Accrual of interest income turns on the original right to receive it, even if later regularised administratively.

Interest on National Plan Savings Certificates was held to accrue from the time the original investment was made, because the right to receive interest existed from inception and a later Government order merely regularised the investment and fixed the rate on excess holdings. The administrative regularisation did not create a fresh right to income; it only affected the quantification of interest. Accordingly, the interest was assessable year by year in the relevant assessment years on an accrual basis, rather than being taxed wholly in the year of regularisation.

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Issues: Whether the interest received on the National Plan Savings Certificates was taxable entirely in the year in which the Government regularised the investment, or whether it accrued year by year and was assessable in the respective assessment years.

Analysis: The investment in the certificates was made on behalf of the assessee during minority under court orders and was intended to earn income for his benefit. The Government's order of 5-4-1974 did not create a fresh right to receive interest for the first time; it only regularised the investment and fixed the rate of interest payable on the excess holdings. The right to receive interest existed from the time the money was invested, and the later departmental objection only affected the rate and quantification, not the existence of the right. On this basis, the interest had to be related to the years during which it accrued, consistent with the principle that income is taxable when the right to receive it arises and, where appropriate, spread over the relevant years.

Conclusion: The interest was not assessable in a single year on the footing that the right arose only on 5-4-1974; it was assessable year by year in the respective assessment years. The assessee succeeded and the revenue's appeals failed.

Ratio Decidendi: Where the taxpayer's right to receive interest exists from the original investment and a later or administrative order merely regularises the arrangement or fixes the rate of interest, the income accrues from the time the right first arises and must be assessed on accrual basis over the relevant years.

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