1992 (1) TMI 16 - HC - Income Tax

Income From House Property Interest Income Lease Rent Mercantile System Other Sources Transfer Of Property

Summary

Issues:
1. Assessment of interest income on accrual basis
2. Assessment of lease rent on accrual basis
3. Deduction on account of share of compensation paid to trust
4. Deduction on account of repair cess while computing income

Analysis:

1. The court addressed the issue of assessing interest income on accrual basis. The assessee had sold a portion of her property with unpaid consideration carrying interest. The Income-tax Officer taxed the interest on accrual basis for certain years. The Tribunal, however, disagreed and held that the interest income falls under the head "Other sources" and that the assessee's accounting method did not warrant accrual basis taxation. The court, citing a previous judgment, ruled in favor of the assessee, stating that interest income could not be taxed on accrual basis.

2. Regarding the assessment of lease rent on accrual basis, the Income-tax Officer added the lease amount to the income despite no actual receipt from the lessee. The Tribunal overturned this decision, emphasizing that the income falls under "Other sources," and the assessee's accounting practices did not support accrual basis taxation. Citing a prior judgment, the court held that the lease rent could not be taxed on accrual basis, aligning with the Tribunal's decision.

3. The issue of deduction on account of share of compensation paid to the trust was also considered. The assessee had sold her share in a building to a trust and paid compensation for the delay in transfer. The Income-tax Officer disallowed the deduction under "Income from house property." The court held that the liability for compensation was personal and did not create a superior title, thus rejecting the deduction claim in favor of the Revenue.

4. Lastly, the court examined the deduction claim for repair cess. The assessee sought a deduction for repair cess for a specific assessment year, which the Income-tax Officer denied. The court ruled that repair cess is payable to the State Government and falls under relevant tax deduction sections. Therefore, the repair cess was deemed deductible from the income from house property. The court decided in favor of the assessee on this issue.

In conclusion, the court answered the questions as follows: Question 1 and 2 in favor of the assessee, Question 3 in favor of the Revenue, and Question 4 in favor of the assessee, with no order as to costs.