Interest on refunded tax money is revenue income and not a casual, non-recurring receipt where it accrues daily by legal entitlement.

Interest awarded on refund of estate duty retained abroad was treated as revenue income, because interest paid for delayed return of money retains the character of income and is not converted into capital merely by being described as damages or paid in a lump sum. The receipt was also held not to fall within the casual and non-recurring receipt exemption, as it accrued day by day from the date proceedings were instituted and the liability to pay interest was within contemplation when the challenge to the levy was brought. The interest amount was therefore taxable income and the exemption claim failed.

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Issues: (i) Whether interest received on refund of estate duty paid in Ceylon constituted income taxable under the Act; (ii) Whether such receipt was exempt as a casual and non-recurring receipt under section 4(3)(vii) of the Indian Income-tax Act, 1922.

Issue (i): Whether interest received on refund of estate duty paid in Ceylon constituted income taxable under the Act.

Analysis: The amount was awarded by the Ceylon Supreme Court as legal interest on the refunded sum under the applicable civil procedure provision. Interest paid because money was withheld after the date when payment should have been made has the quality of income and is not transformed into capital merely because it is described as damages or paid in a lump sum. The receipt therefore answered the description of revenue income.

Conclusion: The receipt was taxable income and not a capital receipt.

Issue (ii): Whether such receipt was exempt as a casual and non-recurring receipt under section 4(3)(vii) of the Indian Income-tax Act, 1922.

Analysis: The interest accrued from the date of institution of proceedings and was calculated to run from day to day, giving it an element of recurrence. It was also not casual, since a successful challenge to the levy would naturally entail liability to pay interest and that consequence was within contemplation when the proceedings were commenced. A foreseen and anticipated receipt of interest does not fall within the statutory exemption.

Conclusion: The receipt was not exempt as a casual and non-recurring receipt.

Final Conclusion: The assessment of the interest amount as taxable income was upheld and the appeal failed.

Ratio Decidendi: Interest awarded on refund of money unlawfully retained is income of a revenue character, and it is not exempt as casual or non-recurring where it accrues by legal entitlement from day to day and is within the parties' contemplation.

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