1996 (2) TMI 172 - AT - Income Tax

Assessee s Appeal Assessing Officer Assessment Year Cash Basis Cash System Tax At Source Tax Deducted At Source Total Income Tribunal s Order

Summary

Issues Involved:
1. Taxability of interest income and commission from M/s. Somaiya Organo Chemicals Ltd.
2. Method of accounting (cash basis vs. accrual basis).
3. Protective basis taxation.
4. Credit for tax deducted at source (TDS).

Issue-Wise Detailed Analysis:

1. Taxability of Interest Income and Commission from M/s. Somaiya Organo Chemicals Ltd.
The primary issue revolves around the taxability of interest income and commission received by the appellant from M/s. Somaiya Organo Chemicals Ltd. The appellant argued that these incomes should be taxed on a cash basis, in line with the method of accounting they had adopted, which was accepted by the Tribunal for the assessment year 1980-81. The amounts involved for various years were as follows:
- A.Y. 1983-84: Interest income Rs. 2,37,633
- A.Y. 1984-85: Interest income Rs. 1,37,572; Commission Rs. 60,000
- A.Y. 1985-86: Commission Rs. 1,80,000; Interest Rs. 1,74,200
- A.Y. 1986-87: Interest Rs. 1,88,748; Commission Rs. 1,45,500

The CIT(A) did not follow the Tribunal's earlier decision and held that the income should be taxed on an accrual basis. However, the Tribunal reaffirmed its earlier decision, stating that the appellant's method of accounting on a cash basis should be respected unless there are weighty reasons to deviate from it. The Tribunal cited the Supreme Court's decision in CIT v. A. Krishnaswami Mudaliar [1964] 53 ITR 122, which supports the appellant's choice of accounting method.

2. Method of Accounting (Cash Basis vs. Accrual Basis)
The Tribunal emphasized that under Section 145 of the Income Tax Act, the choice of the method of accounting lies with the assessee. The CIT(A) argued that the cash system of accounting could indefinitely postpone the taxability of income, but the Tribunal disagreed, stating that the method of accounting should be consistent and uniformly followed. The Tribunal cited the Supreme Court's decision in CIT v. Chunnilal V. Mehta & Sons P. Ltd [1935] 82 ITR 54, which supports the assessee's right to choose their accounting method.

3. Protective Basis Taxation
The appellant contended that certain amounts of commission should not be taxed on a protective basis as they were already taxed on an accrual basis in the previous year (A.Y. 1982-83). The Tribunal rejected this argument, stating that the assessment year 1982-83 was not under consideration. The Tribunal held that the commission income should be taxed on a cash basis for the years under consideration, as the appellant had consistently followed this method of accounting.

4. Credit for Tax Deducted at Source (TDS)
The appellant argued that credit for TDS should be given for various years, even if the relevant income was not included in the total income for those years. The CIT(A) denied this credit, but the Tribunal overruled this decision, citing Section 199 of the Income Tax Act as it stood at the relevant time. The Tribunal held that TDS credit should be given in the assessment made for the immediately following assessment year, irrespective of the inclusion of the relevant income in the assessment. The amounts involved were:
- A.Y. 1983-84: Rs. 37,702
- A.Y. 1984-85: Rs. 13,753
- A.Y. 1985-86: Rs. 17,492
- A.Y. 1986-87: Rs. 18,869

Conclusion
The Tribunal upheld the appellant's method of accounting on a cash basis for taxing the interest and commission income from M/s. Somaiya Organo Chemicals Ltd. It also directed that credit for TDS should be given as per the provisions of the Income Tax Act during the relevant period. The Tribunal's decision was based on established legal principles and previous judicial precedents, ensuring consistency and fairness in the assessment process.