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2014 (11) TMI 179 - HC - Income TaxAddition of accrued interest on Government securities - Whether the Tribunal was correct in reversing the finding of the AO that the assessee was following dual method of accounting as per Section 145(1) of the Act – Held that:- the interest that becomes due or liable to be payable whether or not it is paid, the interest is accrued or deemed to have been accrued - If the interest does not become due and not liable to pay such part of the interest arise it cannot be said that the interest has become accrued - For its accounting purpose, it has shown the proportionate interest entitled to receive on the Government securities - the income which has become due and payable should alone be considered as income accrued and that should be offered as tax - The fact that the assessee in its internal books of accounting mentions the proportionate interest, which is entitled to receive, in its balance sheet for the purpose of profit and loss cannot be deemed as income accrued, unless such income has become due and payable – there was no inconsistency between the amended provisions of Sections 145 and 5 of the I.T. Act - the amended provisions of Sections 145 now insists mercantile system of accounting where on the income accrued the tax can be levied whether or not received unlike in cash system - Merely because in the books of account, the interest income, which is not due and payable is shown in the account of the assessee – Decided against revenue. Expenses to be allotted to exempted income – Held that:- Following the decision in M/s CANARA BANK Versus THE ASST COMMISSIONER OF INCOME TAX, CIT & DCIT. [2014 (1) TMI 1586 - KARNATAKA HIGH COURT] - the income is derived by the dividends u/s. 10(33) of the Act and interest on tax free bonds u/s. 10(15)(h) of the Act and interest on long term finance to infrastructure companies u/s. 10(23G) of the Act - the persons with whom the amounts are invested by the assessee are crediting the aforesaid amount to the assessee's account by way of a bank transfer - no human agency is involved in collecting these dividends and interest for which the assessee has to incur any expenditure - when the assessee has not incurred any expenditure for realizing this income, the question of holding that 2% of the gross total income is an expenditure and that has to be added back to the income is unsustainable in law – Decided against revenue. Interpretation of Section 36(1)(vii) and Section 36(1)(viia) – Held that:- The authorities did not have the benefit of judgment delivered by the SC in Catholic Syrian Bank Ltd. Versus Commissioner of Income Tax, Thrissur [2012 (2) TMI 262 - SUPREME COURT OF INDIA] – thus, the matter is remitted back to the assessing authority with a direction to decide the aspect in the terms of the judgment of the Hon'ble Supreme Court.
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