Interest on Compensation Taxable as Income, Tax in Year of Judgment, Not Initial Year

The High Court held that interest received on compensation is taxable as income. However, it ruled that the interest amount should not be taxed in the assessment year 1957-58 but in the year of the final judgment. The court determined that the interest was of a casual and non-recurring nature, thus not taxable in the initial assessment year.

---

---

Issues involved:
The taxability of interest on compensation awarded by the court and the assessment year in which it is liable to tax.

Judgment Details:

Taxability of the amount as income:
The assessees, as legal representatives, received interest on compensation awarded by the court. The taxability of this interest amount was disputed. The Income Tax Officer (ITO) sought to tax the entire interest amount in the assessment year 1957-58. However, the Appellate Assistant Commissioner (AAC) deemed the receipt as casual and non-recurring, hence not taxable. The AAC also suggested that the interest amount should be apportioned between relevant years for taxation. The Tribunal ruled that the interest amount is not taxable as it is of a casual and non-recurring nature. The Department appealed to the High Court, which upheld the taxability of the interest amount as income based on previous decisions. The court concluded that the interest received on compensation is taxable as income.

Assessment year for taxation:
Regarding the assessment year for taxation, the High Court referred to precedents stating that the amount accrues only when a final judgment is rendered. Therefore, the date of accrual for taxation purposes would be the date of the final judgment, not the date of the initial judgment. Citing decisions from various High Courts and a case under the Wealth Tax Act, the High Court determined that the interest amount could not have been taxed in the assessment year 1957-58. Consequently, the court ruled that while the interest amount is taxable as income, it should not be included in the income for the assessment year 1957-58.

---