TaxTMI 
TaxTMI 
2012 (12) TMI 1131
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....sis of arbitration award was not a revenue receipt and therefore not taxable in the hands of the assessee. ii) allowing the depreciation on car amounting to ₹ 6.62.852/- though there is no business activities of the assessee." 2. The appeal in I.T.A. no.4168/Del./2000 in the AY 1997-98, earlier disposed of vide order dated 11.3.2004 was recalled vide order dated 19th May, 2006 in M.A. no.133/Del./2006. Since similar issues are involved in these two appeals, accordingly, these were heard simultaneously for the sake of convenience and are being disposed of through this common order. 3. Facts, in brief, as per relevant orders for the AY 1997-98 are that return declaring income of ₹ 2, 51, 81, 700/- filed on 31.10.97 by the assessee, a construction contractor, after being processed on 31.3.1998 u/s 143(1) of the Income-tax Act, 1961 (hereinafter referred to as the Act), was selected for scrutiny with the service of a notice u/s 143(2) of the Act. During the course of assessment proceedings, the Assessing Officer (A.O. in short) noticed that the assessee received a sum of ₹ 2, 05, 06, 266/- in terms of award of an arbitrator in consequence of the arbitration procee....
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....99, 35, 431 was awarded to the assessee on account of the following: As per final biII, balance to be paid on account of work done. (for ₹ 3, 16, 24, 243) ₹ 1, 15, 46, 851.85 Claim on account of extra rate for quantities beyond ± 30% deviation limit. (for ₹ 20, 33, 088) ₹ 2, 08, 833.31 Payment due to on account escalation under the price variation clause 14(b). (for ₹ 76, 64, 572) ₹ 20, 11, 984.74 Payment due under contract clause 14(a) for labour escalation due to statutory order of the Government. (for ₹ 1, 43, 14, 791) ₹ 54, 76.302.34 Payment due on account of material procured for the work as per drawing and lying with IAAI store. (for ₹ 14, 99, 958) ₹ 6, 91, 459.34 Total amount of award - (i) + (ii) + (iii) ₹ 2, 05, 06, 266/- the AO observed that the awards were given to the assessee either as compensation for loss of profit as in (i), or in respect of settlement of dispute between the parties regarding nature of work done and rate payable for work as per actuals e.g. column cladding, Kota stone tile flooring in pattern, yellow marble, etc. as in (ii) and award in respect of balance relat....
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....In Rs. ] As per final bill. balance to be paid on account of work done (for ₹ 3, 16, 24, 243) 1, 15.46, 851/- Claim on account of extra rate for quanti- Ties beyond+30% deviation limit. (for ₹ 20, 33, 088). 02, 08, 833/- Payment due to on account escalation under the price variation clause 14(b). (for ₹ 76, 64, 332) 20.11.984/- Payment due under contract clause 14(a) for labour escalation due to statuary order of the Government. (for ₹ 1, 43, 14, 791/-) 54.76, 302/- Payment due on a/c of material procured for the Work as per drawing and lying with IAAI store.(for ₹ 14, 99, 958) 06.91, 459/- Total amount of award -(1)+(11)+(111) 2, 05, 06, 266/- And has made observation, the relevant portion of which Is reproduced below:- "This is a case where the awards have been given to the assessee by the arbitrator in the ordinary course of business and is on account of delay in bills, price escalation, labour escalation all governed by the terms of the contract. It is compensation for loss of earnings during that period from the funds withheld. The profit which the assessee would have otherwise earned during the course of business had the paym....
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....ted above and as submitted correctly that the Hon'ble Supreme Court has not expressed considered opinion on the question before them. In the case of Govinda Chowdhary & Sons, two following questions were referred to the High Court. 1. Whether on the facts and in the circumstances of the case, a sum of ₹ 2, 77, 692/- awarded to the assessee as interest was rightly held to be revenue receipt? 2. If the answer to question No.1 is in affirmative whether on the facts and in the circumstances of the case, the aforesaid sum of ₹ 2, 77, 692/- was rightly separated from the other amount under the head "Award and Tax in full". 13. Since the High Court answered the first question in favour of the assessee that it is not a revenue receipt. The second question was not answered by the High Court. When the matter came before the Supreme Court, the first question whether the interest amount was revenue receipt was taken up for adjudication and in the meantime, the learned counsel of the assessee conceded that the interest amount may be taxed as receipt. Therefore, the Hon'ble Supreme Court refrained from giving any considered opinion on the first question. Since the answer to the....
