9911796707
TMI Blog1990 (2) TMI 120X X X X Extracts X X X X X X X X Extracts X X X X ..... state Duty for grant of interest u/s 64(7) of the E.D. Act on the excess duty refunded on 28-2-1973. That application was rejected. The assessee again approached the Hon'ble Rajasthan High Court, who ordered vide their order dated 20th July, 1979 that assessee should be paid such interest as the Controller may allow u/s 64(7) of the E.D. Act. The assessee finally received the amount of the interest amounting to Rs. 3,93,925 as a consequence of order of CED/CIT Jodhpur dated 12th February, 1981. As per information supplied to us by the ld. A/R for the assessee, the refund voucher was prepared on 25-3-1981 but it was actually delivered to the assessee on 24-4-1981. Assessee's accounting year is Chaitsudi 12, which for the assessment year 1982-83 corresponds with the accounting period starting from 17-4-1981 to 5-4-1982. The assessee, as per the copy of account filed before us, credited the account of M/s Sampatram Budhmal Dugar with this amount of Rs. 3,93,925 in this previous year, which is relevant for the assessment year 1982-83. While filing its Income-tax Return, the assessee appended a note along with the computation of income to the following effect : " A refund of Rs. 3,93, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been argued that it is a capital receipt and is not taxable at all. Alternatively it is argued that even if it is taken to be revenue receipt, since assessee's system of accounting is mercantile and since the interest pertains to the period 1958 to 28th February, 1973, it accrued during that period and is not chargeable in the assessment year 1982-83. Lastly, it has been argued that even if none of the arguments of the assessee are accepted, since this refund voucher was prepared on 25-3-81, which finally quantified the amount of interest to be received by the assessee, at the most it may be said to pertain to the assessment year 1981-82 and is not chargeable in the assessment year 1972-73. The ld. counsel has referred to a large number of decisions to support his arguments. 7. Regarding the first and main argument of the assessee that it is a capital receipt, the ld. counsel has again referred to the decision of the Hon'ble Supreme Court in the case of RM. AR. AR. Veerappa Chettiar, and has argued that the decision of the Hon'ble Supreme Courtin the case of RM. AR. AR. RM. AR. AR. Ramanathan Chettiar, was given on different facts and different arguments and, in fact, the la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was cash and on that basis the amount of interest received by the assessee has to be assessed in this assessment year. He referred to the original income-tax returns filed by the assessee and pointed out that for the assessment year 1974-75 in the space provided to indicate the system of accounting, the assessee had crossed over the systems mentioned as " mercantile " and " mixed " and had ticked the system " cash ". Similarly, for the assessment year 1981-82 i.e., the assessment year immediately preceding the assessment year under consideration in the Annexure 'D' Sub-part 'A' Col. 5 6 the assessee had ticked the " cash " system of accounting as the one followed by him. He submitted that for the assessment year under consideration the Income-tax forms were modified and thus year no such column was provided and hence it had to be presumed that assessee had continued to follow the cash system of accounting, which it had declared it was following, last year, i.e., 1981-82 assessment year. The ld. D/R also referred to the findings given by the ld. CIT(A) on pages 14 15 of his order while dealing with Grounds No. 1 2 and the submissions made on behalf of the assessee as well as t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erused the material on record. However, we are of the opinion that the case of the assessee fails. So far as the assessee's first objection that it is a capital receipt is concerned, we are of the opinion that the arguments advanced by the ld. D/R are fully justified and that assessee's reliance on the case of Veerappa Chettiar is not on a sound footing. For this purpose, we would quote from the decision of the Hon'ble Supreme Court in the case of RM. AR. AR. Veerappa Chettiar itself, the case relied upon by the ld. A/R for the assessee :-- " Even after the death of the sole male member, so long as the property which was originally of the joint Hindu family remains in the hands of the widows of the members of the family and is not divided among them, the joint family continues. Payment of the estate duty was doubtless made out of the joint family fund and the interest which accrued due also acquired the character of joint family property when received. The Joint family status came to an end only on February 17, 1947. On the severance of the joint status the assessee became entitled to a share in the family estate. The amount of interest on the estate duty accrued as income to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was following cash system of accounting. The chart filed by the ld. counsel for the assessee for the years 1956 to 1971 may indicate that the assessee might have followed mercantile system yet the years which become relevant i.e., after 28-2-1973 when the refund of estate duty was given to the assessee, the assessee positively followed cash system of accounting and that is why for the assessment year 1974-75, the record of which is available, the assessee positively and consciously indicated in the return of income that it was following cash system of accounting and not mercantile or mixed system of accounting. Again for the assessment year 1981-82, the