1. Both the appeals, one preferred by the department and the other filed by the assessee, are heard together and disposed of by this common order. In the departmental appeal, the following grounds have been taken by the department : (1.) That the learned Commissioner (Appeals) has erred both on facts and in law in holding that the sum of Rs. 1,50,472 is not a taxable receipt.
(2.) That the learned Commissioner (Appeals) has erred in interpreting the High Court's order awarding interest of Rs. 1,52,470.
(3.) That the learned Commissioner (Appeals) has not been justified in directing the ITO to allow interest under Section 214, in consequence of the relief given by him.
2. The assessee is a private limited company. The assessee filed its return on 10-7-1978, showing the income of Rs. 2,95,682. The revised return was filed on 5-8-1978, in which the income of Rs. 1,46,632 was shown. The assessee, while filing the revised return, claimed that a sum of Rs. 1,52, 470 received from Hindustan Cables Ltd., as per the Calcutta High Court's decision, being compensation was exempt. The assessee and Hindustan Cables Ltd. agreed vide their letters dated 12-2-1966 and 14-3-1966, about the supply of 1100 tons of pig lead of 99.99 per cent purity and the letters dated 6-12-1965 and 8-12-1965 for the import and supply of 800 tons of pig lead. The terms about the supply and payments were agreed upon by both the parties. The assessee in June 1966 intimated Hindustan Cables Ltd. that as a result of devaluation of Indian rupee, the cost shall be enhanced, to which the latter agreed. The assessee supplied 1100 tons of pig lead and from time to time, it was getting payments. The assessee claimed that it was not paid the balance sum of Rs. 2,14,139.92, in respect of supply of 1100 tons of pig lead. Therefore, the assessee along with the interest claimed the amount at Rs. 2,28,229.33. The dispute in respect of the second supply also arose due to the enhanced value on account of devaluation of rupee. The assessee supplied 598.0815 tons of pig lead before devaluation, and the balance quantity of 200 tons was supplied, which was affected by devaluation. The assessee, on this ground, inclusive of interest, claimed the amount of Rs. 28,345.20. The matter was not settled in between the parties and ultimately, the assessee filed two Suit Nos. 710 and 722 of 1967 before the Hon'ble Calcutta High Court. The Hon'ble High Court in respect of Suit No. 710 determined the amount payable by Hindustan Cables Ltd. to the assessee-company on agreed basis at Rs. 2,10,712.44 with interest of nine per cent per annum from 25-1-1967 till 5-4-1967. The assessee was also entitled to interim interest and interest on judgment, both at the rate of six per cent per annum thereafter. The decree in respect of Suit No. 722 was for the sum of Rs. 28,345.20 with interest of nine per cent from 22-8-1966 till 5-4-1967. Thereafter, the assessee was entitled to interim interest and interest on judgment at the rate of six per cent per annum and cost. The interest so awarded by the Calcutta High Court, in both the cases, had been worked out at Rs. 1,52,470. This amount was claimed by the assessee as exempt, being in the nature of compensation. The assessee before the ITO took the main plank on the terms of the contract. It was indicated by the assessee that there was no stipulation in the contract for interest and, therefore, even though the High Court has termed it as interest, it was in the nature of compensation. The assessee relied on Govinda Choudhury & Sons v. CIT  109 ITR 497 (Ori.). The said case was distinguished by the ITO on facts. The assessee further placed reliance in IRC v. Ballantine  8 TC 595 (C. Sess.), T.N.K. Govindaraju Chetty v. CIT  66 ITR 465 (SC) and CIT v.Periyar&Pareekanni Rubbers Ltd.  87 ITR 666 (Ker.). The ITO, on the basis of the plaint and the decision of the Hon'ble High Court, found that the cases relied upon by the assessee are not helpful. He further concluded the matter against the assessee, holding that the interest received by the assessee was chargeable to tax.
