AI Drafter - (New and Powerful) 
Generate professional replies, appeals, opinions to Show Cause Notices, assessment orders, audit objections, and other legal communications using TaxTMI's AI Drafter. 
TaxTMI 
TaxTMI 
2016 (5) TMI 686
X X X X Extracts X X X X
X X X X Extracts X X X X
.... assessee carried the matter before the ld. CIT(A) who vide order dated 01.09.2011 (in Appeal No. CAB/II-205/10- 11) granted partial relief to the assessee. Aggrieved by the order of ld. CIT(A), Revenue and assessee are now in appeal before us and have raised following grounds: 3.1 The ground raised by the Revenue in the present appeal No.2863/Ahd/2011 reads as under:- " 1. On the facts and in the circumstances of the case and in law, the ld.CIT (Appeals) erred in allowing deduction @ 50% on the addition of Rs. 28,06,488/- towards the income of interest on compensation received during the year, consequent upon the order of the Hon'ble High Court of Gujarat, without appreciating the fact that the amendment in section 57 of the Act as per clause 27 of the Bill provided that deduction of a sum equal to fifty per cent shall be allowed on the income of the nature referred to in clause (viii) of sub-section (2) of section 56 of the Act, and that the amendment will take effect from 1st April, 2010 and will, accordingly, apply in relation to the A.Y.2010- 11 and subsequent years . 3.2 On the other hand, the grounds raised by the assessee in C.O. No.32/Ahd/12 reads as und....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ppeal. In such circumstances, we dismiss the appeals of Revenue without expressing any opinion on merits of the case. 6. In the result, the appeal of Revenue is dismissed. Now, we take up Assessee's C.O. No.32/Ahd/2012 7. During the course of assessment proceedings, A.O. noticed that assessee had met with a motor vehicle accident on 18.04.1995 which rendered him totally and permanently disabled. The Motor Accident Claims Tribunal (MACT), Baroda vide order dated 12.05.2006 awarded compensation of Rs. 39.98 lacs to the assessee. Subsequently, in terms of the order of Hon'ble Gujarat High Court dated 07.03.2007, assessee received Rs. 39.98 lacs as compensation, being the claim for the injuries sustained and Rs. 28.06 lacs towards interest on claim from 01.04.1997 to 31.03.2008. A.O. noticed that in the computation of total income that was filed by assessee , assessee had shown income of interest on compensation of only Rs. 2,55,135/-. A.O. was of the view that the interest on compensation which accrued consequent upon the order of the Hon'ble High Court of Gujarat and received by the assessee should be taxed on receipt basis. He accordingly taxed the interest of Rs. 28,06,488....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ves as defined under that section within the purview of income-tax. Certain exceptions have also been provided under the proviso to the said clause. The proposed amendment seeks to tax specified properties, including a sum of money, received without consideration or for inadequate consideration. This amendment will take effect from 1st October, 2009. It is also proposed to amend sub-section (2) of said section so as to insert a clause which provides that income by way of interest received on compensation or on enhanced compensation referred to in sub-section (2) of section 145A shall be chargeable to Income-tax under head income from other sources. This amendment will take effect from 1st April, 2010 and will, accordingly, apply in relation to the assessment year 2010-11and subsequent years. ' Clause 27 of the Bill seeks to amend section 57 of the Income-tax Act, which relates to deductions. The existing provisions contained in the said section provides that the income chargeable under the head" shall be computed after making the deductions specified therein. It is proposed to amend section 57 of the said Act so as to provid....
X X X X Extracts X X X X
X X X X Extracts X X X X
....record a copy of the same. She therefore submitted that since the rate of interest awarded by MACT was not final and the Insurance Company had filed appeal before the High Court, the interest awarded by MACT to assessee cannot be taxed as the amount had not attained finality and that the amount should be considered as income only when the award reached finality. She also placed reliance on the decision of Coordinate Bench of Jaipur Tribunal in the case of Smt. Sharda Pareek vs. ACIT [2012] 19 taxmann.com 218 (Jaipur) and placed on record the copy of the same. Ld. D.R. on the other hand supported the orders of A.O. and ld. CIT(A). 10. We have heard the rival submissions and perused the material on record. The issue in the present case is with respect to taxability of interest on compensation awarded by the MACT. It is undisputed fact that Assessee had met with an accident and had made claim before the MACT. The MACT had awarded compensation of Rs. 39,98,167/- for the injuries sustained by the assessee. Against the order of MACT, Insurance Company carried the matter before the Hon'ble Gujarat High Court. Hon'ble High Court vide order dated 06.07.2015 held the assessee to be neglig....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... has to be annulled or reduced. There are so many cases also where interest granted by MACT or High Court was reduced by Hon'ble Supreme Court. We will discuss some of the cases in later paras. If the amount is reduced or annulled, then there is no provision under the IT Act for refund of tax paid by the assessee for a particular year. In that situation the assessee will be in a adverse position and no court has held in any case that any person aggrieved should be in adverse position. This is a case of death by accident and if the legal heir directed to refund the compensation along with interest then there is no remedy to these legal heirs. Therefore, in view of these facts and circumstances, we are of the considered view that interest so awarded is liable to be assessed in the year in which it reached its finality. From the above case, it has been clearly established and proved that the rate of interest awarded by the MACT is not final. The Insurance Company has filed appeal before Hon'ble Jurisdictional High Court and the appeal has been admitted and it may be possible that order of MACT may be approved or disapproved. But the order of MACT is not final. Therefo....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... "The same principle was restated with force and clarity by Viscount Simon in Nance v. British Columbia Electric Railway Co. Ltd., 195l AC 601. There, the learned Lord was considering the analogous provisions of the British Columbia legislation, and he put the principle thus at p. 614: "The claim for damages in the present case falls under two separate heads. First, if the deceased had not been killed, but had eked out the full span of life to which in the absence of the accident he could reasonably have looked forward, what sums during that period would he probably have applied out of his income to the maintenance of his wife and family?". 21. Having regard to nature of receipt of compensation as per award under the M.V.Act, compensation is in the nature of capital receipt for death or injury and cannot be held to be in the nature of income. Learned counsel for the revenue also fairly accepts this legal position. It appears to be for this reason that the said receipt is not sought to be treated as income. 22. We may now consider the question whether interest on account of delay in adjudication becomes part of compensation or can be treated as a sepa....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... contract between the parties or established banking practice does not offend the sense of reason, justice and equity. As we have noticed such a system has a long established practice and a series of judicial precedents upholding the same. Secondly, the underlying principle as noticed in several decided cases is that when interest is debited to the account of the borrower on periodical rests, it is debited because of its having fallen due on that day. Nothing prevents the borrower from paying the amount of interest on the date it falls due. If the amount of interest is paid there will be no occasion for capitalising the amount of interest and converting it into principal. If the interest is not paid on the date due, from that date the creditor is deprived of such use of the money which it would have made if the debtor had paid the amount of interest on the date due. The creditor needs to be compensated for deprivation. As held in Pazhaniappa Mudaliar v. Narayana Ayyar (supra), the fact situation is analogous to one as if the creditor has advanced money to the borrower equivalent to the amount of interest debited. We are, therefore, of the opinion that the expression "the principal ....