Interest received from insurance company on enhance compesat

This query is : Resolved

GYANENDER JOSHI (Querist)
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25 November 2011 ASSESSEE INSURED BUSINESS ASSETS WITH INSURANCE COMPANY AGAINST LOSS OF ASSETS IN FIRE. ASSETS DESTROYED IN FIRE. ASSESSEE RECEIVED ENHANCE COMPESATION FROM INSURENCE COMPANY, THROUGH COURT DEGREE, ALONG WITH INTEREST FIVE YEARS AFTER ASSSETS DESTROYED IN FIRE.
WHAT TREATMENT TO BE GIVEN TO SUCH INTEREST RECEIVED UNDER COURT DEGREE.

WHETHER SUCH INTEREST BE TREATED AS REVENUE RECEIPT OR CAPITAL RECEIPTS?

IF REVENUE RECEIPT, IN WHICH YEAR IT IS PUT TO TAX?
IF IT IS TREATED AS CAPITAL RECEIPT, PLEASE SUGGEST CASE LAWS IN ITS SUPPORT.

CA Siddhartha Bhardwaj

CA Siddhartha Bhardwaj (Expert)
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26 November 2011 Section 145A(2) provides that interest received on compensation or enhanced compensation shall be deemed to be the income of the year in which it is received.

Section 56(2)(viii)provides that interest on compensation or enhanced compensations shall be taxable under the head Income from Other Sources.

Section 57(iv) provides that a deduction of 50% of the interest amount shall be allowed as deduction.

Accordingly, the interest received on enhanced compensation shall be taxable in the year of receipt and a deduction of 50% shall be allowed from such income.

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