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AI Drafter - (New and Powerful) ✕ Generate professional replies, appeals, opinions to Show Cause Notices, assessment orders, audit objections, and other legal communications using TaxTMI's AI Drafter.
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Issues: Whether interest earned on fixed deposits made from interim compensation received in land acquisition proceedings was taxable in the relevant assessment years and whether the assessee could rely on restitution principles and the earlier Delhi High Court decision to deny taxability.
Analysis: The interim compensation was withdrawn without any stipulation that it had to be returned with interest if the assessee failed in the land acquisition appeal. Once withdrawn, the amount became part of the assessee's own funds and the fixed deposit lost its character as compensation. The source of funds did not control the taxability of income earned on the deposit. The right to receive the interest had already accrued, so the income was chargeable to tax. Section 144 of the Code of Civil Procedure, 1908 did not assist the assessee because restitution was only a contingent possibility and, in any event, would operate on net amounts after tax. The earlier Delhi High Court decision was distinguishable on its facts because it involved a specific undertaking to refund the amount with interest.
Conclusion: The interest on fixed deposits was rightly held taxable as income accruing to the assessee, and the question of law was answered in favour of the Revenue.
Ratio Decidendi: Where interim compensation is withdrawn without any obligation to refund it with interest on failure in appeal, interest earned on a fixed deposit made from that amount accrues independently and is taxable; the mere possibility of restitution does not prevent accrual or taxability.
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