Tax Court Upholds Interest Income Tax Decision

The High Court upheld the Income Tax Appellate Tribunal's decision to tax interest income on securities on a due basis rather than an accrual basis under the mercantile system of accounting. The court relied on precedents, including a Special Bench decision involving a similar case and a previous decision regarding Bank of Bahrain & Kuwait BSC. As the issues raised did not present any substantial question of law, the appeal was dismissed without costs.

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Issues: Appeal challenging an order of the Income Tax Appellate Tribunal regarding the taxation of interest income on securities on a due basis versus accrual basis under the mercantile system of accounting.

Analysis:
1. The appeal questioned whether the Tribunal was correct in accepting the assessee's plea to tax interest income on securities on a due basis only, contrary to the accrual basis as per the mercantile accounting system. The revenue argued that interest accrues automatically on a day-to-day basis under the mercantile system, creating a vested right even before payment becomes due. The revenue cited relevant case law to support their position.

2. The Tribunal's order favored the assessee on both issues, relying on a decision of the High Court and a Special Bench decision of the Tribunal in a similar case involving Bank of Bahrain & Kuwait BSC. The High Court had previously upheld the Tribunal's decision in the Bank of Bahrain case for earlier assessment years, and the Supreme Court had dismissed the revenue's appeal. Based on these precedents, the High Court concluded that the questions raised did not present any substantial question of law, leading to the dismissal of the appeal without costs.

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