G.H. Reddy & Associates (Construction) Pvt. Ltd Vs ITO (Telangana High Court)
The appeal before the Telangana High Court challenged the order of the Income Tax Appellate Tribunal (ITAT), Hyderabad Bench, which had held that a sum of ₹3 crores received by the assessee pursuant to an interim court order was taxable as income in the year of receipt.
The assessee had been awarded a work contract for construction of a canal. During execution, disputes arose between the parties, leading the assessee to initiate arbitration proceedings. The arbitrator allowed the claim in favour of the assessee. This award was partly confirmed by the District Court. Subsequently, the opposing party filed an appeal before the Karnataka High Court, which granted an interim order staying the District Court’s decision and directed payment of ₹3 crores to the assessee as an interim measure pending final adjudication.
The amount was deposited in the assessee’s account. The Assessing Officer treated this sum as revenue receipt and taxed it in the year of receipt. The assessee challenged this before the Commissioner of Income Tax (Appeals) [CIT(A)], who held that the amount should not be taxed in the year of receipt since the dispute had not attained finality. Instead, it should be taxed only in the year when the dispute is finally resolved in favour of the assessee.
