Law:

Section:

Section 4, read with section 28(i), of the Income-tax Act, 1961 - Income - Chargeable as - Respondent-assessee entered into a contract with Government for executing certain works - A dispute arose between assessee and Government, which was referred to arbitration - Arbitrator awarded certain amount by way of compensation and also awarded interest - Whether interest awarded by arbitrator was income and it had to be assessed as business receipt - Held, yes FACTS The respondent-assessee entered into a contract with the Government for executing certain works. A dispute arose between the assessee and the Government which was referred to arbitration. The arbitrator awarded certain amount by way of compensation for the work done and also awarded interest. The ITO treated the interest awarded as the assessee's income in the assessment proceedings and included it after deducting the expenses. The appeal preferred by the assessee was allowed holding that interest was not an income. The Tribunal dismissed the appeal preferred by the revenue. On a reference, the Orissa High Court, following its earlier decision in Govinda Choudhary & Sons v. CIT [1977] 109 ITR 497, held that interest awarded by an arbitrator to the assessee was not an income. On appeal: HELD It was true that on the question whether the interest constitutes income or not, the decision in the case of CIT v. Govinda Choudhary & Sons [1993] 203 ITR 881/[1994] 74 Taxman 331 (SC) was based upon a concession, but it was to be held that it was a concession rightly made and was correct in law. Accordingly, interest was income and it had to be assessed as a business receipt. [Para 4] CASE REVIEW The decision of the Orissa High Court in CIT v. B.N. Agarwala & Co. [1993] 200 ITR 246 reversed. Govinda Choudhary & Sons v. CIT [1977] 109 ITR 497 (Ori.) disapproved. CASES REFERRED TO CIT v. B.N. Agarwala & Co. [1993] 200 ITR 246 (Ori.) [Para 3], Govinda Choudhary & Sons v. CIT [1977] 109 ITR 497 (Ori.) [Para 3] and CIT v.Govinda Choudhary & Sons [1993] 203 ITR 88/[1994] 74 Taxman 331 (SC) ORDER 1. Delay condoned. 2. Special leave granted. 3. We have heard counsel for the parties. The…

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