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2023 (1) TMI 725 - HC - Income TaxAccrual of income - Income from interest on securities - Whether computed on accrual basis or on due basis? - HELD THAT - As held that interest can be said to have accrued only on the date on which it was due as per the terms and conditions of the security. When an instrument or an agreement stipulates interest to be payable at specified date, interest does not accrue to the holder thereof on any date prior thereto. Interest would accrue or arise only on the date specified in the instrument. Learned counsel for the appellant fairly submits that though in the body of the judgment there is no discussion on the issue as to the finding of the Bombay High Court that the interest income on securities has to be taxed on due basis, nonetheless, by the aforesaid decision, the appeals preferred by the revenue were dismissed. As in Commissioner of Income Tax v. State Bank of India 2016 (8) TMI 963 - BOMBAY HIGH COURT one of the substantial questions of law which was considered by the Bombay High Court was whether Tribunal was right in law in accepting the plea of the assessee that the interest income on the securities had to be taxed on due basis only instead of accrual basis as per the mercantile system of accounting followed by the assessee. Insofar this question is concerned, Bombay High Court referred to its previous decision in Credit Suisse First Boston (Cyprus) Limited 2012 (8) TMI 17 - BOMBAY HIGH COURT and held that issue stands concluded against the revenue and in favour of the assessee. We concur with the view expressed by the Bombay High Court in M/s. Credit Suisse First Boston (Cyprus) Ltd 2012 (8) TMI 17 - BOMBAY HIGH COURT followed by the decision in State Bank of India (2 supra). Decided in favour of the assessee.
Issues Involved:
1. Interpretation of Section 145 of the Income Tax Act, 1961 regarding computation of income from interest on securities on accrual basis or due basis. 2. Consideration of relevant judicial precedents in determining the method of computing interest income. 3. Assessment of whether interest income accrues only on the date specified in the instrument or agreement. 4. Application of the decisions of the Bombay High Court and the Supreme Court in similar cases to the present appeal. Analysis: 1. The primary issue in this case revolves around the computation of income from interest on securities, specifically whether it should be based on accrual or due basis. The appellant, State Bank of India, contested the order of the assessing officer, which held that interest income should be taxed on an accrual basis. The Tribunal also upheld this view, stating that interest accrued day-to-day and should be taxed accordingly. 2. The appellant raised substantial questions of law, questioning the Tribunal's decision based on various grounds. These questions included the interpretation of Section 145 of the Income Tax Act and the consideration of judicial precedents such as the Supreme Court's decisions in similar cases involving other banks. 3. The Bombay High Court's judgment in Director of Income Tax v. M/s. Credit Suisse First Boston (Cyprus) Limited provided significant guidance on the issue at hand. The High Court emphasized that interest only accrues on the date specified in the instrument or agreement, not prior to that date. This principle was reiterated in subsequent cases, including Commissioner of Income Tax v. State Bank of India, where the Court ruled in favor of taxing interest income on a due basis. 4. The Supreme Court's decision in Deputy Commissioner of Income Tax v. T.Jayachandran further reinforced the position that interest income on securities should be taxed on a due basis, aligning with the interpretations of the Bombay High Court. Despite the lack of detailed discussion in the Supreme Court's judgment, the dismissal of the appeals filed by the revenue supported the due basis taxation of interest income. 5. Ultimately, the High Court concurred with the precedents set by the Bombay High Court and upheld the due basis taxation of interest income for the appellant. The substantial questions of law were resolved in favor of the assessee, leading to the allowance of the appeal without costs and the closure of any related pending petitions.
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