Law:

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Section 4 of the Income-tax Act, 1961 - Income - Chargeable as - Whether where interest is paid to an assessee under a statute like section 34 of the Code of Civil Procedure, 1908, same has to be calculated as income of assessee for purpose of income-tax - Held, yes - Whether where interest to be paid to an assessee is in discretion of Court, said payment would not amount to income for purpose of income-tax - Held, yes - High Court in discretion vested in it under article 226 of the Constitution allowed higher pay scale to assessee than what was being allowed to him and also ordered payment of interest at rate of 12 per cent per annum from date of accrual of amount till date of actual payment - Whether interest received by assessee was not his income and, therefore, not taxable - Held, yes FACTS The High Court in discretion vested in it under article 226 of the Constitution allowed higher pay scale to the assessee than what was being allowed to him and also ordered payment of interest at the rate of 12 per cent per annum from the date of accrual of amount till the date of actual payment. The assessee claimed that the said interest amount was not in the nature of income. The Deputy Commissioner disallowed the assessee's claim by observing that the interest allowed to the assessee by virtue of section 34 of the Code of Civil Procedure, 1908, was statutory at fixed rate, whereas section 34 permits under discretionary power to allow interest as the authority deems fit with the condition that it should not exceed 6 per cent, but in the instant case, it was allowed at the rate of 12 per cent. On appeal, the Commissioner (Appeals) relying upon the decision of the Supreme Court in the case of RM. AR. AR. RM. AR. AR. Ramanathan Chettiar v. CIT [1967] 63 ITR 458, upheld the impugned order. On further appeal, the Tribunal, relying upon the of the Punjab and Haryana High Court in the case of CIT v. Chiranji Lal Multani Mal Rai Bahadur (P.) Ltd. [1989] 179 ITR 157 /45 Taxman 156 as also decision by the Supreme Court in the case of Dr. Shamlal Narula v. CIT [1964] 53 ITR 151 held that the interest was awarded by the Court for loss of arrears of salary which was property and…

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