R.K. Gulati, J. - (1.) AT the instance of the Commissioner of Income-tax, Meerut, the Income-tax Appellate Tribunal, Delhi Bench "D" has referred the following question of law for the opinion of this court under Section 256(1) of the Income-tax Act, 1961 : "Whether, on the facts and circumstances of the case, the Tribunal was. legally correct to confirm the order of the Commissioner of Income-tax (Appeals) holding that the sum of Rs. 2,00,080 received as interest should be treated as that of payment in the nature of ex gratia payment that cannot be liable to tax ?"
(2.) THE dispute pertains to the assessment year 1977-78. During that year the assessee was a registered firm engaged in the business of execution of works contract. It had executed a contract "Balimela Project" for the Government of Orissa. After the receipt of the said contract in the year 1974 certain disputes arose between the assessee and the contractee (i.e., the Government of Orissa). THE assessee claimed that it had to carry out certain work over and above the items stipulated in the agreement. It demanded payment for the additional work and also interest thereon at the rate of 15 per cent, from the date when the payment ought to have been made till July 13, 1974. THE matter was ultimately referred to arbitration and the arbitrator gave an award dated May 21, 1976, holding that the assessee was entitled to recover Rs. 3,19,244 for the additional items of work executed by the assessee and the interest on the said amount at 12 1/2 per cent. which was calculated at Rs. 96,226. Thus, the assessee became entitled to recover Rs. 4,15,470 on this amount, the arbitrator further awarded pendente lite interest at 12 1/2 per cent. per annum for the period July 14, 1974 to May 21, 1976. THE total amount of compensation awarded came to Rs. 5,16,020. THE arbitrator also directed that the said amount was payable within 45 days of the date of award otherwise the assessee was entitled to further interest at 6 per cent. to be carried from the date of default till the date of payment. Because of the default provision the assessee received an amount of interest amounting to Rs. 3,304. In this way the total amount received under the award was Rs. 5,19,324. After adjusting an amount of Rs. 13,611 as irrecoverable security from the State Government, the balance amount of Rs. 5,05,713 was transferred by the assessee to its profit and loss account in the previous year relevant to the assessment year under consideration. In the agreed statement of the case the Tribunal has stated that the "assessee, however, showed net profit of Rs. 3,76,691 only and declared the income at still shorter amount of Rs. 1,80,877. One of the disputes at the stage of assessment was that according to the assessee an amount of Rs. 2,00,080 received by way of interest was not liable to be taxed." THE case taken was that the interest payable by the contractee was neither under a statute nor under a contract and so it was only on an ex gratia basis and cannot be taxed as a revenue receipt. THE Income-tax Officer, however, did not accept the claim of the assessee and completed the assessment on the income 6f Rs. 3,30,256. The assessee carried the matter in appeal. The appellate authority relying upon a decision of the Orissa High Court in Govinda Choudhury and Sons v. CIT [1977] 109 ITR 497, accepted the claim of the assessee on the view that in a case where interest was awarded neither under a statute nor under a contract, the same was not exigible to tax with the result, it directed that the amount of Rs. 2,00,080 be excluded from the computation of the total income of the assessee. The Revenue felt aggrieved and preferred a second appeal before the Income-tax Appellate Tribunal which was dismissed with the following observation : ". . . learned Departmental Representative did not point out any feature to distinguish the facts of the present case from those of Govinda Choudhury and Sons v. CIT [1977] 109 ITR 497 (Orissa). That being the position, we see no reason to disturb the learned Commissioner's finding. On the assessee's side, copy of the Delhi Bench of the Tribunal's decision dated April 7, 1981, in the case of one (Dewan Chand Chadha-I. T. A. No. 1598 (Delhi) of 1980), was also produced. In that case, the Tribunal had, under circumstances similar to those obtaining in the present case, relied on the ruling in the case of Govinda Choudhury and Sons v. CIT [1977] 109 ITR 497 (Orissa), and had felt bound to follow that view in view of CIT v. Smt. Godavaridevi Saraf [1978] 113 ITR 589 (Bom) Revenue fails. Appeal is dismissed."
(3.) WE have heard learned counsel for the parties. The question to be considered is whether the amount of Rs. 2,00,080 received by the assessee as the amount of interest under the award by the arbitrator, could be taxed as its income. It was argued on behalf of the assessee that the amount in dispute constituted damages for unlawful retention of money by the authorities concerned of the Orissa Government and, therefore, it was a capital receipt. We do not think that there is any justification for this argument. The controversy between a capital and revenue receipt has defied solution. A review of the reported decisions on the subject would indicate that the courts have enunciated various rules as furnishing a key to the solution of the controversy but the courts have not been able to lay down any single test as infallible which could be regarded as decisive in all eventualities in determining the question, which must ultimately depend on the facts of the particular case. The name given to the sum awarded have varied ; "damages", "interest", "compensation" but the label under which the amount is received, is not conclusive for determination of the question with which we are concerned.;