1989 (4) TMI 130 - AT - Income Tax

Summary

Issues Involved:
1. Accrual of interest income.
2. Rate of interest to be applied.
3. Period of interest calculation.

Detailed Analysis:

1. Accrual of Interest Income:
The primary issue is whether the interest income accrued to the assessee during the accounting period ending on 31st Dec., 1980, relevant to the assessment year 1981-82. The assessee argued that the right to receive interest arose only after the court decree on 23rd May 1981, which was after the accounting period. The Civil Court initially decreed the interest at 15% per annum on 23rd May 1981, which was later modified by the Rajasthan High Court to 9% per annum on 14th Nov., 1983. The assessee contended that the interest should not be taxed during the year under consideration as the right to receive it accrued only after the court's decree.

2. Rate of Interest to be Applied:
The IAC (Asst) initially computed the interest at 15% per annum from the date of filing the suit (19th July 1979) to the end of the accounting period (31st Dec., 1980). However, the CIT (A) modified this rate to 9% per annum, aligning with the final decree of the Rajasthan High Court. The assessee's alternative contention was that if interest were to be charged, it should be at the modified rate of 9% per annum, not 15%.

3. Period of Interest Calculation:
The IAC (Asst) calculated the interest from 19th July 1979 to 31st Dec., 1980. The CIT (A) upheld this calculation but restricted the period to 31st Dec., 1980, relevant to the year under consideration. The dispute centered on whether interest for this period should be included in the assessee's total income for the assessment year 1981-82.

Judgment Analysis:

Accrual of Interest Income:
The Tribunal noted that the right to receive interest for the period subsequent to the institution of the suit depended on the court's discretion under Section 34 of the CPC. The assessee's right to receive interest accrued only when the court exercised its discretion and awarded interest on 14th Nov., 1983. The Tribunal referenced the Calcutta High Court's decisions in CIT vs. Bengal Jute Mills Co. Ltd. and CIT vs. Raigarh Jute Mills Ltd., which established that interest does not accrue as a matter of right after the suit is filed; it depends on the court's discretion.

Rate of Interest to be Applied:
The Tribunal agreed with the CIT (A)'s decision to apply the interest rate of 9% per annum, as decreed by the Rajasthan High Court. The initial rate of 15% per annum awarded by the trial court was modified by the High Court, and thus, the correct rate to be applied was 9%.

Period of Interest Calculation:
The Tribunal confirmed that the interest for the period from 1st Jan., 1980 to 31st Dec., 1980, did not accrue to the assessee in the previous year relevant for the assessment year 1981-82. The right to receive interest accrued only on 14th Nov., 1983, when the High Court passed its decree. Therefore, the interest for the period under consideration should not be included in the assessee's total income for the assessment year 1981-82.

Conclusion:
The Tribunal, after considering the submissions and legal precedents, concluded that the interest income did not accrue to the assessee during the accounting period ending on 31st Dec., 1980. The correct rate of interest to be applied was 9% per annum, as decreed by the Rajasthan High Court. The appeal was dismissed, and the CIT (A)'s order was upheld, confirming that no interest income should be included for the assessment year 1981-82.