Law:

Section:

Section 4 of the Income-tax Act, 1961 - Income - Chargeable as - Assessment years 1981-82 and 1985-86 - Whether interest granted under section 214 by Central Government on excess amount of advance tax paid by assessee is liable to be taxed as income as it is a revenue receipt and it is neither a capital receipt nor a casual receipt - Held, yes - Whether such income is assessable in year in which right to income has accrued - Held, yes FACTS After the completion of assessment for the assessment year 1985-86, Assessing Officer found that the assessee had received interest under section 214 relating to the assessment year 1981-82. The Assessing Officer being of the view that the interest was an income of the assessee which had escaped assessment, reopened the assessment and assessed the interest income. On appeal, the Commissioner (Appeals) upheld the order of the Assessing Officer, charging the said income to tax in the assessment year 1985-86. On further appeal, the Tribunal by majority held that the interest quantified and paid would retain the character of income and was assessable as revenue receipt. It further took the view that interest received by the assessee under section 214 was an income for the assessment year 1985-86. It also directed that in case the assessee repayed the excess interest received, that would be allowed as a deduction under section 37(1) in the year in which the assessee was called upon to repay and made such repayment. The assessee submitted that the assessment for the assessment year 1981-82 did not attain its finality as an appeal against the assessment order was pending on the date when the refund was granted and, therefore, interest was not income till finality was reached in respect of the assessment for the assessment year 1981-82. HELD The interest granted under section 214 by the Central Government on the excess amount of advance tax paid by the assessee is liable to be taxed as income of the assessee as it is a revenue receipt and it is neither a capital receipt nor a casual receipt. [Para 5] In the instant case though the interest was paid with reference to the excess advance tax paid during the previous year relevant to…

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