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Issues:
Interpretation of taxability of interest income arising from family deposits under the mercantile system, determination of the year in which the interest income accrued, significance of preliminary decree vs. final decree in settling disputes, applicability of the receipt basis for assessing interest income, correctness of re-opening assessment under section 147(a). Analysis: The case involved appeals by both the assessee and the Revenue against the order of the CIT(A) for the assessment year 1964-65 regarding the taxability of interest income from family deposits. The dispute centered around a sum of Rs. 64,900 received by the assessee from a company as interest, following a legal battle initiated by the assessee for the return of debentures and promissory notes. The CIT(A) held that the interest income should be assessed on a receipt basis rather than under the mercantile system, as it did not arise from the money lending business. The CIT(A) directed the ITO to determine the amount received as interest during the relevant financial year for assessment. Both parties contended before the Tribunal that the interest income should not be assessed on a receipt basis, contrary to the CIT(A)'s decision. The Tribunal found that the interest income accrued year to year and should have been spread over the years in which it accrued. The Revenue argued that the final decree, not the preliminary decree, determined the taxability of the income. However, the Tribunal disagreed, emphasizing the binding nature of the preliminary decree and its role in settling disputes. The Tribunal concluded that the interest income was not assessable in the year under appeal, as it was settled by the preliminary decree much earlier. The Tribunal rejected the Revenue's argument that the income should be assessed in the year of the final decree, as the dispute was resolved by the preliminary decree. The Tribunal also clarified that the assessee did not admit to the income being assessable in the previous year relevant to the assessment year 1965-66. Ultimately, the Tribunal allowed the assessee's appeal and dismissed the Revenue's appeal, indicating that the impugned income was not assessable in the year under appeal. In conclusion, the Tribunal's decision favored the assessee by accepting that the interest income from family deposits should not be assessed in the year under appeal and rejecting the Revenue's arguments regarding the taxability of the income based on the final decree. The Tribunal upheld the preliminary decree as determinative of the taxability of the interest income, emphasizing the significance of the timing of the legal proceedings in resolving the tax dispute.
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