Trust income computed on commercial principles: income-tax paid is deductible and interest cannot be forced onto accrual basis.

Income derived from trust property must be computed on commercial principles, and where the trust had validly adopted the cash system of accounting, all outgoings including income-tax paid had to be deducted before determining the surplus available for application or accumulation. Interest income could not be estimated on an accrual basis contrary to the accepted accounting method. Both referred questions were answered in favour of the assessee and against the Revenue, following the binding decision in the assessee's own earlier years.

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Issues: (i) Whether the assessee trust was entitled to deduct income-tax paid while computing its income. (ii) Whether the income from interest could be estimated on the accrual basis and brought to tax.

Issue (i): Whether the assessee trust was entitled to deduct income-tax paid while computing its income.

Analysis: The questions were answered by following the earlier decision in the assessee's own case for prior assessment years. It was held that the trust had validly switched over to the cash system of accounting in the relevant circumstances, and that income from trust property had to be determined on commercial principles. In computing such income, all outgoings, including income-tax paid by the trust, were required to be deducted before the surplus available for application or accumulation could be ascertained.

Conclusion: The question was answered in the affirmative, in favour of the assessee and against the Revenue.

Issue (ii): Whether the income from interest could be estimated on the accrual basis and brought to tax.

Analysis: The same earlier ruling governed the issue. On the facts accepted for the trust, the income was not to be determined on an accrual basis contrary to the method of accounting accepted in the earlier decision.

Conclusion: The question was answered in the negative, in favour of the assessee and against the Revenue.

Final Conclusion: Both referred questions were resolved in favour of the assessee on the basis of the prior binding decision in the same assessee's case, and the reference stood concluded accordingly.

Ratio Decidendi: Income derived from trust property must be computed on commercial principles, and in doing so all outgoings, including income-tax paid by the trust, must be deducted before determining the surplus available for application or accumulation.

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