3. The assessee came in appeal before the Commissioner (Appeals) and contended that the receipt of Rs. 1,52, 470 was not taxable. It was stated that even though the High Court might have termed the payment as interest, the High Court awarded on ex gratia basis and, therefore, it was in the nature of compensation. The assessee relied on Govinda Choudhury & Sons' case (supra) and T.N.K. Govindaraju Chetty's case (supra). The Commissioner (Appeals) concluded the matter in favour of the assessee, in paragraph 5 of the order in the following words : 5. I have considered the various facts and circumstances of the case. I find there is much strength in the contention made by the authorised representative of the appellant company. Even though the word 'interest' finds a place in the plaints of the appellant and is also mentioned in the orders of the High Court, it is quite clear that no interest was payable to the appellant company by Hindustan Cables Ltd., as per terms of contract. In this connection, my attention was again drawn to a letter of Hindustan Cables Ltd., dated 9-11-1966, wherein it is categorically stated that no interest charges would be payable to the appellant company as 'no such charges have been provided under the terms and conditions of the order', placed on it. My attention has been also drawn to an order of the Income-tax Appellate Tribunal, Chandigarh Bench, in IT Appeal No. 929 of 1976-77, dated 30-9-1978, where a similar issue came up for consideration. In this order of the Tribunal, there is a clear finding that award of interest by the High Court, as has been done in the appellant's case, is an award of interest pendente lite which is entirely different from interest simpliciter. It may be mentioned here that the Tribunal had taken into consideration the cases cited earlier in the order as well as the English judgment in the case of IRC v. Ballantine  8 TC 595 (C. Sess.). In the appellant's case too, the interest receipt arose out of the orders of the High Court and arose solely out of the discretion of the Court and not by any right that the appellant had to such payment. Hence, in my opinion, the payment of this amount, totalling up to Rs. 1,52,470, is in the nature of compensation and not a taxable receipt. The ITO is directed to exclude this sum of Rs. 1,52,470 from the total income of the appellant company for the assessment year 1978-79.
4. Shri Chalia, the departmental representative, referred to the plaint submitted by the assessee and the decision of the High Court and urged that the assessee itself claimed interest for the delayed payment under Section 61 of the Sale of Goods Act, 1930, and under the Interest Act, 1839. The High Court, after discussion and referring the matter to the defendant, has awarded interest to the assessee. Under the above circumstances, the assessee cannot claim that the High Court awarded compensation, when the High Court directed the defendant to pay interest to the assessee. If the decision of the High Court, as interpreted by the assessee, is taken into consideration, it would amount to give the different interpretation to the decision. Shri Chalia referred to all the decisions cited by the assessee before the Commissioner (Appeals) and, distinguishing them on facts, urged that these decisions do not help the assessee. The interest had been awarded by the High Court and, therefore, it was correctly subjected to tax by the ITO.5. Shri K.V. Singh, the counsel of the assessee, on the other hand, very strongly supported the order of the Commissioner (Appeals) with the help of a paper book containing 62 pages. The paper book of the assessee included the decision of the High Court in Suit Nos. 710 and 722 of 1967, the various letters exchanged between the assessee and Hindustan Cables Ltd., the decision of the Orissa High Court in Govinda Choudhury & Sons case (supra) and the decision of the Chandigarh Tribunal in IT Appeal Nos. 929 and 933 of 1976-77. Shri Singh referred, particularly, to the judgment in Suit No. 710 of 1967 and urged that the assessee was only awarded damages and not interest. He urged that on the similar facts, the Orissa High Court in Govinda Choudhury & Sons' case (supra) has accepted the plea of the assessee and the similar view has been taken by the Chandigarh Bench of the Tribunal.
Consequently, he urged that the finding of the Commissioner (Appeals) should be maintained.
6. The issue, in dispute, is whether a sum of Rs. 1,52,470 received by the assessee was only for the delayed payment or it was in the nature of compensation. The assessee supplied goods to Hindustan Cables Ltd. from time to time in two separate contracts. The goods were supplied and, in the meantime, there was a devaluation of Indian rupee.
