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TMI Blog1972 (1) TMI 19X X X X Extracts X X X X X X X X Extracts X X X X ..... the said award of the arbitrator the assessee filed an appeal to this court in A.A.O. No. 644/1951 contending that the compensation awarded was exceedingly low. In the said appeal this court fixed the compensation due to the assessee at Rs. 5,00,000 and confirmed the order of the Chief Judge, Court of Small Causes, Madras, in other respects. On the basis of the fixation of compensation by this court, the Government of Madras ultimately paid a total sum of Rs. 6,28,716 to the assessee of which Rs. 2,54,885 was paid in the accounting year ended April 13, 1955, and the balance of Rs. 3,73,831 was paid during the year ended April 12, 1956. In the assessment of the assessee-firm for the assessment years 1955-56 and 1956-57, the Income-tax Officer took the view that the sum of Rs. 1,28,716 included in the total compensation received by the assessee represented interest and as such has to be treated as income. He, therefore, apportioned the said sum for the two years on the basis of the total receipts and included Rs. 50,592 in the total income of the assessee for the year 1955-56 and Rs. 78,124 for the year 1956-57. The assessee preferred an appeal against the said assessment to the Ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... court holding that when the owner of the property was dispossessed pursuant to an order of compulsory acquisition, an agreement that the acquiring authority will pay interest on the amount of compensation was implied, that the right of the appellant to interest arose by virtue of the provisions of sections 28 and 34 of the Land Acquisition Act, 1984, that the arbitrator and the High Court merely gave effect to the right in awarding interest on the amount of compensation and that, therefore, the interest received by the assessee was taxable. Having regard to the ultimate decision of the Supreme Court that the receipt of interest by the assessee is income assessable to tax, the Tribunal went into the question of the apportionment of interest. It did not accept the view of the Appellate Assistant Commissioner that the income should be apportioned and assessed in the respective years, but confirmed the allocation made by the Income-tax Officer. The assessee, aggrieved against the order of the Tribunal rejecting its plea that only that portion of the interest relatable to the two years 1955-56 and 1956-57 could be included, sought a reference to this court, and the Tribunal has referr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the interest that accrued to him in the relevant years. It is well established, that, even in respect of a disputed right, if the assessee had adopted a mercantile method of accounting and if the right has legally accrued to him, the right should be deemed to have accrued in the relevant year even though the dispute as to the right is settled in a later year, either by the court or otherwise. It is also equally well settled that once the income has accrued, the accrual is not suspended till the right is quantified. In Commissioner of Income-tax v. K. R. M. T. T. Thiagaraja Chetty & Co. their Lordships of the Supreme Court had expressed the view that it is a fallacy to say that profits do not accrue unless and until they are actually computed, that computation of profits whenever it may take place cannot possibly be allowed to suspend their accrual, and that quantification is not a condition precedent to the accrual of the right. In E. D. Sassoon & Co. Ltd. v. Commissioner of Income-tax the Supreme Court again reiterated the same principle. In that case there was an assignment of the managing agency agreement on December 1, 1943. The commission payable to the managing agents und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uired a right in praesenti against the Government to get the compensation for the land acquired even on the date of the notification, and to get interest on the amount of compensation if payment of the same is postponed for some reason or other. From the mere fact that the amount of compensation was fixed ultimately by this court, it cannot be said that the liability to pay either the compensation or the interest thereon arose only on the date of such fixation. A question similar to the one arising in this reference came up for consideration before the Mysore High Court in Commissioner of income-tax v. Samparngiramaiah. In that case the assessee's property was acquired under the Land Acquisition Act and possession was taken on February 19, 1949. The Land Acquisition Officer's award was for Rs. 46,000 which was paid to the assessee on December 31, 1949. The compensation was enhanced by the District Judge on February 28, 1951. It was further enhanced by the High Court, and a sum of Rs. 1,15,000 representing the value of the land and Rs. 87,265 representing the interest on that sum from the date of delivery of possession up to the date of payment was paid to the assessee on October 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terial circumstance, and that what was relevant was the method of accounting and not the entries. In Kedarnath lute Mfg. Co. Ltd. v. Commissioner of Income-tax the Supreme Court, while dealing with the assessee's right to claim a particular sum as a deduction either under section 10(1) or under section 10(2) of the Income-tax Act, 1922, had taken the view that whether the assessee is entitled to a particular deduction or not will have to depend on the provision of law relating thereto and not on the view which the assessee might take of his rights ; nor can the existence or absence of entries in his books of account be decisive or conclusive in the matter. In Morvi Industries Ltd. v. Commissioner of Income-tax the Supreme Court again reiterated the same view while construing the scope of section 4(1)(b)(i) of the Income-tax Act, 1922, with reference to the claim made by an assessee who relinquished the managing agency commission payable to him and claimed it as a deduction under section 10(2)(xv) of the Act. The Supreme Court expressed thus : " The income can thus be said to accrue when it becomes due. The postponement of the date of payment has a bearing only in so far as the tim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rual is not the sole test of taxability, and (2) that the finding rendered by the Tribunal in the supplemental statement of the case that the mode of accounting adopted by the assessee was mercantile has no basis at all, and as such cannot be accepted, and that, therefore, the revenue can either adopt accrual basis or receipt basis for the purpose of computing the total income of the assessee under section 13 of the Act. In this case the liability to pay interest would arise when the compensation amount due to the assessee had not been paid, in each of the relevant years. Therefore, the accrual of interest has to be spread over the years between the date of acquisition till it was actually paid. We are not in a position to accept the contention of the revenue that even if the accrual has taken place earlier, the Income-tax Officer can proceed to assess the income on the basis of receipt notwithstanding the earlier accrual as he has an option to assess the income by way of interest either on the basis of accrual or on the basis of receipt, and that the decision of the Mysore High Court in Commissioner of Income-tax v. Sampangiramaiah, in so far as it proceeds that the accrual alone ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee has adopted the mercantile basis as his method of accounting in relation to all sources of income is acceptable to us, and the Tribunal has based its finding on some concrete material and we are not inclined to differ from that finding. The assessee has declared its income from property in the assessment years 1955-56 and 1956-57, and the income so declared included income from property, business as also interest, on securities on the basis of the books of account kept by the assessee. In the assessment orders in relation to the above two years under column 5 of the return the method of accounting adopted by the assessee has been left blank. But, in the earlier year 1954-55 and later years 1957-58 and 1958-59, the assessment orders show that the method of accounting adopted by the assessee is mercantile and the details of income given in those assessment orders show that the accrual has been taken as the basis for bringing in some of the items for assessment during these years, though those items of income assessed have not actually been received. It is also found that the assessee has not maintained separate accounts in respect of the income from the property or in resp ..... 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