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Issues: (i) Whether interest on debentures issued by companies other than local authorities or statutory corporations was taxable under the head "Interest on securities". (ii) Whether interest on debentures was assessable only on receipt and not when it became due.
Issue (i): Whether interest on debentures issued by companies other than local authorities or statutory corporations was taxable under the head "Interest on securities".
Analysis: The questions were covered by an earlier decision holding that interest on debentures and bonds issued by companies was chargeable under the head "Interest on securities" for the relevant assessment years. The Court followed that ruling and answered the reference accordingly.
Conclusion: The issue was decided in favour of the assessee and against the Revenue.
Issue (ii): Whether interest on debentures was assessable only on receipt and not when it became due.
Analysis: The accounts were maintained on the cash system, permission had been granted for that method, and the assessees had not actually received the interest for the relevant years. The earlier decision held that in such circumstances the interest was taxable only on receipt and not on accrual or due date.
Conclusion: The issue was decided in favour of the assessee and against the Revenue.
Final Conclusion: The reference was answered against the Revenue, with both referred questions decided in favour of the assessee, and the matter was disposed of without costs.
Ratio Decidendi: Where income from debentures is governed by the cash system of accounting, it is taxable on actual receipt; and interest on debentures issued by companies falls under the head "Interest on securities" for the relevant assessment years.
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