1984 (11) TMI 35 - HC - Income Tax

Summary

Issues:
Whether the interest income of Rs. 21,912 in respect of money lying with the receiver appointed by the High Court and invested by him could be included in the assessee's total income liable for assessment in the assessment year 1971-72?

Analysis:
The case involved a reference under section 256(1) of the Income-tax Act, 1961, where the Tribunal referred the question of including interest income of Rs. 21,912 in the assessee's total income for assessment. The Appellate Assistant Commissioner initially ruled in favor of the assessee, stating that the interest income in question could not be included in the total income. The Department appealed to the Tribunal, which upheld the Appellate Assistant Commissioner's decision. The Tribunal emphasized that the receivers appointed by the High Court did not have the authority to invest the amounts received as loans with interest. The Tribunal concluded that the investments made by the receivers were unauthorized, and the assessee could not be held responsible for them. The Tribunal also highlighted that until the High Court decided the ownership of the amounts recovered by the receivers, the interest income could not be attributed to the assessee.

The Revenue argued that the income should have been included in the assessee's hands due to following the mercantile system of accounting. However, the assessee's advocate contended that the Tribunal's finding that the investments were unauthorized and the assessee was not responsible for them was not challenged. The High Court analyzed the situation, noting that the receivers were not authorized to make investments with the rents collected. The Court emphasized that income accrual depends on the actual realization of income, not just following an accounting method. It was determined that the assessee did not have a right to receive any part of the interest income earned by the receivers through unauthorized investments. The High Court agreed with the Tribunal's decision, stating that the interest income was earned by the receivers and subject to tax, pending a determination by the High Court. As there was no physical or legal receipt of the income by the assessee, the Tribunal's conclusion was deemed correct.

In conclusion, the High Court answered the referred question in the affirmative and in favor of the assessee, with no order as to costs. Judge R. N. Pyne concurred with the decision.