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2017 (12) TMI 1364 - HC - Income TaxInterest income on Bank deposits - accrual of income - whether a hypothetical income and that the assessee is entitled to get the interest excluded from assessment? - Held that:- The interest that accrued in the relevant year is for the amounts that already remained in deposit with the Bank and on the depositors asking, it is payable. As was observed the period of deposit being the option of the depositor the receipt stood deferred at the behest of the assessee. As a corollary there cannot be a claim made of hypothetical income or there being no corresponding liability to pay. If the assessee chose to close the deposit prematurely on any date, then the Bank is liable to pay whatever interest that is accrued till that date. Interest for the period, in which the amounts stood in deposit, accrues on the close of the previous year and if it so accrues, it becomes the income of that particular assessment year, liable to be taxed in that year. Yet another argument of the respondent that under Section 194A it is the obligation of the banker to pay tax on the interest due and failure on their part has now resulted in action against the assessee, the assessee had exercised the option to let the interest accummulate to the deposit and thereby earned compound interest by the end of the deposit term, it would not mulct any liability on the bank to pay tax on periodical accrual of interest to the income tax authorities. The Bank's liability to deduct tax at source arises only when it pays the interest. The amount that is to be recieved as interest, is known to the assessee and was accounted, as income accrued by way of interest in the account books of the assessee following the mercantile system. The interest income that accrued cannot, by any stretch of imagination, be termed as hypothetical income. The deposits in Bank for definite periods at definite interest rates generate interest at the agreed rates. In fact, income tax was also paid on the interest income, which was received subsequently, but not during the subject assessment year, when it accrued. Hence, we do not agree with the findings of the Income Tax Appellate Tribunal that the interest income on Bank deposits is hypothetical income and that the assessee is entitled to get the interest excluded from assessment. The question raised is thus answered in favour of the Revenue and against the assessee.
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