Interest in arbitral compensation was treated as a capital receipt, not taxable income, absent any statutory or contractual basis.

Interest awarded by an arbitrator under the Requisitioning and Acquisition of Immovable Property Act, 1952, without any statutory provision or contractual stipulation, was treated as part of compensation rather than taxable income. The Tribunal applied the principle that interest is ordinarily revenue when payable under statute or contract, but it assumes a capital character where granted ex gratia as compensation for being kept out of property or money. On the facts, the award was characterised as ex gratia compensation for deprivation of property, so the interest was held to be a capital receipt and the income additions were unsustainable.

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Issues: Whether interest awarded by the arbitrator under the Requisitioning and Acquisition of Immovable Property Act, 1952, in the absence of any specific statutory provision or contractual stipulation for interest, was a revenue receipt taxable as income or a capital receipt forming part of compensation.

Analysis: The Act did not contain any provision enabling the grant of statutory or discretionary interest, and there was also no contract between the Government and the claimants providing for interest. The Tribunal applied the principle that where interest is awarded under a statute or contract it is ordinarily taxable as income, but where the amount is granted ex gratia and is really compensation for being kept out of money or property, it assumes a capital character. On the facts, the arbitrator's award of interest was treated as an ex gratia measure, and the Tribunal followed the view that such interest, being worked out through the medium of interest but not payable as true interest under statute or contract, is part of the compensation for deprivation of property.

Conclusion: The interest awarded was a capital receipt and not taxable as income; the additions made by the lower authorities were unsustainable.

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