Statutory interest on compensation accrues only on quantification and is taxable in the year of receipt.

Statutory interest on compensation under the Orissa Estates Abolition Act was treated as accruing only when the compensation amount was finally quantified, because the interest could not be computed with certainty before that ascertainment. On that basis, it did not accrue year by year from the date of vesting. Applying sections 4 and 5 of the Income-tax Act, 1961, the entire interest received on payment was held to be income of the year of receipt. The Tribunal's direction on expenses was left undisturbed.

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Issues: Whether interest payable on compensation under the Orissa Estates Abolition Act accrued year by year from the date of vesting or only when the compensation was quantified and paid, and whether such interest was assessable to tax in the year of receipt.

Analysis: The statutory right to interest was held to depend on the amount of compensation as finally quantified. Until compensation was ascertained, the quantum of interest could not be worked out with certainty, even though the rate was expressed on an annual basis. On that footing, the interest did not accrue year after year from the date of vesting. The assessment provisions under sections 4 and 5 of the Income-tax Act, 1961 were applied to hold that the entire interest received in the year of payment formed income of that year. The enquiry directed by the Tribunal regarding expenses was left undisturbed.

Conclusion: The interest was assessable as income in the year of receipt and was not liable to be spread over year by year; the main issue was decided against the assessee and in favour of the Revenue.

Ratio Decidendi: Where statutory interest on compensation depends on prior quantification of compensation, the interest accrues only when the compensation is ascertained and is taxable in the year of receipt unless the accounting method requires a different treatment on established facts.

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