Consequently, the money value of goods supplied enhanced. There was some dispute between the assessee and the buyer and ultimately, the matter went to the High Court where the decision was in favour of the assessee and the High Court directed the buyer to pay the principal amount along with some additional sum. This additional sum has been taken by the ITO as interest, whereas the same had been termed by the assessee as compensation.
7. If the assessee had received compensation, the same is not taxable in view of the decisions in Govinda Choudhury & Sons' case (supra) and T.N.K. Govindaraju Chetty's case (supra). But if the amount received by the assessee is in the nature of interest, it is taxable. Now, the question is, what is the nature of the additional amount received by the assessee.
8. The assessee supplied goods to Hindustan Cables Ltd. The assessee could not recover the principal amount in time, according to the contract. The assessee filed suit and the assessee claimed the principal amount and interest thereon for delayed payment as well as for the payment of interest which was made by the assessee to its banker. The assessee in Suit No. 710 of 1967 in the plaint made the claim as follows :Principal sum due as per Annexure 'D' 2,14,139.92Interest at nine per cent per annum thereon up to 15-3-1967 6,610.39Interest for delayed payment of bills-- Debit note BB/1/66, dated 3-11-1966 6,441.22 Debit note BB/2/66, dated 3-11-1966 1,037.80 2,28,229.33said 200 metric tonnes of pig lead ingot 28,345.20Interest at nine per cent per annum from22-8-1966 to 15-3-1967 on the principal sum due 1,439.78 29,784.98Interest realised by bank as aforesaid 1,807.00 31,591.98 The assessee has also made an alternative claim in the plaint. The High Court had discussed the claim of the assessee. It was also referred to the defendant and after that the High Court directed the buyer to pay the principal amount with interest. The observation, in this connection, of the High Court in Suit No. 710 of 1967 is quoted below : Interest has been claimed by the plaintiffs under the Interest Act as also under Section 61 of the Sale of Goods Act by way of damages.
A notice was given on 25-1-1967, by which the defendant was informed that interest would be charged at the rate of nine per cent per annum from the date of presentation of bills if payment was not received within seven days of the receipt of such notice. It is not in dispute that this notice dated 25-1-1967 (at page 122 of Ext. A) was served or that bills were submitted to the defendant.
It has been contended on behalf of the defendant that this notice is not in strict compliance with the Interest Act, as it has not been stated therein that the notice was being given under that Act and interest had been claimed, retrospectively. Be that as it may, the defendant, in any event, is entitled to interest by way of damages under Section 61 of the Sale of Goods Act, which the Court in its discretion may allow. It is in evidence that the bank was charging interest from the plaintiff at the rate of nine per cent per annum. On the facts and in the circumstances, I hold that the plaintiff is entitled to interest from the defendant at the rate of nine per cent per annum from the time the said sum of Rs. 2,10,712.44 became due. I answer this issue to the extent, as indicated above, in the affirmative and in favour of the plaintiff.
9. It is clear from the above decision of the High Court that the High Court considered the claim of the assessee under Section 61 of the Sale of Goods Act and the Interest Act and was satisfied that the assessee suffered loss due to non-payment of principal amount in time and, accordingly, the High Court directed the buyer to pay the principal amount along with interest. The assessee itself included the interest of Rs. 1,807 as interest realised by the bank from the assessee.
Therefore, there is no ambiguity in the order of the High Court. The High Court plainly awarded the principal with interest. The High Court order cannot be read otherwise. The assessee only received interest for the delayed payment and the additional amount awarded by the High Court was not in the nature of compensation. Under the above circumstances, after considering the facts, the decision of the High Court in Suit Nos. 710 and 722 of 1967, the decisions in Govinda Choudhury & Sons' case (supra) and T.N.K. Govindaraju Chetty's case (supra), the order of the Chandigarh Bench of the Tribunal in IT Appeal Nos. 929 and 933 of 1976-77 and the paper book, it is concluded that the sum of Rs. 1,52,470 received by the assessee was income from interest and it was rightly taxed by the ITO.10 and 11. [These paras are not reproduced [here as they involve minor issues.)