Overriding title over statutory interest prevented taxability in the assessee's hands under the nationalisation scheme.

Interest payable by the Government under the Coal Mines (Nationalisation) Act and the Coking Coal Mines (Nationalisation) Act was held not to be taxable in the assessee's hands, because the statutory scheme required the Commissioner of Payments to apply compensation and interest first towards admitted liabilities of secured and unsecured creditors. As no surplus reached the assessee, the amount was diverted at source by an overriding statutory obligation and never formed the assessee's real income, whether on accrual or receipt basis. The interest therefore remained outside taxability in the assessee's hands.

---

---

Issues: Whether interest payable by the Government under the Coal Mines (Nationalisation) Act and the Coking Coal Mines (Nationalisation) Act was taxable in the assessee's hands on accrual or receipt basis, or stood diverted by an overriding title in favour of the creditors and claimants.

Analysis: The compensation and interest receivable under the nationalisation statutes, taken together, were found to be less than the assessee's sundry creditors. The statutory scheme required the Commissioner of Payments to receive the compensation and interest and to apply the amounts first towards admitted liabilities of secured and unsecured creditors, with the assessee entitled only to any surplus under the relevant statutory provision. No surplus was shown to have been received by the assessee. Applying the principles of real income and diversion by overriding title, the interest never reached the assessee as its income; it was impressed with a statutory obligation and stood diverted before accrual in the assessee's hands.

Conclusion: The interest amount was not taxable in the assessee's hands either on accrual basis or on receipt basis.

Final Conclusion: The statutory receipts were held to be diverted to the creditors under the nationalisation scheme, leaving no taxable income in the assessee's hands, and the revenue appeals failed.

Ratio Decidendi: Where a statute creates an overriding obligation that diverts a receipt to third parties before it can reach the assessee as income, the amount is not assessable as the assessee's real income, even if it is receivable in form or routed through a statutory intermediary.

---