Company's Accounting Method Change Upheld on Appeal

The company changed its accounting method from mercantile to cash basis. The Tribunal found the change was realistic and not in bad faith, allowing the company's appeal. The revenue's appeal was dismissed. The High Court affirmed, stating the change was bona fide, and interest income should be taxed based on actual receipts. Justice Banerji concurred with this decision.

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Issues involved:
Income-tax assessment of a company changing its method of accounting from mercantile basis to cash basis to reflect interest income received accurately.

Summary:

Issue 1: Change in method of accounting
The company changed its method of accounting from mercantile basis to cash basis, starting from the accounting year 1966-67. The Income-tax Officer added all interest receivable by the company in the assessment years, suspecting tax avoidance. The Appellate Assistant Commissioner initially upheld this decision but later accepted the change to cash basis for the assessment year 1971-72. The Tribunal found the change to cash basis as more realistic and not done in bad faith, allowing the company's appeal and dismissing the revenue's appeal.

Issue 2: Treatment of interest income
The Tribunal determined that the change in accounting method was done in good faith and should be based on the company's own accounts, not its debtors' accounts. The revenue contended that the change was to avoid proper tax payment. The Tribunal found no evidence of mala fides and allowed the company's appeals while dismissing the revenue's appeal. The Commissioner of Income-tax raised questions regarding the change in accounting method and the treatment of interest income received from specific parties. The High Court affirmed the Tribunal's decision, stating that the change in accounting method was bona fide and the interest income should be taxed based on what was actually received.

Separate Judgment by Banerji J.:
Justice Banerji concurred with the decision of Justice Dipak Kumar Sen, agreeing that the change in accounting method was done in good faith and the interest income should be taxed based on actual receipts.

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