1990 (2) TMI 120 - AT - Income Tax

Summary

Issues Involved:
1. Taxability of interest received on refund of estate duty.
2. Nature of the receipt (capital vs. revenue).
3. System of accounting followed by the assessee (cash vs. mercantile).
4. Assessment year in which the interest is taxable.
5. Charging of interest under Section 215 of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Taxability of Interest Received on Refund of Estate Duty:
The assessee received Rs. 3,93,925 as interest on the refund of estate duty overcharged by the Deputy Controller of Estate Duty. The Income Tax Officer (ITO) brought this amount to tax, which was confirmed by the Commissioner of Income Tax (Appeals) [CIT(A)]. The assessee contended that the amount was a capital receipt and not taxable. The ITO, relying on Supreme Court decisions in RM. AR. AR. Ramanathan Chettiar v. CIT and CIT v. Kamal Behari Lal Singha, rejected the claim and taxed the interest as revenue receipt.

2. Nature of the Receipt (Capital vs. Revenue):
The assessee argued that the interest received was a capital receipt based on the Supreme Court decision in RM. AR. AR. Veerappa Chettiar. However, the tribunal held that the interest on estate duty accrued as income to the joint family and was not a capital receipt. The tribunal distinguished the Veerappa Chettiar case, noting that it involved a fully partitioned HUF, whereas the assessee's case involved only a partial partition, and the HUF still existed.

3. System of Accounting Followed by the Assessee (Cash vs. Mercantile):
The assessee argued that it followed the mercantile system of accounting, which would spread the interest income over the period from 1958 to 1973. However, the tribunal found that the assessee had declared a cash system of accounting in the income tax returns for the assessment years 1974-75 and 1981-82. The tribunal noted that the return of income is a verified document, and the assessee had consciously indicated the cash system. Therefore, the tribunal concluded that the assessee followed the cash system of accounting.

4. Assessment Year in Which the Interest is Taxable:
The assessee contended that even if the interest was taxable, it should pertain to the assessment year 1981-82, as the refund voucher was prepared on 25-3-1981. The tribunal rejected this argument, stating that the interest was received in the accounting year relevant to the assessment year 1982-83 (17-4-1981 to 5-4-1982). The tribunal held that the interest income was chargeable to tax in the assessment year 1982-83, as the assessee followed the cash system of accounting and received the interest during this period.

5. Charging of Interest Under Section 215 of the Income Tax Act:
The assessee argued that interest under Section 215 should not be charged, as it was under a bona fide belief that the interest amount was not taxable. The tribunal found no merit in this argument, citing the Supreme Court decision in Central Provinces Manganese Ore Co. Ltd. v. CIT, which upheld the chargeability of interest under Section 215. The tribunal also referred to the Rajasthan High Court decision in CIT v. Golcha Properties (P.) Ltd., which did not apply to the assessee's case as it was not under liquidation and was liable to file an estimate of advance tax.

Conclusion:
The tribunal dismissed the appeal, holding that the interest amount of Rs. 3,93,925 was taxable as revenue receipt in the assessment year 1982-83. The tribunal also upheld the chargeability of interest under Section 215.