2019 (1) TMI 1342 - HC - Income Tax

Accrual of income - Interest income based on the tax deduced at source (TDS) effected for the broken period - constructive receipt - assessee contended that as per the terms and conditions of the term deposit, the right to receive the interest and the principal would get crystallized at the end of the term of the respective deposits and the assessee has offered the interest income of the respective deposits on the maturity/end of the term of such deposits which happened to be the subsequent assessment year - Held that - The matter requires fresh examination, in the light of the fact that the amount which have been matured along with interest had been offered to tax during different period for the assessment years 2012-13 and 2011-12. Though this aspect was pointed out to the Tribunal by way of the Miscellaneous Petition, the Tribunal pointed out that this mistake pointed out by the assessee is not apparent on the record to revise the order of the Tribunal by following the decision of this Court in the case of Express Newspapers Ltd. Vs. DCIT 2009 (11) TMI 15 - MADRAS HIGH COURT . The above reconciliation given by the assessee, in our considered view, needs to be looked into because the matured amount along with interest has been offered to tax during the relevant assessment year. Thus for the above reason we are inclined to remand the matter to the Assessing Officer for fresh decision - Appeal of the assessee is allowed for statistical purposes.

Summary

Issues:
1. Appeal against assessment of interest income based on TDS.
2. Interpretation of terms and conditions of deposits for tax purposes.
3. Reckoning income under cash system of accounting and accrual system.
4. Constructive receipt theory and right to receive interest.
5. Reconciliation of matured amount offered for tax in different assessment years.
6. Tribunal's decision and remand to Assessing Officer for fresh decision.

Analysis:
1. The appellant filed appeals challenging the assessment of interest income based on TDS for the broken period up to the end of the financial year. The appellant argued that the Assessing Officer and Commissioner overlooked the terms and conditions of deposits, especially fixed deposits, and the method of accounting followed for tax purposes.

2. The appellant contended that the right to receive interest on term deposits only crystallizes at maturity, and the concept of income recognition differs from the liability to deduct TDS. The liability to deduct TDS should arise statutorily at the time of interest payment or credit, as per Section 194A of the Income Tax Act.

3. The appellant argued that the interest credited to the suspense account should not be considered as income under both cash and accrual systems of accounting until the maturity of the deposit. The right to receive interest is postponed until maturity, and there is no right to withdraw the amount during the deposit term.

4. Emphasizing that the crediting of interest to the suspense account does not constitute constructive receipt, the appellant asserted that income recognition should align with the terms of the deposit. The right to receive interest should be postponed until maturity, as per the contracted terms and conditions.

5. The appellant presented a reconciliation statement showing that the matured amount with interest had been offered for tax in different assessment years. The High Court noted this discrepancy and decided to remand the matter to the Assessing Officer for a fresh decision.

6. Consequently, the appeal was allowed, and the matter was remanded to the Assessing Officer for reconsideration. The Assessing Officer was directed to review the reconciliation provided by the appellant and make a fresh decision in accordance with the law. The Substantial Questions of Law were left open for further consideration.