2012 (9) TMI 521 - SCH - Income Tax

Interest income arising on the difference between purchase price of the debenture and redemption price after six years - Taxation on interest income on accrual basis in the year of allotment of debenture itself or to be taxed on spread-over basis - Held that - The case of Taparia Tools Limited vs. JCIT 2003 (1) TMI 83 - BOMBAY HIGH COURT refers to matching principle in order to arrive at the real income of the assessee wherein it is held that in this case as concerning with the ascertainment of true profits under the Income-tax Act and in order to ascertain such profits the true accounting principles need to be followed and to apply those principles in the light of the method of accounting followed by the assessee. As find from the records that the assessee has computed his interest income arising on the difference between purchase price of the debenture and redemption price after six years and calculated the income on amortization basis - the civil appeals filed by the assessees allowed.

Summary

The Supreme Court, in a judgment regarding interest income on debentures, ruled that the income should be taxed on a spread-over basis rather than on accrual basis. The Court referred to the matching principle and set aside the High Court's order, restoring the Income Tax Appellate Tribunal's decision. The civil appeals filed by the assessees were allowed.