1962 (9) TMI 95 - HC - Income Tax

Interest receipt of Rs. 1,93,328 deemed taxable income under Income-tax Act

The court held that the interest receipt of Rs. 1,93,328 constituted income and was not exempt under section 4(3)(vii) of the Income-tax Act as a casual, ... - Issues Involved:1. Whether the interest receipt of Rs. 1,93,328 constitutes income.2. Whether the interest receipt is exempted under section 4(3)(vii) of the Income-tax Act as a receipt of a casual, non-recurring nature.Issue 1: Whether the interest receipt of Rs. 1,93,328 constitutes income.The court first considered whether the receipt of Rs. 1,93,328 could be taxed as income under the Act. This amount was paid by the Ceylon estate duty authorities under the judgment and decree of the Supreme Court of Ceylon, which was subsequently affirmed by the Judicial Committee. The court noted that the amount received was strictly and literally interest on the amount of estate duty wrongly collected by the authorities. The court referenced the provisions of the Estate Duty Act in Ceylon, which allowed for an appeal process similar to a civil suit for recovery of money, including provisions for interest under the Ceylon Civil Procedure Code.The court rejected the assessee's contention that the interest was in the nature of compensation or damages for wrongful collection of estate duty, and thus not income. The court emphasized that the decisive factor was whether the receipt was of a 'capital' or 'income' nature, rather than the label of 'interest' or 'damages.' The court cited various cases, including Westminster Bank v. Riches [1947] 28 Tax Cas. 159, to illustrate that the intrinsic character of the receipt, rather than its description, determined its taxability. The court concluded that the receipt of interest was plainly a result or product or gain proceeding from capital, and thus it was essentially income.Issue 2: Whether the interest receipt is exempted under section 4(3)(vii) of the Income-tax Act as a receipt of a casual, non-recurring nature.The court then addressed whether the receipt, even if considered income, was exempt under section 4(3)(vii) of the Act. This provision exempts receipts that are of a casual and non-recurring nature, provided they are not capital gains chargeable under section 12B and do not arise from business or the exercise of a profession, vocation, or occupation. The court noted that for the exemption to apply, the receipt must be both casual and non-recurring. While the non-recurring nature was assumed, the court focused on whether the receipt was casual.The court defined 'casual' as something that happens by chance or accident, beyond human calculation, and not foreseen or anticipated. The court concluded that the receipt of interest in this case did not bear the characteristics of a casual receipt. The court referenced Commissioner of Income-tax v. Maharajadhiraj Sir Kameshwar Singh [1953] 23 ITR 212, where it was held that a receipt of interest awarded under a decree of court was not casual or non-recurring. The court agreed with this observation and concluded that the amount was not exempt from taxation under section 4(3)(vii) of the Act.Additional Contention:The court also addressed a further contention raised by the assessee that the payment was to the estate of the deceased, Arunachalam Chettiar, and thus would not constitute a receipt by the assessee. The court noted that this question did not arise out of the order of the Tribunal and was not covered by the questions referred for decision. However, the court observed that the interest payment enured only in favor of the persons who shared the estate of the deceased, and the benefit accrued to them in their individual capacity, not in any representative character.Conclusion:Both questions were answered against the assessee, who was ordered to pay the costs of the department.