1984 (6) TMI 105

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....business. The original assessment was completed on 31-12-1974. This was reopened and a reassessment was made in which an addition was made of a sum of Rs. 41,250 as interest on securities. This was comprised of Rs. 33,062.50, Rs. 4,750 and Rs. 3,437.50 being interest at the rate of 5 3/4 per cent on K.S.D. Loan, 4 3/4 per cent on K.S.D. Loan Bonds and 5 1/2 per cent on K.S.D. Loan Bonds, respectively. The interest amounts had accrued during the period when the assets were held by the Government and was not, therefore, taxable. The amounts were brought to tax by the ITO in the reassessment by resorting to section 18(2) of the Income-tax Act, 1961 ('the Act'). 3. The Commissioner (Appeals) held that section 18(2) is not attracted in the pr....

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....terest on securities received by him in a previous year if such interest had not been charged to income-tax for any earlier previous year." Sub-section (2) provides that interest on securities received by an assessee in the previous year can be charged to tax if such interest had not been charged to tax for any earlier previous year. The purpose of the section is to tax the interest amount on receipt basis when it had not been taxed on accrual basis. This presupposes that the amount could have been taxed either in the earlier previous year or in the previous year. Sub-section (2) does not seem to cover a case where the interest was not chargeable to tax at all when it accrued due and where it could have been charged to tax in a subsequen....