In a recent decision the Delhi High Court observed that the interest accrued on amount not in nature of compensation is capital receipt.
The appeal sought to assail the correctness of the order dated 13.04.2018 passed by the Income Tax Appellate Tribunal [ “ITAT” ], whereby, the ITAT has deleted the addition to the tune of INR 3,19,07,676/-, holding it as capital receipt not chargeable to tax.
Siddhartha Sinha, standing counsel, appearing on behalf of the Revenue assailed the impugned order on the principal ground that the amount received by the assessee was in the nature of the compensation and thus, the interest on the said amount would be liable to tax. He further submitted that the amount in question ought to be considered as income from other sources in terms of provisions of Section 56(2)(viii) of the Income Tax Act and thus, the same would be deemed to be income for the relevant AY.
The counsel appearing on behalf of the assessee vehemently opposed the said submissions. He submitted that the amount in question was paid to the assessee in view of the order dated 21.09.2010 passed by the Punjab and Haryana High Court on account of cancellation of the auction. He argued that the aforesaid amount was not in the nature of compensation and therefore, the question whether interest paid on such amount would be chargeable to tax or not would have no significance herein.
A Division Bench comprising Justices Purushaindra Kumar Kaurav and Yashwant Varma observed that “It is ex-facie evident from a reading of the impugned order that the ITAT had considered the aspect that the amount received by the assessee was not in the nature of debt rather, the same was received on account of cancellation of the auction. Therefore, the ITAT has appropriately characterized the interest on the amount received by the assessee as capital receipt and thus, rightly held that the same was not chargeable to tax.”
“The amount so received by the assessee was the entitlement of the successful bidder which was given back to the assessee vide an order of the Court. Thus, when the amount in question was not in the nature of compensation, then, as a natural corollary, the interest accrued on the said amount cannot tantamount to revenue receipts and hence, the same cannot be subjected to tax as per Section 56(2)(viii) of the Income Tax Act” the Court noted.
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