Law:

Section:

Section 4 of the Income-tax Act, 1961 - Income-chargeable as - Assessment year 1980-81 - Whether amount of interest awarded on arbitration which was under challenge before Supreme Court, was not assessable as income of assessee - Held, yes Section 37(1), read with section 256 of the Income-tax Act, 1961 - Business expenditure - Allowability of - Assessment year 1980-81 - Assessee did not execute any contract work but received certain amounts as result of an arbitration award relating to contract work executed in earlier years - Assessing Officer held that since no expenses were incurred for execution of contract work during previous year under consideration, profit could not be estimated by assessee at 12.5 per sent in previous year under consideration - Commissioner (Appeals) and Tribunal upheld order of Assessing Officer- Whether what would be quantum of expenses that would be allowed to be deducted from amount received through arbitration was question of fact and, therefore, no question of law arose- Held, yes FACTS The assessee-firm was deriving income from the business in executing contract works. For the relevant assessment year, the assessee did not execute any contract work but received certain amounts as a result of an arbitration award relating to the contract work executed in the earlier years. The Assessing Officer held that no expenses for the execution of the contract were incurred during the previous year under consideration and so the profit could not be estimated at 12.5 per cent as was shown in the assessee's case for the previous year. As regards the amount of interest awarded, the Assessing Officer observed that the said interest was not taxable, but assessed the entire amount of interest as income of the assessee since, according to him, the matter was under challenge before the Supreme Court. The Commissioner (Appeals) upheld the assessability of income but deleted the addition made on account of interest. The Tribunal confirmed the order passed by the Commissioner (Appeals). On reference: HELD So far as taxability of interest was concerned, in view of the law prevailing at the relevant time, the payment of interest should not have been…

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