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.... from the fact that the Court itself stated that in view of the concession they expressed no considered opinion on the question regarding the assessability of the interest. Since the matter was decided only upon the concession, the Supreme Court cannot be understood as having laid down the law". 15. Now coming to the actual nature of the receipt after going through various judgments of various High Courts on the issue, it is found that it is almost a settled proposition that if the interest is received on the basis of contract or under statute, the same is revenue receipt and is taxable otherwise not. In the instant case, the interest received by the appellant is neither contractual or statutory, therefore, I hold that the interest of ₹ 1, 96, 72, 751/- is not taxable in the case of the assessee. The addition made on this account is deleted." 5. On further appeal, the ITAT in an exparte order dated 11/3/2004 relied upon the decision of Hon'ble Apex Court in CIT Vs. Govinda Choudhary and Sons, 203 ITR 801;& 63 ITR 485(SC); and allowed the appeal of Revenue. This order was subsequently recalled in M.A. No.133/Del/06 on 19th May, 2006 as aforesaid. 6. In the AY 1998-99, the ....
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.... Bench, Cuttuck in I.T.A. No.169/90 in the case of J.C. Budhraja Vs. Income-tax Officer, which in turn followed the decision in Govinda Choudhary & Sons vs. CIT, 109 ITR 497(Orissa) regarding pre award interest. Whereas in the instant case interest was awarded by Hon'ble Bombay High Court from date of decree till payment was made i.e .interest of ₹ 1, 96, 72, 751/-was paid by Airport Authority of India on 30.7.1996 to the assessee in the AY 1997-98. In the AY 1998-99, issue relates to interest of ₹ 3, 33, 59, 343/- for the period 1.8.1980 to 7.11.1992 i.e. date of award and from 8.11.1992 to the date of actual payment. We find that in the decision relied upon on behalf of the assessee in Govinda Chowdhary & Sons (supra), Hon'ble Orissa High Court was considering the issue of taxability of interest. In that case, the arbitrator had calculated the amount due to the assessee from the dates on which it fell due under the contract and awarded interest from that date till the date of award .Hon'ble High Court in the light the ratio indicated in Govindarajulu Chetty's case [1967] 66 ITR 465 (SC), held that though the arbitrator styled the payment as interest, it was indeed....
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.... interest under s. 34 of the 1894 Act, could be treated as part of the compensation under s. 45(5) of the 1961 Act? and what was the meaning of the words "enhanced compensation/consideration" in s. 45(5)(b) of the 1961 Act? & would it cover "interest"? & year of its taxability. Hon'ble Apex Court held that interest under s. 28 unlike interest under s. 34 is an accretion to the value, hence it was a part of enhanced compensation or consideration which is not the case with interest under s. 34 of the 1894 Act. So also additional, amount under s. 23(1A) and solatium under s. 23(2) of the 1961 (sic-1894) Act forms part of enhanced, compensation under s. 45(5) (b) of the 1961 Act. In fact, this is reinforced by the newly inserted cl. (c) in s. 45(5) by the Finance Act, 2003 w.e.f. 1st April, 2004, Hon'ble Apex Court concluded. We fail to understand as to how the observations made by the Hon'ble Apex Court in this decision rendered in altogether different context and settings, could be applied in the instant case. In the case before us, the, ld. CIT(A) merely relied upon decision of the ITAT, Cuttuck Bench, Cuttuck in I.T.A. no.169/90 in the case of J.C. Budhraja Vs. ....
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....tal to the business carried on by the assessee and it bears the same character of receipts payment of which it was otherwise entitled to under the contract. The disputed amount of interest is only an accretion to the assessee's receipts from the contract business. Accordingly, we have no hesitation in reversing the findings of the ld. CIT(A) and upholding the order of the AO in the assessment orders for these two assessment years. Consequently, grounds raised by the Revenue in these two appeals are allowed. 10. As regards second ground in AY 1998-99, the AO disallowed depreciation of ₹ 6, 62, 852/- on cars on the ground that the assessee neither claimed depreciation nor furnished any depreciation chart along with return while no business activity was carried on by the assessee. Inter alia, the AO relied upon decision in CIT vs. Machine Tool Corporation of India Ltd., 108 CTR 110(Kar.) 11. On appeal, the ld. CIT(A) while distinguishing the decision relied upon by the AO, allowed the claim of the assessee for depreciation on cars, these having been used for the purpose of business.. 12. The Revenue is now in appeal before us against the aforesaid findings of the ld. CIT(....