Contract money and compensation on delayed payment is business income

ITO Vs Late Shri Chandi Ram (ITAT Jaipur)

In ITO Vs Late Shri Chandi Ram, ITAT Jaipur reviewed the contentions presented by the Departmental Representative (DR) and the Authorized Representative (AR) regarding the taxation of business income. The bench carefully examined the records, including audited accounts and relevant notes, while considering the arguments put forth by both sides.

The bench noted that the assessee had received a demand draft on November 20, 2010, which was subsequently deposited in their bank account. The amount was recorded in the assessee’s books of account for the period ending March 31, 2011. The audited accounts revealed that the liability amounting to Rs. 20,15,36,554 was squared up in the financial year 2011-12.

Additionally, the bench observed that the assessee had recognized the interest income of Rs. 1,39,44,881 as capital receipts and credited it to the capital account. However, the bench acknowledged that the income in question was not interest on compensation or enhanced compensation, but rather interest on delayed payment related to the contracts executed by the assessee. Referring to a previous Supreme Court judgment, the bench deemed this interest as an accretion to the assessee’s business receipts.

Furthermore, the bench took note of the relief provided by the CIT-A, who considered estimated expenditure, treated the income as business receipts, and relied on the judgment of the jurisdictional high court in the assessee’s own case. The bench highlighted that the entire receipt of contract money and compensation on delayed payment needed to be considered as business income, based on previous assessments and court decisions.

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