Law:

Section:

Section 145, read with section 5, of the income-tax act, 1961-Method of accounting-Charge on accrual/receipt or other basis-State government took over assessee's undertaking in july 1949 under electricity act and fixed compensation payable-In September 1962, arbitrator enhanced compensation and allowed interest-Whether right to receive interest arose to assessee under the relevant electricity act and not from award given by arbitrator-Held, on facts, yes-Whether interest accrued to assessee on the date of dispossession and hence entire interest was not liable to be taxed in assessment year 1963-64-Held, on facts, yes Facts On 23-7-1949 the assessee's electric supply undertaking was taken over by the State Government under the Punjab Electricity Act, 1939 and the compensation payable was fixed. On the assessee's objecting to the amount of compensation, the matter went to the arbitrator who substantially enhanced the compensation and also awarded interest for a period of eight years on the enhanced amount. Though the arbitrator announced the award on 30-7-1961, it was made a rule of the Court on 28-9-1962. For the assessment year 1963-64, the assessee had not returned the impugned interest amount for taxation on the ground that only the interest attributable to the relevant previous year, i.e., from 1-4-1962 to 31-3-1963, could be brought to charge in the assessment year 1963-64 and not the balance since the interest awarded by the arbitrator was only for a period of eight years no part of interest was taxable in the relevant assessmentyear. The ITO, however, taxed the entire amount of interest in 1963-64. On appeal, the AAC upheld the ITO's order holding that the source of interest was the award made by the arbitrator as embodied in the decree of the Court and that no question of its being allocated on a year to year basis arose. The Tribunal sustained the AAC's order. On reference: Held Whether or not the interest awarded by the arbitrator could be co-related to the exact amount of interest which the assessee was entitled to receive under the Indian Electricity Act, read with the Punjab Electricity Act, 1939, it would not be correct to say that the award of…

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