TMI Blog1996 (1) TMI 17X X X X Extracts X X X X X X X X Extracts X X X X ..... possession on August 28, 1968. On April 28, 1969, the Administrator had made an application to prove the will. Probate was granted on March 26, 1970. The Administrator filed a return, showing "nil" income and claiming that the entire income of the estate of the late Mrs. Ida L. Chambers was held for the purpose of certain charities and as such was exempted. The Income-tax Officer found that the income arose between the period August 14, 1968, and March 31, 1969, whereas the letters of administration were obtained only on May 5, 1970. Under the will, the disbursements of charities and other legacies could take place only after taking charge of the assets and completely disposing of them. Since this process was still going on even on the date of the assessment, the entire income of the estate was assessable in the hands of the Administrator-General. The said late Mrs. Ida L. Chambers had advanced amounts to one A. Nagappa Chettiar. At the time of her death, the total outstanding consisting of the amounts advanced to A. Nagappa Chettiar and also to Chrome Leather Company Limited stood at about Rs. 11 lakhs. The Administrator-General filed a suit, C. S. No. 61 of 1979 against Shri A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be done only after the expenditure of amount for litigation. Therefore, the Accountant Member held that on an accrual basis the interest ought not to have been taxed at all but the interest having been treated as partly accrued, the amounts actually spent on realising it should be allowed as expenditure. He, therefore, deleted the addition of Rs. 26,538 being accrued interest and allowed an expenditure of Rs. 26,244. On the contrary, the Judicial Member held that the assessee could not be said to have not only received interest but also lost a part of the capital. He held that it could not be said that the expenditure had not been incurred for earning the interest portion of the outstandings. According to the Judicial Member, part of the expenditure attributable to the interest realised only could be allowed. The matter went to a Third Member, in view of the difference of opinion between the Judicial Member and the Accountant Member. The Third Member supported the Accountant Member's view and also held that the sum of Rs. 26,538 was not to be included in the total income. With regard to the expenditure, it was held that the sum of Rs. 23,850 having gone out of the coffers by wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Administrator-General is a new assessee under section 168 of the Act and that he is bound by the rules that are applicable to him with regard to the maintenance of various cash books. Taking into account the fact that under the rules framed under the Administrators-General Act, 1913, which were followed in the 1963 Act also, the Third Member held that the Administrator-General has got to maintain the account on receipt basis and he cannot follow the mercantile system of accounting, which was followed by the deceased. Since the assessee had not received interest of Rs. 26,538 actually during the year in question, he came to the conclusion that the said amount of Rs. 26,538 cannot be assessed in the hands of the assessee. In view of the Administrators-General Act, 1913, which was followed by the 1963 Act also, the Administrator-General can follow only one method of accounting, viz., accounting showing the receipt basis. If that is so in the accounting year relating to the assessment year, the interest amount of Rs. 26,538 did not reach the hands of the assessee. Therefore, it cannot be taxed in the hands of the assessee for the relevant assessment year. In that view of the matte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and allow only that portion of expenditure, which is relatable to the earning of the interest income. The Third Member held that only such expenditure as relatable to the interest alone would be admissible and not that relating to the capital because the assessment was made under section 57(iii) of the Act. Therefore, he ultimately held that whatever expenses incurred were applicable to the realisation of interest, if they have been incurred during the year on the basis of cash system they should be allowed. The Third Member further pointed out that before him, the Department's representative did not dispute the figure of Rs. 23,850 as having gone out of the coffers by way of cash during the accounting year relevant to the assessment year in question. So he held that on the basis of cash system of accounting the same has got to be allowed. There was no controversy on the principle that the said sum has been incurred for earning or making the income. Learned standing counsel for the Department submitted that inasmuch as the interest income was not realised even according to the assessee, the expenditure incurred is not attributable for earning the interest income. Therefore, unde ..... X X X X Extracts X X X X X X X X Extracts X X X X
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