Interest income from MACT Court not taxable until finality. Appeal allowed for assessment year 2006-07.

The Tribunal held that the interest income received by the assessee from the MACT Court was not taxable in the year of receipt but should be taxed when the compensation and interest reach finality. The appeal was allowed, and the interest income was deemed not taxable for the assessment year 2006-07.

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Issues: Whether interest received on a motor accident compensation award, which was under challenge before the High Court and subject to possible reduction or refund, was taxable in the year of receipt.

Analysis: The Tribunal noted that the compensation award itself had not attained finality and the insurer's appeal before the High Court was still pending. The amount described as interest was paid under an interim arrangement and could be altered or reversed in future proceedings. In such circumstances, the receipt lacked the certainty and irrevocability required for accrual as income. The Tribunal distinguished cases concerning land acquisition compensation and TDS deductions, holding that those authorities did not govern the question whether a disputed and contingent receipt had become taxable income in the relevant year. It emphasized that where the underlying entitlement remains sub judice and the amount may have to be refunded, the receipt cannot be treated as income on a real accrual basis for the year of receipt.

Conclusion: The interest amount was not taxable in the year under appeal and the addition was deleted.

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