Case Law Details
Indisputably, the interest amount was received by the assessee on account of delay in payment of money due to it by its contractee. This issue is no longer res integra. The Hon’ble Supreme Court in the case of CIT Vs. Govinda Choudhury & Sons, 203 ITR 881 held as follows:
“…….If the amounts are not paid at the proper time and interest is awarded or paid for such delay, such interest is only an accretion to the assessee’s receipts from the contracts. It is obviously attributable and incidental to the business carried on by it. It would not be correct to say, as the Tribunal has held, that this interest is totally de hors the contract business carried on by the assessee. It is well-settled that interest can be assessed under the head ‘Income from other sources’ only if it cannot be brought within one or the other of the specific heads of charge. We find it difficult to comprehend how the interest receipts by the assessee can be treated as receipts which flow to it de hors the business which is carried on by it. In our view, the interest payable to it certainly partakes of the same character as the receipts for the payment of which it was otherwise entitled under the contract and which payment has been delayed as a result of certain disputes between the parties. It cannot be separated from the other amounts granted to the assessee under the award and treated as ‘income from other sources’………..”
Subsequently, the Hon’ble Apex Court in the case of CIT Vs. B.N. Agarwala & Co., 259 ITR 754, following the same ratio held as under:
” 4. It is now brought to our notice that the decision of the Orissa High Court in Govinda Choudhary & Sons’ case (supra) was brought to this Court in appeal and has since been disposed of, which is CIT v. Govinda Choudhary & Sons [1993] 203 ITR 881 . In the said decision, it is recorded that learned counsel for the assessee conceded that interest did constitute a revenue receipt. The court, however, held on the other question (arising in that appeal) that the said amount of interest cannot be taxed under the head “Income from other sources” which necessarily meant that it has to be taxed as a business receipt. It is true that on the question whether the interest constitutes income or not, the said decision is based upon a concession but we are of the opinion that it was a concession rightly made and is correct in law. Accordingly, we hold that interest is income and it has to be assessed as a business receipt. The question referred is accordingly answered in favour of the Revenue and against the assessee in the above terms. The appeals are disposed of accordingly.
No costs.”
Therefore, respectfully following the ratio laid down in the cases cited supra, we hold that the interest received by the assessee on account of delay in the payment of money due to it cannot be taxed separately but only as an income from business.
