Contingent interest on security deposits is not real income while arbitral proceedings remain pending, supporting Section 197 relief.

Interest earned on fixed deposits created from withdrawn against a bank guarantee, while the underlying arbitral challenge remained pending, was not treated as accrued real income. The court reasoned that entitlement to retain both the principal and the interest was contingent on the final outcome of the challenge, and the prospect of restitution under Section 144 CPC confirmed that the receipt was provisional rather than final. As no crystallised income arose, refusal of a certificate under Section 197 of the Income-tax Act was unjustified, and the taxpayer was entitled to the certificate for the relevant year.

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Issues: Whether interest earned on fixed deposits created out of an amount withdrawn against a bank guarantee, pending finality of the underlying arbitral challenge, had accrued as income so as to justify refusal of a certificate under Section 197 of the Income-tax Act, 1961.

Analysis: The underlying award had not attained finality and the petitioner's entitlement to retain the principal amount and the interest was contingent on the outcome of the pending challenge. In such a situation, the amount withdrawn against security did not represent crystallised income, and the interest generated on the fixed deposit also could not be treated as real income accrued to the petitioner. The possibility of restitution under Section 144 of the Code of Civil Procedure, 1908 further showed that the entitlement remained provisional rather than absolute. The fact that a certificate had been issued for earlier years also supported the absence of any fresh justification for denial.

Conclusion: The refusal to grant the certificate under Section 197 was unjustified, and the petitioner was entitled to the certificate for the relevant financial year.

Ratio Decidendi: Where receipt and retention of money, and the interest earned on it, are contingent on the final outcome of pending proceedings and remain liable to restitution, such interest does not constitute accrued real income for withholding-tax purposes.

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