Arbitral interest on works contract claims is taxable income and assessable as a business receipt, not other sources.

Interest awarded by an arbitrator on compensation payable under a works contract was treated as a revenue receipt and therefore taxable as income. The earlier view that such interest was not income was rejected. The Court held that the receipt could not be brought under the head "Income from other sources" and, on the reasoning accepted, it was assessable as a business receipt. The reference was answered in favour of the Revenue and against the assessee.

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Issues: Whether interest awarded by an arbitrator on compensation payable under a works contract constitutes income chargeable to tax, and if so, under which head it is assessable.

Analysis: The interest awarded in arbitration was held to be a revenue receipt. The earlier view that such interest was not income was not accepted. The interest could not be assessed under the head "Income from other sources" and, on the reasoning accepted by the Court, it was liable to be treated as a business receipt.

Conclusion: Interest awarded by an arbitrator is income and is assessable as a business receipt. The reference was answered against the assessee and in favour of the Revenue.

Ratio Decidendi: Interest awarded on a contractual/arbitral claim for work done constitutes taxable income as a revenue receipt and, where not assessable as income from other sources, is to be treated as a business receipt.

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