TMI Blog1983 (1) TMI 56X X X X Extracts X X X X X X X X Extracts X X X X ..... aruppan Chettiar observing that he had already held that there was no division between Karuppan Chettiar and Muthukaruppan Chettiar, and, therefore, the file had to be clubbed only with the file of the father, Karuppan Chettiar. He further stated that if for any reason it was ultimately held that the claim for partition has to be accepted, it would be possible to take action under s. 34 of the Indian I.T. Act, 1922. On appeal against the assessments made by the ITO on the family of Karuppan Chettiar, the AAC by his order dated December 18, 1954, held that there was complete partition, and, therefore, the order of the ITO on the basis of the continued existence of the HUF had to be cancelled. The ITO, for the purpose of giving effect to the order of the AAC, issued notices under s. 34 of the Indian I.T. Act on March 2, 1957, to the family of Muthukaruppan Chettiar for the three assessment years 1950-51 to 1952-53, after obtaining the previous approval of the Commissioner. In response to the said notices, Muthukaruppan Chettiar submitted returns on April 9, 1957, for the three assessment years under protest. On the basis of the returns filed, the ITO made assessments on Muthukarupp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terest in this case was to be assessed on accrual basis from 1960-61 onwards, that interest on the delayed refund which became due on June 5, 1965, would similarly be liable to be assessed on accrual basis only from year to year and that there was no justification for assessing the entire amount of Rs. 77,844 in the year of receipt 1972-73 on the basis of the actual receipt. He, therefore, held that the interest of Rs. 2,632 only bad accrued for the period from April 12, 1971, to June 16, 1971, and that amount alone could be assessed in the assessment year in question. The Revenue took the matter on appeal, to the Income-tax Appellate Tribunal contending that the AAC erred in holding that the interest on the delayed refund should be assessed on accrual basis as against the receipt basis adopted by the ITO, and that the interest received by the assessee on account of the delayed issue of the refund should be assessed on receipt basis only. It was submitted by the Revenue before the Tribunal that the assessee did not maintain any books of accounts and did not follow any system of accounting, and, therefore, the receipt basis should be adopted in the assessee's case. In support of i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee's hands. For a proper consideration of the said question, it is necessary to refer to the statutory provisions dealing with the liability of the Revenue to pay interest on the delayed refunds. Chapter XIX of the I.T. Act, 1961, deals with " Refunds". Section 240 is to the effect that where, as a result of any order passed in appeal or other proceeding under this Act, refund of any amount becomes due to the assessee 'the ITO shall refund the amount to the assessee without his having to make any claim in that behalf. In this case, admittedly, as a result of the judgment of this court, the assessment made by the ITO, on the basis of which income-tax had been paid by the assessee, stands set aside and this has resulted in the assessee becoming entitled to the refund of the amount of tax paid by him. Section 244(1) of the Act provides that : " Where a refund is due to the assessee in pursuance of an order referred to in section 240 and the Income-tax Officer does not grant the refund within a period of six months from the date of such order, the Central Government shall pay to the assessee simple interest at nine per cent. per annum on the amount of refund due from the da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the fact remains that the assessee adopting the accrual basis had offered the interest income accrued during the relevant assessment years for the purpose, of assessment. If the assessment were to be made for the year 1972-73 on receipt basis, there will be a double tax on the same income which has been subjected to tax in the earlier assessment years. Apart from this fact, it cannot be disputed that though the sum of Rs. 77,844 was actually received during the assessment year 1972-73, the payment was in respect of the interest liability that arose for the years 1966-67 to 1972-73, and the interest amount due to the assessee for the assessment year 1972-73 was only Rs. 2,632. The learned counsel for the Revenue contends that since the refund due to the petitioner was in relation to the assessment years 1950-51, 1951-52 and 1952-53, if the spreading over is allowed, it should be spread over in those years and not for the years 1966-67 to 1972-73. We are not in a position to appreciate the said contention advanced on behalf of the Revenue. The refund order no doubt relates to the assessment years 1950-51, 1951-52 and 1952-53, but the interest payments which are the subject-matter o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Tribunal went into the question of apportionment and held that the amount would have to be allocated to the two years in which the amounts were received, viz., 1955-56 and 1956-57. This court, however, disagreed with the view taken by the Tribunal and held that 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 and the method of accounting of the assessee being mercantile, the accrual of interest would have to be spread over the years between the date of acquisition and the date of actual payment. In that case, a reference has been made to the decision of the Supreme Court in Morvi Industries Ltd. v. CIT [1971] 82 ITR 835. The following passage from that case (at p. 840 of 82 ITR) has been relied on (p. 29 of 87 ITR): " 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 time of payment is concerned, but it does not affect the accrual of income. The moment the income accrues, the assessee gets vested with the right to claim that amount even though it may not be immediately. There also arises a corresponding l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ree in the year 1960 to the High Court and the High Court allowed the appeal and set aside the decree. For the assessment year 1961-62 and 1962-63, the assessee claimed deduction of certain amounts as interest which accrued due in that account and which was refundable to the Government. The question arose whether the said amount was deductible as claimed by the assessee. The High Court held That since the assessee was under a legal obligation to effect restitution of the amounts collected under the decree and the obligation arose on the reversal of the erroneous decree of the trial court, the liability arose on the date when the decree of the trial court was reversed by the appellate court, and that, therefore, the assessee is entitled to the deduction claimed by him as regards the interest which has accrued due on the amount which he is under a legal obligation to effect restitution. One of the points urged before the court in that case was that the assessee had not actually debited these amounts in the accounts. But the court held that where a liability arises by operation of law, its deduction cannot be denied merely because it has not been entered in the accounts. The above d ..... X X X X Extracts X X X X X X X X Extracts X X X X
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