TMI Blog1952 (3) TMI 39X X X X Extracts X X X X X X X X Extracts X X X X ..... is 1945-46. The relevant accounting year is Samvat 2,000, i.e., commencing from 30th October, 1943, to 17th October, 1944. The head office of the assessee is situated in Ahmedabad and a branch in Bombay. A consolidated account for the two branches was prepared by the assessee in respect of his various activities. One of the sources of income is interest on 5% 1945-55 tax-free war loan of the face value of ₹ 14 lacs. Interest on these securities was payable on 15th April and 15th October every year. These securities were lodged with the Imperial Bank of India. 15th October, 1944, happened to be a holiday. 16th October was a working day and 17th and 18th October were again Diwali holidays. The Imperial Bank collected the interest in re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his date falls, i.e., the accounting year relevant to the assessment year 1945-46. The Tribunal did not agree with the assessee that receivable means received. 4. The case has been finalised after hearing the parties. It is admitted that the facts have been correctly stated. Mr. Kolah says all the contentions of the assessee should be set out or the copy of the order of the Tribunal sent along with the statement of the case. The order of the Tribunal is annexure A and forms part of the case. 5. We refer the following question to the High Court of Bombay under Section 66(1) of the Income-tax Act: - Whether on the facts and circumstances of the case the halfyearly interest amounting to ₹ 35,000 which fell due for payme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee. Now turning to Section 8, it provides that the tax shall be payable by the assessee under the head Interest on securities in respect of the interest receivable by him on any security of the Central Government or of the State Government, and the view taken by the Tribunal is that receivable does not mean received but means capable of being received, and the contention is that although the interest might have been in fact received on the 21st October it was capable of being received on the 15th October and therefore the income in respect of this head must be taxed in the assessment year 1945-46 and not 1946-47. On a first impression there seems to be considerable force in the contention of the Department. Undoubtedly the langua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e again, it is only when sums are deducted under sub-section (3), and they are only deducted at the time of payment of interest, that those sums become the income of the assessee and are deemed to be income received by him. Under sub-section (7), if there is a default on the part of the person who has to pay interest in deducting the tax, he is deemed to be the assessee in default in respect of the tax. So this liability is also imposed when a default is committed at the time of the payment of the interest. Section 19 makes the income-tax payable by the assessee direct when it has not been deducted in accordance with the provisions of Section 18, in other words, when income-tax has not been deducted at the time of the payment of the interes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... becomes income when it has been paid and received by the assessee. Therefore, although on the 15th October the debt was due by the Government and the Government were liable to pay interest to the assessee, that debt did not become the income of the assessee till it was discharged and received by the assessee which was on the 21st October, 1944. In that particular case to which reference has just been made, the appellants sold their property in Lucia and interest had to be paid upon part of the purchase price. This was to be paid in 1921, but it was not paid, and the question arose whether the appellants were liable to pay income-tax on the interest not received by them in the year 1921. It is true that in this case not only the debt was no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would have been his income under Section 8. The Tribunal has taken the view in their order that in the past the assessee had maintained the mercantile system of accounting and that is one reason why in the opinion of the Tribunal the assessee is liable to pay tax on the interest when it becomes due and not when it is actually received. With respect to the Tribunal, the error which it has fallen into is in overlooking the provisions of Section 13. Under that section a method of accounting may be employed by an assessee for the purpose of Section 10 and 12, and if a method is adopted which is known as the mercantile method, then his income would be assessed on that basis. In other words, a merchant may employ the mercantile method and com ..... X X X X Extracts X X X X X X X X Extracts X X X X
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