Court-awarded interest as compensation for wrongful deprivation of deposit was treated as a non-taxable casual receipt.

Interest awarded by a civil court under section 34 of the Code of Civil Procedure, 1908, for wrongful deprivation of a security deposit was treated as a compensatory receipt rather than taxable income. The governing distinction is that interest arising under statute or contract is taxable, but amounts awarded as compensation for loss of property are not, even if described as interest. Because the right to receive the payment did not arise from any statutory mandate or contractual term, the receipt was characterised as a casual receipt and excluded from income for the relevant assessment year.

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Issues: Whether interest awarded by a civil court on refund of a security deposit forfeited in connection with a supply contract was taxable income or a casual receipt not chargeable to tax.

Analysis: The governing principle was that interest received under a statute or contract is taxable, whereas amount paid as compensation for deprivation of property, though described as interest, is not taxable. The distinction drawn by the Supreme Court in the cited authority turned on the source of the right to interest. Here, the interest was not paid under a statutory mandate or contractual term but was awarded by the court in its discretion under section 34 of the Code of Civil Procedure, 1908, to compensate for wrongful deprivation of the security deposit. That placed the receipt within the class of compensatory payments treated as casual receipts.

Conclusion: The interest amount was not taxable income and could not be included in the assessee's income for the relevant assessment year.

Ratio Decidendi: Interest awarded by a court in its discretion as compensation for wrongful deprivation of money is a compensatory casual receipt and is not taxable as income; interest is taxable only where the right to receive it arises under statute or contract.

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