2001 (10) TMI 84 - HC - Income Tax

Summary

Issues Involved:
The issues involved in this case are:
1. Whether the entire interest accrued to the assessee during the accounting year is liable to be assessed in that year?
2. Whether the assessee's option to receive interest at a discounted rate affects the assessment of income?
3. Whether the decision and circulars relied on by the Tribunal are applicable to the case?

Comprehensive Details:

Issue 1:
The assessee opted for the discounted value option, receiving Rs.235 for every Rs.1,000 of face value, totaling Rs.2,11,500 during the relevant accounting year. The Assessing Officer held that since the entire interest accrued and was received by the assessee in the same accounting year, the entire income was taxable in that year. The Appellate Assistant Commissioner allowed the appeal, stating the income should be spread over three years. The Tribunal upheld this decision, leading to the appeal by the Commissioner of Income-tax.

Issue 2:
The court found that once the entire interest accrued to the assessee during the accounting year and was received by the assessee in the same year, the income is liable to be assessed in that year. The assessee's argument that the interest should be spread over three years was rejected based on the exercise of the option by the assessee and the actual receipt of income in the same accounting year.

Issue 3:
The court distinguished a previous case where a financial corporation claimed deduction of the entire discount in the accounting year, stating it was not applicable in this case. The court emphasized that the assessee in this case received interest income and exercised the option to receive it during the relevant accounting year, leading to the entire discounted interest accruing to the assessee.

Under section 145 of the Income-tax Act, the court held that the entire interest income received by the assessee is chargeable under "Income from other sources" as per the mercantile system of accounting. The substantial questions of law were answered in favor of the Revenue, setting aside the decisions of the lower authorities and restoring the decision of the Income-tax Officer. No costs were awarded in this matter.