COMMISSIONER OF INCOME TAX Vs. ABBASBHOY A DEHGAMWALLA

JUDGEMENT

(1.) THESE are cross references by the Department and the assessee. The assessment year involved is 1970 71. The Tribunal has referred to this Court the following questions for opinion under S. 256(1) of the IT Act, 1961 :

(2.) IT is pertinent to mention that the issue involved herein had come up for consideration in the context of wealth tax before us in the assessee's own case for the asst. yrs. 1963 64 to 1969 70 (both inclusive) in WT Ref. No. 12 of 1977 with WT Ref. No. 5 of 1977 and, by our judgment delivered yesterday [Akber A. Dehgamwalla vs. CWT (1992) 195 ITR 16 (Bom)], it was held that both the amounts of Rs. 2,52,000 (being damages for breach of contract) and Rs. 1,56,030 being interest thereon for the period from 30th Jan., 1959, to the date of consent decree, i.e., 11th June, 1969, had accrued to the assessee on the date of the consent decree, i.e., on 11th June, 1969, and that, as a result thereof, no part of the amount of damages or interest was includible as "asset" belonging to him on any of the valuation dates falling before the date of the consent decree.

(3.) THE assessee did not include any part of the amount of Rs. 2,52,000 received by way of damages for breach of contract in his income for the year under reference. He also did not include any part of Rs. 1,56,030 as his income on the ground that that amount was also a part of the damages. The ITO, however, held that the assessee had an enforceable right as a result of the acceptance of his offer by the Union of India in 1945, and that the said right was acquired back by the Government of India on payment of Rs. 2,52,000 in the year 1969. Accordingly, he held that the amount of Rs. 2,52,000 was taxable in the hands of the assessee as long term capital gains while the amount of Rs. 1,56,030 was interest. Since it was received as a result of the consent decree during the previous year, the whole of it was taxable in the year under reference. The AAC accepted the assessee's claim that he had no capital asset and the amount of Rs. 2,52,000 could not be treated as capital gains. As regards the amount of Rs. 1,56,030, however, the AAC agreed with the ITO and held that the said amount represented interest accrued and received by the assessee on the amount of compensation during the previous year and since the money was received as a result of the consent decree during the previous year, it was rightly taxed in that year.