Deferred sale-price payments treated as interest revenue receipt, assessable only in the relevant previous year.

Amounts paid under a sale deed for deferment of the purchase price were held to be interest, not part of the sale consideration, because the deed separately fixed the sale price and treated the sum as compensation for delayed payment. The receipt was therefore a revenue receipt taxable as interest. On timing, income from the separate source had to be assessed with reference to the relevant previous year under the Income-tax Act, and the amount received before 31 March 1959 could not be assessed in assessment year 1960-61. The year of assessment was accordingly decided in favour of the assessee.

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Issues: (i) Whether the amount of Rs. 15,083 received by the assessee was part of the consideration for sale or a revenue receipt by way of interest. (ii) Whether the amount of Rs. 10,214 was assessable in the assessment year 1960-61.

Issue (i): Whether the amount of Rs. 15,083 received by the assessee was part of the consideration for sale or a revenue receipt by way of interest.

Analysis: The terms of the sale deed showed that the agreed sale price for the properties was separately fixed and that possession was treated as having been delivered from an earlier date, with the vendor acting on behalf of the vendee until execution of the deed. The deed also provided for payment of interest at a specified rate on the deferred sale price. On a construction of the recitals and operative clauses, the amount described as interest was compensation for the purchaser's inability to pay the price on the agreed date and was not part of the purchase price.

Conclusion: The amount of Rs. 15,083 was not part of the sale consideration and was a revenue receipt by way of interest, against the assessee.

Issue (ii): Whether the amount of Rs. 10,214 was assessable in the assessment year 1960-61.

Analysis: Under the definition of "previous year" in section 2(11) of the Indian Income-tax Act, 1922, income from a separate source is ordinarily assessed with reference to the financial year unless a valid option for a different accounting year is shown. The interest amounts were received in the period ending 31 March 1959 and not in the previous year relevant to assessment year 1960-61. They therefore fell within the assessment year 1959-60 and not 1960-61.

Conclusion: The amount of Rs. 10,214 was not assessable in the assessment year 1960-61, in favour of the assessee.

Final Conclusion: The reference was answered by holding that the interest component was taxable as revenue receipt, but not in the assessment year 1960-61, and the controversy was resolved in substance in favour of the assessee on the year of assessment.

Ratio Decidendi: Amounts paid for deferment of the sale price under the terms of a sale deed are taxable as interest revenue receipt and are assessable only in the relevant previous year in which they accrue or are received according to the governing accounting period.

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