Mercantile accounting controls taxability of refund interest; receipt basis does not apply on the facts found.

Interest on income-tax refund under section 244, as quantified under section 240, was held not to be assessable in the year of receipt where the assessee kept mercantile accounts. The court applied the earlier binding ruling on the same issue and treated the method of accounting as determinative of the year of taxability. On the facts found, the Tribunal had accepted the mercantile system, so the interest could not be brought to tax on receipt basis for the assessment year in question, and the issue was decided for the assessee.

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Issues: Whether interest received on income-tax refund under section 244 of the Income-tax Act, 1961, and quantified under section 240 of the Income-tax Act, 1961, was assessable in the year of receipt where the assessee followed the mercantile system of accounting.

Analysis: The assessment year in question was 1982-83. The Tribunal found that the assessee maintained its books on the mercantile system of accounting. The question was answered by applying the earlier binding decision on the same point, which held that the manner of accounting governed the year in which such interest was assessable.

Conclusion: The interest on refund was not assessable in the year of receipt on the facts found, and the question was answered in favour of the assessee.

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