Interest on acquisition compensation deposit was taxable as company income because the underlying sum belonged to the assessee-company.

Interest earned on a court deposit made in an acquisition dispute was held taxable as the assessee-company's income because the deposited sum formed part of the compensation payable to it. The High Court noted that once the company declared dividends, the liability became a debt and was taken over under the acquisition statute; when the appeal failed, the deposit became payable to the company. As the principal belonged to the company, the interest accrued to and belonged to it as well, making the Tribunal's contrary view erroneous.

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Issues: Whether interest of Rs. 8,928 earned on the amount of Rs. 1,48,797 deposited in court pending the acquisition dispute was assessable as the assessee-company's income for the assessment year 1973-74.

Analysis: Once the company declared dividends, the liability to pay them became a debt due from the company, and that liability formed part of the assets and liabilities taken over under the acquisition statute. The amount deposited by the Electricity Board was not a ? No. It represented part of the compensation payable to the company on acquisition and, when the appeal failed, the deposit became payable to the company. As the principal amount belonged to the company, the interest earned on that deposit also accrued to and belonged to the company. The Tribunal's view that the deposit did not belong to the company and that the interest therefore could not be taxed was held to be erroneous.

Conclusion: The interest income was assessable in the hands of the assessee-company, and the reference was answered in favour of the Revenue.

Ratio Decidendi: Where a sum deposited pursuant to an acquisition dispute is part of the compensation payable to the assessee-company, the interest earned on that deposit accrues to the company as its income and is taxable in its hands.

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