1992 (4) TMI 28 - HC - Income Tax

Taxability of Interest on Damages for Waste vs. Mesne Profits: Annual Assessment Required

The High Court held that interest on mesne profits is not taxable but ruled that interest on damages for waste is taxable and should be assessed annually, ... Income, Interest Issues:Assessment of tax on interest awarded by the civil court on damages decreed for waste committed on property.Analysis:The judgment pertains to a batch of twelve connected cases involving references made by both the assessee and the Revenue regarding the taxability of interest awarded by the civil court on damages decreed for waste committed on property. The original assessee, K. C. Alexander, had filed a suit for eviction of trespassers on his property, seeking mesne profits and damages for waste. The assessing authority brought to tax the interest on mesne profits and damages for waste. The first appellate authority held that interest on mesne profits is not taxable but ruled that interest on damages for waste is taxable. The matter was taken to the Income-tax Appellate Tribunal, which held that interest on mesne profits is not taxable but interest on damages for waste is taxable, subject to examination of its realisability. The Tribunal remitted the matter to the Income-tax Officer for further determination.The questions referred to the High Court included whether interest on damages decreed for waste committed on property is taxable, whether interest on mesne profits is taxable, and whether interest on damages for waste can be taxed only upon realisation. The High Court held that interest on mesne profits is not taxable, aligning with a previous decision. However, it ruled that interest on damages for waste is taxable, and should be assessed on a year-to-year basis, not only upon actual realisation or receipt. The court emphasized that in the absence of accounting details, the interest accrued annually and should be taxed accordingly. Therefore, the court answered in favor of the Revenue regarding the taxability of interest on damages for waste.In conclusion, the High Court upheld the Tribunal's decision that interest on mesne profits is not taxable but determined that interest on damages for waste is taxable and should be assessed annually. The judgment provides clarity on the tax treatment of interest awarded by the civil court in cases of damages decreed for waste committed on property, emphasizing the importance of assessing income accrued over time rather than solely upon receipt.