TMI Blog1996 (7) TMI 60X X X X Extracts X X X X X X X X Extracts X X X X ..... nd the borrowing? (iii) 'the principle of mutual dealings could be inferred' ?" As per the statement of the case, the only point of dispute is whether the assessee is to be assessed on the gross amount of interest received by him on his fixed deposits or on the net amount of interest which is to be considered as income taxable on that count of interest. To be more specific as the statement of case proceeds, the assessee received as interest on his fixed deposits with the bank a certain sum and had paid interest on loans taken by him on the security of the same fixed deposit and, therefore, contended that the real income from this source of interest would be the difference in regard thereto. Factually, in I. T. R. No. 39 of 1992 the amount of interest on fixed deposit with the bank was Rs. 1,17,444 and at the other end payment of interest on loan taken on security of the fixed deposit was Rs. 90,410. The contention of the assessee was that the amount of interest which would become taxable would be the difference--Rs. 27,034. In the other reference, the assessee had a term deposit with the State Bank of India and had also taken a loan on the security of the very fixed deposit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce and if, within the assessment year in question with the regard to the source, "interest" is a part of the same transaction, what appears is the net amount of interest which could be exigible to tax : it is only the difference that could be taken up for levy of tax with regard to the "source" and "other sources" of the income of the assessee during the assessment year in question. It was also submitted before the Tribunal that, when really in substance, the same transaction comes up for consideration for the purpose of taxation having an element of two sides of the coin, it is an apt situation for application of the well known principle of mutuality. It was contended on behalf of the Revenue that when the situation appears that a certain amount of income is received that event of receipt puts on the clothes of the character of taxability, first in point of time in regard thereto and if at any time differently and independently by way of an independent transaction, there is a liability to pay interest, it has to be seen as an independent transaction in every sense of the term. The Appellate Tribunal considered this question as to whether the situation is representing two mus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has travelled over to the next year in question. Both the receipts and payments are referable to the question of interest and the amount of fixed deposits are used as and by way of security for advancement of loan by the bank and there is a slender advantage of difference as stated at the outset of 1 1/2 per cent. or 2 1/2 per cent. which has created the situation for determination as to what would be the amount of interest that could be considered as taxable income with reference to the admitted and established factual matrix hereinbefore. The income-tax is to be levied on taxable income although there may be two points of time attracting liability to tax, still the substance of the situation is the income, that is to be determined as a taxable income on the concerned count. The substance of the situation would require a probe as to whether actually the income is the result with reference to the factual situation presented in the course of the concerned assessment year. The determinative factor is to find out as to what income could be said to have been received during the assessment year in question. The position emerging from twin points of time is also to be appreciated in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce on Keshav Mills Ltd. v. CIT [1953] 23 ITR 230 (SC), for a proposition to ascertain the situation that can be said to be accrual receipt or realisation of the income in the context. The apex court at that time was dealing with a non-resident assessee whose accounts were maintained according to the mercantile system doing business through guaranteed brokers. The contention is that the assessee was not liable to pay Indian income-tax in regard to two sums which were debited by the assessee to the accounts of the brokers, ostensibly representing sales by the assessee to merchants in British India and crediting the amounts to the sales account. This led to the proposition that under the mercantile system of accounting when goods are supplied, the price thereof is debited to the purchaser, the rights and obligations of the vendor and purchaser inter se are not in any manner affected. The relationship still subsists and the receipt of income refers to the first occasion when the recipient gets the money under his own control. It is observed that once an amount is received as income, any remittance or transmission of the amount to another place does not result in "receipt" within the me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (appearing to be from the dissenting judgment of justice V. D. Tulzapurkar--[1986] 158 ITR 102), that even under the mercantile system of accounting it is only accrual of real income which is chargeable to tax and accrual is a matter of substance and it is to be decided on commercial principles having regard to the business character of the transactions and the realities and specialities of the situation. It cannot be determined by adopting a theoretical or doctrinaire or legalistic approach. From the headnote appearing at page 104 of the report with regard to the propositions in relation to the theory of real income, relied upon by learned senior standing counsel for taxes, it would also appear that the situation has to be judged in the light of the reality of the situation with an attempt to find out as to whether the income has really accrued or arisen to the assessee that could be considered as taxable with reference to the assessment year in question. Carefully considering the decision of the apex court, it re-emphasised the need to ascertain the real character of the situation under consideration. In the context, learned senior standing counsel for taxes relied on yet anoth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed as income from other sources by the taxing authorities and a contention in regard thereto that the situation has to be considered as a nexus or relationship which would have effect by way of addition or deduction of the capital as a result of receipts and payments in regard to the amount of interest in connection. We had an occasion to consider the real situation, drawing elaborately from the approach of the apex court in the said judgment in regard to the situation. The situation is already described by us as representing two sides of a coin in a similar way as the Tribunal has described the situation as two musical tones from one instrument--tweedledum and tweedledee. Following the decision of the apex court in Challapalli Sugars Ltd. [1975] 98 ITR 167, we have also felt the need to understand the real nature of nexus or relationship that the amount of interest and its sources in regard to the situation. In the course of reasoning, we have observed that when the situation is represented as two sides of the coin, the apparent position showing the difference gets crystallised when it comes to the knowledge that it is one and the same situation approached with different angles ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lar of the Central Board of Direct Taxes broadly with a view to seeing the principle of mutuality in regard thereto. In the process of reasoning what has been observed would have to be understood as a step ahead in regard to the process of understanding the taxing provisions. It is observed that in "identifying and quantifying interest" it would be permissible to take both the payments into consideration and treat only such excess, if any, paid by the firm as susceptible to the exclusionary rule under consideration. In the process of reasoning, the apex court yet relying on its earlier decision has considered the approach that the words in the statute must be given their ordinary meaning and grammatical construction is clear, manifest and without doubt, that construction ought to prevail unless there are some strong and obvious reasons to the contrary. In the context, the reasoning proceeds further in such a way that the object of interpretation of a statute is to discover the intention of Parliament as expressed in the Act. It is observed that taxation has ceased to be regarded as an "impertinent intrusion into the sacred rights of private property and it is now increasingly reg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome from fixed deposit, all these leading the court to conclude that the assessee would not get any benefit under section 57(iii) of the Income-tax Act, 1961. Factually, the situation of mutuality is seen far away from the factual matrix. The court has held that although the immediate purpose of taking loans was to construct a house, the fact that the assessee took loans on the security of his fixed deposit in banks in order to maintain his interest income would be irrelevant. It is also observed that the interest paid on the loans could not be said to be expenditure incurred wholly or exclusively for earning income from other sources. In our judgment the golden thread running through all the decisions of the apex court would require us to understand the situation on the basis of the principle of mutuality. To find out whether there is any nexus or relationship which is in the nature of two sides of the same coin or musical tones from one instrument sounding tweedledum and twedledee. We have seen the factual matrix. The contention of the assessee was that it would only be the difference with regard to the interest that he received and that he had to pay to the same bank in rela ..... X X X X Extracts X X X X X X X X Extracts X X X X
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