High Court rules interest income on securities computed on due basis, not accrual. Precedents cited.

The High Court ruled in favor of the appellant, State Bank of India, determining that income from interest on securities should be computed on a due basis rather than an accrual basis. The Court relied on precedents from the Bombay High Court and the Supreme Court, emphasizing that interest income only accrues on the specified date in the instrument or agreement. The appellant's appeal was allowed, resolving the substantial questions of law in their favor and resulting in the closure of related pending petitions without costs.

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Issues Involved:
1. Interpretation of Section 145 of the Income Tax Act, 1961 regarding computation of income from interest on securities on accrual basis or due basis.
2. Consideration of relevant judicial precedents in determining the method of computing interest income.
3. Assessment of whether interest income accrues only on the date specified in the instrument or agreement.
4. Application of the decisions of the Bombay High Court and the Supreme Court in similar cases to the present appeal.

Analysis:
1. The primary issue in this case revolves around the computation of income from interest on securities, specifically whether it should be based on accrual or due basis. The appellant, State Bank of India, contested the order of the assessing officer, which held that interest income should be taxed on an accrual basis. The Tribunal also upheld this view, stating that interest accrued day-to-day and should be taxed accordingly.

2. The appellant raised substantial questions of law, questioning the Tribunal's decision based on various grounds. These questions included the interpretation of Section 145 of the Income Tax Act and the consideration of judicial precedents such as the Supreme Court's decisions in similar cases involving other banks.

3. The Bombay High Court's judgment in Director of Income Tax v. M/s. Credit Suisse First Boston (Cyprus) Limited provided significant guidance on the issue at hand. The High Court emphasized that interest only accrues on the date specified in the instrument or agreement, not prior to that date. This principle was reiterated in subsequent cases, including Commissioner of Income Tax v. State Bank of India, where the Court ruled in favor of taxing interest income on a due basis.

4. The Supreme Court's decision in Deputy Commissioner of Income Tax v. T.Jayachandran further reinforced the position that interest income on securities should be taxed on a due basis, aligning with the interpretations of the Bombay High Court. Despite the lack of detailed discussion in the Supreme Court's judgment, the dismissal of the appeals filed by the revenue supported the due basis taxation of interest income.

5. Ultimately, the High Court concurred with the precedents set by the Bombay High Court and upheld the due basis taxation of interest income for the appellant. The substantial questions of law were resolved in favor of the assessee, leading to the allowance of the appeal without costs and the closure of any related pending petitions.

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