Court rules income taxable when due, not accrued. Assessing Authority to reassess interest on Government securities.

The Court ruled in favor of the assessee, emphasizing that income should only be considered accrued and taxable when it becomes due and payable, as per the provisions of the Income Tax Act. The Court found no inconsistency between the amended provisions of Sections 145 and 5 of the Act and directed the Assessing Authority to reassess the interest on Government securities accordingly.

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Issues:
1. Assessment of interest accrued for the year 1997-98.
2. Assessment of interest on Government securities for the years 1998-99 and 1999-2000.
3. Challenge to the orders passed in revision before the Tribunal.
4. Re-assessment of income earned on Government securities.
5. Legal questions raised in ITA No.433/06.
6. Legal questions raised in ITA No.434/06.
7. Substantial questions of law framed in ITA No.147/2008.
8. Substantial questions of law framed in ITA No.148/08.
9. Substantial questions of law framed in ITA No.149/08.

Analysis:

1. The issue of assessing interest accrued for the year 1997-98 arose when the Commissioner of Income Tax (Appeals) set aside the AO's order, considering the interest for the broken period as not accrued. The Appellate Tribunal upheld this decision, leading to the Revenue filing an appeal (ITA No.148/05) challenging this order.

2. For the assessment years 1998-99 and 1999-2000, the AO did not assess the interest on Government securities for tax. However, the Commissioner of Income Tax, in a revision under Section 263 of the I.T. Act, held that interest accrued on Government securities should be offered as income and taxed. The Tribunal later set aside this revision order, leading to the Revenue filing appeals (ITA Nos.433-434/06).

3. The orders passed in revision were challenged before the Tribunal, which set them aside. The Revenue then appealed in ITA Nos.433-434/06 against these decisions.

4. Following the revision orders, the AO conducted re-assessment and taxed the income earned on Government securities. The assessee appealed against this decision, and the Appellate Tribunal confirmed the orders of the Commissioner of Income Tax (Appeals), leading to the Revenue filing appeals (ITA 149 and ITA 147/08).

5. In ITA No.433/06, questions of law were raised regarding the application of legal positions post the amendment to Section 145 of the Act, and the entitlement of the Assessee to follow a dual system of accounting.

6. ITA No.434/06 also raised similar legal questions as in ITA No.433/06.

7. Substantial questions of law framed in ITA No.147/2008 questioned the deletion of interest earned by the respondent-assessee on securities and its non-taxability.

8. Similarly, ITA No.148/08 and ITA No.149/08 raised substantial questions of law regarding the deletion of interest earned on securities and its non-taxability.

In conclusion, the Court emphasized that income should only be considered accrued and taxable when it becomes due and payable, as per the provisions of the Income Tax Act. The Court found no inconsistency between the amended provisions of Sections 145 and 5 of the Act and ruled in favor of the assessee. The Assessing Authority was directed to reassess the interest on Government securities accordingly.

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