B SESHAMMA Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE following three questions have been referred to us under s. 256(1) of the I.T. Act, 1961 "1. In the facts and circumstances of the case, whether the Tribunal was right in holding that the sum of Rs. 5, 557 was income liable to be assessed to tax for the assessment year 1969-70 ?.2. In the facts and circumstances of the case, whether the Tribunal was right in holding that the sum of Rs. 6, 197 was income liable to be assessed to tax for the assessment year 1970-71 ?.3. In the facts and circumstances of the case, whether the Tribunal was right in holding that the sum of Rs. 10, 971 was income liable to be assessed to tax for the assessment year 1971-72 ?" *THE assessee paid an advance tax during the financial year 1963-64, relevant to the assessment year 1964-65.

(2.) THE assessment was completed on March 22, 1969, resulting in a refund of Rs. 22, 219. In computing the refund due interest amounting to Rs. 5, 557 due to the assessee under s. 214 of the I.T. Act was included. THE ITO assessed the interest forming part of the refund of tax for the assessment year 1964-65 as income for the assessment year 1969-70 under the head "Other sources". This was confirmed both by the AAC and the Tribunal. THE first question referred to us questions the correctness of these ordersTHE assessee paid advance tax during the financial years 1964-65 and 1965-66. When the relevant assessments for the assessment years 1965-66 and 1966-67 were completed, it was found that the tax in advance already paid by the assessee was in excess and this resulted in a refund. While granting the refund of the amount due to the assessee, interest on it amounting to Rs. 3, 811 pertaining to the assessment year 1965-66 and Rs. 2, 386 pertaining to the assessment year 1966-67 amounting in all to Rs. 6, 197, was actually paid to the assessee under s. 214 of the Act during the previous year relevant to the assessment year 1970-71. THE ITO treated this amount of Rs. 6, 197 as the assessee's income under the head "Other sources".

(3.) THE argument is attractive but not acceptable. THE Supreme Court specifically in the passage extracted above held that the interest paid is something in addition to the capital amount, though it arises but of it and it represents the profits the creditor might have made if he had the use of the money or the loss he suffered because he had not had that use. THEre is thus no distinction whether the interest is paid in addition to the capital amount or it is paid in respect of an amount recoverable as profit. THE distinction arises only on the fact whether the interest arises under a statute or under an agreement, express or implied, by reason of the delay in payment or deprivation of the use of the money or whether it arises de hors the same and is paid as compensation. Interest under s. 214(1) is paid only by reason of the deprivation of the use of the money to the assessee. We are, therefore, unable to agree with the learned counsel that the interest received by the assessee is in the nature of a capital receiptIt was then contended by the learned counsel for the assessee that the question whether interest received is an income or not would depend on the subject-matter of the receipt. Income-tax means a personal tax. THE character of the interest paid on the excess amount of the advance tax is in the nature of a personal compensation, like compensation paid for an injury by the insurance company or compensation paid for any inconvenience in travelling in a plane, etc. It is not an interest received as a result of any income earning activity, business or investment. In this connection, he referred to ss. 216 and 217 of the Act and the decision in Balmer Lawrie & Co. Ltd. v. CIT Sections 216 and 217 of the Act relate to payment of interest by the assessee in the case of underestimate, etc.