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Issues Involved:
1. Validity of reassessment for the years 1950-51, 1951-52, and 1952-53. 2. Entitlement to interest on delayed refunds. 3. Basis for assessing interest income (accrual vs. receipt basis). Detailed Analysis: 1. Validity of Reassessment for the Years 1950-51, 1951-52, and 1952-53: The initial assessments for the years 1950-51, 1951-52, and 1952-53 were made treating the entity as an HUF. The assessee claimed a partition between Karuppan Chettiar and Muthukaruppan Chettiar, which was rejected by the ITO. However, the AAC later held that there was a complete partition, leading to the cancellation of the ITO's order. The ITO issued notices under Section 34 of the Indian I.T. Act to reassess the family of Muthukaruppan Chettiar for the said years. The High Court held the reassessment for 1952-53 valid but invalidated the assessments for 1950-51 and 1951-52. On appeal, the Supreme Court invalidated the reassessments for all three years. 2. Entitlement to Interest on Delayed Refunds: As a result of the Supreme Court's decision, taxes collected for 1950-51 and 1951-52 were refunded on June 16, 1971. Interest on the delayed refund from June 5, 1965, to June 16, 1971, amounted to Rs. 77,844, which was paid on September 24, 1971. The assessee sought to spread this interest over the years 1966-67 to 1972-73. 3. Basis for Assessing Interest Income (Accrual vs. Receipt Basis): The ITO assessed the entire interest income of Rs. 77,844 in the year of receipt, 1972-73. On appeal, the AAC held that interest should be assessed on an accrual basis from 1966-67 to 1972-73, not on receipt basis. The Revenue contended that the receipt basis should be adopted, citing that the assessee did not maintain any books of accounts or follow any system of accounting. The Tribunal upheld the AAC's decision, stating that the interest entitlement accrued from June 5, 1965, and should be spread over the relevant years. Legal Provisions and Precedents: - Section 244 of the I.T. Act mandates interest on delayed refunds if not granted within six months. - The Tribunal referenced several decisions, including CIT v. T.S.P.L.P. Chidambaram Chettiar, CIT v. Smt. Sankari Manickyamma, and CIT v. A. Gajapathy Naidu, to support the accrual basis. - The Tribunal also considered the factual circumstances and the statutory provisions, concluding that the accrual basis was appropriate. Court's Decision: The High Court affirmed the Tribunal's decision, agreeing that the accrual basis should be adopted. The court noted that the assessee had included the accrued interest in his returns for the relevant years, and adopting the receipt basis would result in double taxation. The court emphasized that the interest income accrued from June 5, 1965, to June 16, 1971, should be spread over the respective years. The reference was answered in the affirmative and against the Revenue, with costs awarded to the assessee.
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