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2007 (1) TMI 128 - HC - Income TaxInterest on securities - Method of accounting - Whether the Tribunal was right in law in holding that interest on securities is taxable only on specified dates when it became due for payment and not on accrued basis? - HELD THAT:- In view of the deletion of section 18 of the Act with effect from April 1, 1989, the third proviso to section 145(1) was inserted with effect from April 1, 1989, which is a saving clause. Although the amendment was with effect from April 1, 1989, it clearly provides that any income by way of interest on securities shall be chargeable to tax as the income of the previous year in which such interest is due to the assessee only where no method of accounting is regularly employed by the assessee. In other words, if the assessee is maintaining cash system of accounting, the aforesaid proviso would not apply. The legislative intent is that when the assessee is maintaining the cash system of accounting, income by way of interest on securities will have to be charged to tax only when the assessee actually receives the interest and not on the date on which interest on such securities might become due. In the instant case, there is no change in the method of accounting by the assessee. The Assessing Officer accepted the method of accounting followed by the assessee during the earlier assessment years, but, without any change in circumstance, changed the method of accounting during the financial years in question, which in our considered opinion, is unsustainable. As already observed, even though section 18 of the Act was deleted, the assessee is taxable for interest on securities only on specified dates when it becomes due for payment, in view of the third proviso to section 145(1) of the Act, which was in force during the relevant assessment years, as well as in the light of the well settled principles laid down in the catena of decisions referred. In the result, these appeals are dismissed answering the substantial question of law raised against the Revenue and in favour of the assessee.
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