Taxability of Interest on interim compensation received pending final disposal by HC

Bombay High Court held that Interest on interim compensation received pending final disposal by the High Court is income if there is no direction given by the Court.  The source of funds to earn income cannot determine the taxability of the income earned on the capital amount which has been invested. This in the absence of any statutory mandate otherwise. The income earned would be chargeable to tax irrespective of the source of the funds from which the income has been earned. In the mercantile system of accounting, income accrues when the right to receive the same  arises, even though the actual receipt could be at a later date. In the present case it is an accepted position that the right to receive the interest from the fixed deposits already accrued to the appellant assessee.

In such circumstances, the interest on the fixed deposit would be chargeable to tax, as sought to be done by the Assessing Officer under the head income from other sources.

Full Text of the High Court Judgment / Order is as follows:-

JUDGMENT (Per M.S. SANKLECHA, J.)

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