2004 (9) TMI 39 - HC - Income Tax

Income accrual - Whether the Tribunal was right in law in holding that interest amounting to Rs. 6, 63, 275 accrued to the assessee during the previous year relevant to the assessment year 1992-93 was includible in its total income? - it is very clear that it was only in view of the order made by the court that the amount was permitted to be withdrawn and that too on the furnishing of a bank guarantee of a nationalised bank and the appellant was required to refund the amount with interest to the respondent in case the respondent succeeded. Therefore the determinative date would be the date on which the decision was rendered by the court and it is for that relevant year that the income-tax will have to be assessed as it can be said that the amount accrued on that date only Question is answered in favour of the assessee

Summary

Issues:
- Appeal against orders made by Income-tax Appellate Tribunal under section 260A of the Income-tax Act 1961.
- Taxability of interest accrued to the assessee during the relevant years.
- Application of mercantile system in tax assessment.
- Interpretation of when income accrues for tax purposes.

Analysis:

The case involved an appeal against orders made by the Income-tax Appellate Tribunal under section 260A of the Income-tax Act 1961. The Tribunal had held that interest amounting to Rs. 6,63,275 accrued to the assessee during the relevant years was includible in its total income. The dispute arose from a contract between the appellant and the New Delhi Municipal Committee, which led to arbitration and an award in favor of the appellant. The High Court directed the payment of a certain amount to the appellant, subject to conditions. The Assessing Officer considered the interest accrued on the amount deposited by the appellant as taxable income for the relevant years.

The key issue revolved around the application of the mercantile system in tax assessment. The Tribunal held that since the assessee was following the mercantile system, tax was liable on the interest earned in the relevant year, not when determined by the High Court. However, a previous case had examined a similar question, emphasizing that the right to receive future interest was contingent until fully determined. The court referred to precedents to establish that income tax is not levied on a mere right to receive compensation but on tangible, ascertained amounts. The determinative date for tax assessment was deemed to be when the decision was rendered by the court.

The court concluded that the interest accrued to the assessee was to be assessed for tax in the relevant year when the decision was rendered by the court, aligning with the principles established in previous judgments. The court ruled in favor of the assessee, holding that the right to receive the amount was contingent until the court's decision, and therefore, the income tax liability should be based on the date of court decision. The appeals were allowed in favor of the assessee, with no orders as to costs.