1989 (9) TMI 389 - HC - Income Tax

Court rules interest income accrual based on agreement date, not deposit maturity.

Ananta Lal Sen Versus Commissioner Income Tax

Ananta Lal Sen Versus Commissioner Income Tax - [1992] 107 CTR 113 Issues:Interpretation of accrual of interest income for assessment year 1973-74 based on fixed deposits maturity and subsequent agreement with the bank.Analysis:The Tribunal referred the question of law regarding the inclusion of Rs. 32,250 bank interest accrued during the previous year of assessment for the year 1973-74. The assessee followed the mercantile system of accounting and credited Rs. 32,250 directly to the capital account, claiming it represented interest income for the accounting years 1968-69, 1969-70, and 1970-71. However, the Income Tax Officer (ITO) found that the interest accrued due to an agreement in 1972, not renewal of fixed deposits within the prescribed time. The ITO included the amount in the total income for the assessment year. The assessee contended that the interest accrued when fixed deposits matured in 1968 and 1969, not in 1972.The Appellate Assistant Commissioner (AAC) held that since the fixed deposits were not renewed in time, the bank had no liability to pay interest after 1968 and 1969. The interest income accrued only when the bank agreed to pay in 1972, not as per the original contract. The Tribunal upheld this view, stating that the interest income accrued to the assessee due to the agreement in 1972, not in the earlier years when the fixed deposits matured. The Tribunal emphasized that the bank was not obligated to pay interest after the maturity dates in 1968 and 1969 because the fixed deposits were not renewed promptly.The High Court concurred with the Tribunal's decision, stating that the bank had no obligation to pay interest on the matured fixed deposits until the agreement in 1972. The Court emphasized that the right to receive interest arose from the 1972 agreement, not from the original fixed deposit maturity dates. Therefore, the interest income of Rs. 32,250 accrued to the assessee during the relevant previous year for the assessment year 1973-74. The Court rejected the assessee's argument that interest accrued in 1968-69 and 1969-70, emphasizing the importance of the agreement in 1972 for the accrual of interest income.In conclusion, the Court answered the question in favor of the Revenue, upholding the Tribunal's decision. The judgment highlights the significance of agreements in determining the accrual of interest income and emphasizes that the right to receive interest arises from the terms of the agreement, not solely from the maturity of fixed deposits.