TMI Blog2007 (1) TMI 128X X X X Extracts X X X X X X X X Extracts X X X X ..... es 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. - P. D. Dinakaran And Mrs. Chitra Venkataraman JJ. For the Appellant : Mrs. Pushya Sitaraman For the Respondent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stance, changed the method of accounting during the financial years in question, which is unsustainable and accordingly dismissed the appeals. Hence, the present appeals raising the common substantial question of law referred to above. 6. According to learned senior standing counsel 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 145 of the Act. In support of his contention, learned counsel for the assessee relied on the decision in CIT v. Canara Bank [1992] 195 ITR 66 (Karn) and Godhra Elec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee, or where no method of accounting has been regularly employed by the assessee, the Assessing Officer may make an assessment in the manner provided in section 144. 10. 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. 11. In CIT v. Canara Bank [1992] 195 ITR 66, the Division Bench of the Karnataka High Court held that in the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ] 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 create problems in its application to every situation, it must depend upon the facts and circumstances of each case. When and how does an income accrue and what are the consequences that follow from accrual of income are well-settled. The accrual must be real taking into account the actuality of the situation. Whether an accrual has taken place or not must, in appropriate cases, be judged on the principles of the real income the ory. After accrual, non-charging of tax on the same because of certain conduct based on the ipse dixit of a particular assessee cannot be accepted. In ..... X X X X Extracts X X X X X X X X Extracts X X X X
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