from other sources were distinguishable.

Conclusion: The amount formed part of the sale consideration and had to be assessed as capital gains, not as income from other sources.

Final Conclusion: The assessment treating the amount as income from other sources was unsustainable, and the matter had to be reconsidered on the basis that the receipt was part of the capital proceeds of transfer.

Ratio Decidendi: Where an amount received on deferred payment of sale consideration is intrinsically connected with the transfer of a capital asset and does not represent statutory interest on borrowed money or debt, it is to be treated as part of the transfer consideration for capital gains taxation.

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