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TMI Blog2007 (1) TMI 128X X X X Extracts X X X X X X X X Extracts X X X X ..... ther, on the facts and circumstances of the case, 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 ?" 2. The brief facts of the case are that the assessee, while filing the return of income for the assessment years 1989-90 and 1990-91, claimed exclusion of the sums representing the accrued interest for the period till March 31, 1989, and till March 31, 1990, for the respective assessment years, in respect of the securities held by them on the ground that it did not become due in the respective previous years and that even after the omission of section 18 of the Income-tax Act, the interest on securities should be charged only when ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... el for the Revenue, as section 18 of the Income-tax Act has been removed from the statute from the assessment year 1989-90 onwards, the interest on securities has to be assessed under the head "Business" and since the assessee was maintaining its accounts on mercantile basis, the entire interest accrued has to be included in the total income. 7. Per contra, Mr. Vijayaraghavan, learned counsel for the assessee submits that the third proviso to section 145(1) of the Income-tax Act was introduced to get over the removal of section 18 of the Income-tax Act, and that even under section 145 of the Act, method of accounting on due basis is recognised. The assessee is following the mercantile system and so he is entitled to the benefit of section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... employed by the assessee : Provided that in any case where the accounts are correct and complete to the satisfaction of the Assessing Officer but the method employed is such that, in the opinion of the Assessing Officer, the income cannot properly be deduced therefrom, then the computation shall be made upon such basis and in such manner as the Assessing Officer may determine : Provided further that where no method of accounting is regularly employed by the assessee, 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 : Provided also that nothing contained in this sub-section shall preclude an assessee from being charged to Income-tax i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erest on securities, the income fructifies to the assessee only when the securities yield interest and, only in such a situation is section 18 attracted. 12. In CIT v. Shoorji Vallabhdas and Co. [1962] 46 ITR 144, the apex court held as under (page 148) : "Income-tax is a levy on income. No doubt, the Income-tax Act takes into account two points of time at which the liability to tax is attracted, viz., the accrual of the income or its receipt ; but the sub stance of the matter is the income. If income does not result at all, there cannot be a tax, even though in book-keeping, an entry is made about a hypothetical income, which does not materialise." (emphasis supplied) 13. In H. M. Kashiparekh and Co. Ltd. v. CIT [1960] 39 ITR 706, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... commercial principles subject to the provisions of the Income-tax Act." (emphasis supplied) 15. In Morvi Industries Ltd. v. CIT [1971] 82 ITR 835 the apex court emphasised the fact that the real question for decision was whether the income had really accrued or not. It is not a hypothetical accrual of income that has got to be taken into consideration but the real accrual of the income. 16. In State Bank of Travancore v. CIT [1986] 158 ITR 102, the apex court held as under (page 154) : "An acceptable formula of co-relating the notion of real income in conjunction with the method of accounting for the purpose of the computation of income for the purpose of taxation is difficult to evolve. Besides, any strait-jacket formula is bound to c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uestion whether there was real accrual of income to the assessee-company in respect of the enhanced charges for supply of electricity has to be considered by taking the probability or improbability of realisation in a realistic manner. If the matter is considered in this light, it is not possible to hold that there was real accrual of income to the assessee-company in respect of the enhanced charges for supply of electricity which were added by the Income-tax Officer while passing the assessment orders in respect of the assessment years under consideration. The Appellate Assistant Commissioner was right in deleting the said addition made by the Income-tax Officer and the Tribunal had rightly held that the claim at the increased rates as mad ..... X X X X Extracts X X X X X X X X Extracts X X X X
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