Motor accident compensation interest is taxable only when the award becomes final, not on mere receipt.

Interest awarded on motor accident compensation was treated as part of the compensation itself, not as a separate income stream taxable on receipt. Because the insurance company's challenge to the MACT award was still pending before the High Court, the compensation amount, including the interest component, had not attained finality and remained liable to variation. On that basis, taxation in the assessment year under appeal was held to be premature. The matter was restored for fresh determination in line with the final outcome of the compensation proceedings, and relief was granted for statistical purposes.

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Issues: Whether the interest component awarded on motor accident compensation was taxable as income in the year of receipt, or whether it formed part of the compensation and became taxable only when the award attained finality.

Analysis: The Tribunal held that the amount awarded by the MACT was not yet final when the assessment was made, as the insurance company's challenge before the High Court remained pending and the quantum and rate of interest were still liable to be altered. It noted that in accident claims, the interest attached to the compensation award is not an independent income stream in the same sense as ordinary interest income, but is linked to the compensation itself. Relying on the view that such interest is part of the compensation and has the character of a capital receipt till the award becomes final, the Tribunal held that taxation in the assessment year under appeal was premature. The issue was therefore required to be reworked by the Assessing Officer in accordance with the final outcome of the compensation proceedings.

Conclusion: The interest component on the MACT award was not assessable as income in the year under appeal as such; the matter was restored to the Assessing Officer for fresh determination, and the assessee obtained relief for statistical purposes.

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