1979 (5) TMI 26 - AT - Income Tax

Tribunal rules interest income accrues to minor when definitively credited

The Tribunal ruled in favor of the assessee, holding that the interest income accrued to the minor when it was credited at the end of the year, not ... - Issues:- Inclusion of interest income in the hands of the assessee under provisions of s. 64(1)(v) of the IT Act, 1961.Detailed Analysis:1. The appeal pertains to the assessment year 1976-77 where the AAC upheld the ITO's decision to include interest income of Rs. 4,758 within the provisions of s. 64(1)(v) of the IT Act, 1961. The interest income in question arose from an insurance policy in the name of a minor, which matured after the minor attained majority. The ITO included the interest income accrued up to the date of majority in the hands of the assessee, who was the minor's mother. The assessee contended that since the interest income was credited at the end of the accounting year when the minor was major, it should not be included in her hands.2. The assessee argued that interest income accrues when it is credited in the books, and before that, no definite amount can be claimed. Citing legal precedents such as the case of E.D. Sassoon & Co. Ltd. and others vs. CIT, Bombay, the assessee's counsel emphasized that the entire interest income had arisen to the minor at the end of the year when it was credited, and therefore should not be included in the hands of the assessee. The Tribunal agreed with this argument and held that the interest income had indeed accrued to the minor at the end of the year, rejecting the Revenue's contention that interest income accrues day to day.3. Relying on the legal principles established in the cited cases, the Tribunal concluded that the entire interest income of Rs. 6,121 had arisen to the minor when it was credited at the end of the year, and not during the accounting year. Consequently, the Tribunal allowed the assessee's appeal and excluded Rs. 4,785 from the assessment of the assessee. The decision was based on the understanding that interest income accrues when it is definitively credited, rather than on a day-to-day basis.4. In summary, the Tribunal's decision focused on the timing of the accrual of interest income in relation to the minor's status as a major at the end of the accounting year. By applying legal precedents and principles related to income accrual and crediting in the books, the Tribunal ruled in favor of the assessee, emphasizing that the interest income should be attributed to the minor when it was actually credited, leading to the exclusion of a portion of the interest income from the assessee's assessment.