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Issues: (i) Whether interest awarded on enhanced compensation by the civil court accrued from year to year from the date of acquisition or accrued only when the enhanced compensation and interest were awarded, and was therefore assessable in the year of award; (ii) Whether an appeal lies against the levy of penal interest under section 217 of the Income-tax Act, 1961, when that ground is raised along with other grounds of appeal.
Issue (i): Whether interest awarded on enhanced compensation by the civil court accrued from year to year from the date of acquisition or accrued only when the enhanced compensation and interest were awarded, and was therefore assessable in the year of award.
Analysis: The interest awarded by the civil court on enhanced compensation was treated as discretionary interest awarded when the enhanced compensation was granted. It was distinguished from interest that may accrue by reason of dispossession from the date of acquisition. On that footing, the theory of relating the interest back to the date of acquisition was rejected, and the receipt was held to arise in the previous year in which the civil court awarded the enhanced compensation and interest.
Conclusion: The entire interest on the enhanced compensation was assessable in the assessment year 1972-73, and the question was answered against the assessee.
Issue (ii): Whether an appeal lies against the levy of penal interest under section 217 of the Income-tax Act, 1961, when that ground is raised along with other grounds of appeal.
Analysis: Clause (c) of section 246(1) was read broadly as permitting an assessee who denies liability to be assessed to challenge the charging of interest in appeal when the levy forms part of the dispute against assessment. The reasoning treated the challenge to interest under section 217 as incidental to the assessment dispute and not as a standalone barred appeal. Support was also drawn from analogous authority dealing with interest under section 139.
Conclusion: An appeal was maintainable against the charging of interest under section 217 when raised with other appellate grounds, and the question was answered in favour of the assessee.
Final Conclusion: The reference was answered on the merits of both questions, with the first issue decided for the Revenue and the second issue decided for the assessee.
Ratio Decidendi: Interest on enhanced compensation awarded by a civil court may accrue only when the enhanced compensation is awarded if the award is discretionary, and a challenge to penal interest is maintainable in appeal where it forms part of the assessee's objection to assessment under the appellate provision.
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