1979 (2) TMI 96 - HC - Income Tax

Court affirms interest accrual as income, rejecting assessee's claim.

The court upheld the Appellate Tribunal's findings on the maintenance of books of account and the accrual of interest, ruling in favor of the revenue and ... Assessment Year, Income When Accrues, Total Income Issues Involved:1. Justification of the Appellate Tribunal's finding on the maintenance of books of account and the adoption of the mercantile method of accounting.2. Legality of the Tribunal's finding that interest accrues to the assessee on the date of the award or decree and becomes income only on that date.3. Justification of including the entire amount of interest for the period from 1962 to 1969 in the total income for the assessment year 1970-71.Issue-Wise Detailed Analysis:1. Justification of the Appellate Tribunal's Finding on the Maintenance of Books of Account:The court examined whether the Appellate Tribunal was justified in holding that the assessee did not maintain books of account, thereby negating the adoption of the mercantile method of accounting. The Tribunal's finding was based on the absence of any material evidence showing that the assessee maintained such books. The court upheld this finding, stating it was warranted by the facts of the case.2. Legality of the Tribunal's Finding on Interest Accrual:The court analyzed whether the Tribunal's finding that 'the interest accrues due to the assessee on the date of award or decree of court and, therefore, it becomes income of the assessee only on that date and not prior to it' was justified in law. The court referred to Section 5(1) of the I.T. Act, which defines the scope of total income, including income that 'accrues or arises' or is 'deemed to accrue or arise' in India during the year. The court also examined relevant provisions of the Land Acquisition Act, particularly Sections 11, 18, 28, and 34, which deal with the award of compensation and interest.The court cited the Supreme Court's decision in E. D. Sassoon & Co. Ltd. v. CIT, which clarified that income accrues when the assessee acquires a right to receive it, even if the actual receipt is later. The court concluded that the right to interest on excess compensation accrues only when the court decrees such interest while awarding excess compensation. This interpretation was consistent with the principles laid down in previous judgments, such as CIT v. Sampangiramaiah and Khan Bahadur Ahmed Alladin & Sons v. CIT.3. Justification of Including the Entire Interest Amount in the Total Income for the Assessment Year 1970-71:The court addressed whether the entire interest amount of Rs. 10,322 (for the period from 1962 to 1969) should be included in the total income for the assessment year 1970-71. The assessees argued that only a proportionate amount of interest referable to the accounting year should be assessed, while the revenue contended for the inclusion of the entire amount.The court reviewed several precedents, including T. N. K. Govindarajulu Chetty v. CIT and CIT v. Dr. Sham Lal Narula, which dealt with the accrual and apportionment of interest on compensation. The court found that the right to interest on excess compensation does not arise on the date of dispossession but only when the court decrees such interest. Consequently, the entire interest amount received during the assessment year 1970-71 was correctly included in the total income for that year.Conclusion:The court answered all the questions referred in the affirmative, in favor of the revenue and against the assessee. The judgment emphasized that the right to interest on excess compensation accrues only when the court decrees it, and the entire interest amount received during the relevant assessment year should be included in the total income for that year.