Income-tax return of which was made available before us, the assessee consciously and positively showed that it was following cash system of accounting and not mercantile or mixed system of accounting. We attach a lot of weight to the argument of the learned D/R that the return of income is a document which is verified on oath by the assessee and it cannot be taken lightly particularly when the entries, which are made show that the assessee had applied its mind by striking out the items " mercantile and mixed " and had ticked " cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agree with the argument of the ld. D/R that even if the argument of the assessee is accepted that it had followed mercantile system of accounting, since the assessee could know the exact quantification only when it actually received the refund voucher in this year and which it accounted for this year in its books of accounts, it would be treated as assessee's income of this year itself, just as credit notes and debit notes are accounted for only when they are received even by those assessees who follow mercantile system of accounting. 15. So far as the argument of the ld. counsel regardig including the interest on FDRs of the bank in the income of the assessee on accrual basis is concerned, we find that this fact goes against the assessee because assessee himself had not shown this amount in its income on accrual basis and intended to show it only on receipt basis when he should have actually received the interest on the bank FDRS. However, as mentioned in the assessment order, the assessee offered it for taxation on the ground that the government had notified that the interest on FDRs may be taxed on accrual basis. In this way, it is apparent that although assesesee's system of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty over charged by the Dy. Controller of Estate Duty. 2. Brief facts of the case are that Shri Budhmal Dugar adoptive father of the appellant expired on 17th March, 1954. The Dy. Controller of Estate Duty assessed an amount of Rs. 6,03,926 as estate duty payable on his estate by his order dated 30th October, 1958. The assessee challenged the assessment and finally the Hon'ble Rajasthan High Court decided on 30th November, 1971 that only 1/3rd share of the family properties would be deemed to have passed on the death of the deceased. Accordingly, the assessee became entitled to receive a refund of Rs. 4,66,184, which he received on 28-2-1973. Thereafter, the assessee applied to the Controller of Estate Duty for grant of interest u/s 64(7) of the E.D. Act on the excess duty refunded on 28-2-1973. That application was rejected. The assessee again approached the Hon'ble Rajasthan High Court, who ordered vide their order dated 20th July, 1979 that assessee should be paid such interest as the Controller may allow u/s 64(7) of the E.D. Act. The assessee finally received the amount of the interest amounting to Rs. 3,93,925 as a consequence of order of CED/CIT Jodhpur dated 12th February, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tinguished the case of CIT v. RM. AR.AR. Veerappa Chettiar [1970] 76 ITR 467 (SC) relied upon by the assessee. Regarding the claim that the interest was to be charged on accrual basis from year to year, the ITO pointed out that the assessee had shown interest on receipt basis and, thus, he charged the entire amount to tax. 5. The assessee met no success before the CIT(A) who, after mentioning the facts in detail and also discussing in detail the arguments advanced from both the sides so also the case law relied upon on behalf of the assessee, upheld the decision of the ITO. 6. In the appeal before us, the arguments of the ld. counsel for the assessee are on three bases. In the first instance it has been argued that it is a capital receipt and is not taxable at all. Alternatively it is argued that even if it is taken to be revenue receipt, since assessee's system of accounting is mercantile and since the interest pertains to the period 1958 to 28th February, 1973, it accrued during that period and is not chargeable in the assessment year 1982-83. Lastly, it has been argued that even if none of the arguments of the assessee are accepted, since this refund voucher was prepared on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itted that the order of the CED was passed on 12-2-1981 and at best it could be assumed that it was at that point of time that the interest accrued. He submitted that even the refund voucher was prepared calculating the interest upto 28-2-1973 on 25-3-1981 but only the delivery of the refund voucher was given on 24-4- 1981, which falls in this assessment year. In these circumstances, according to the learned counsel, if at all this interest could be charged to tax it should be spread over from 1958 to 1973 but it could not be charged to tax in the assessment year 1982-83, i.e., the year under consideration. 9. The ld. D/R, on the other hand, vehemently argued that assessee's system of accounting was cash and on that basis the amount of interest received by the assessee has to be assessed in this assessment year. He referred to the original income-tax returns filed by the assessee and pointed out that for the assessment year 1974-75 in the space provided to indicate the system of accounting, the assessee had crossed over the systems mentioned as " mercantile " and " mixed " and had ticked the system " cash ". Similarly, for the assessment year 1981-82 i.e., the assessment year imm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me-tax return should not go against the assessee. He argued that the details submitted before the ITO, the CIT(A) and also before us show that assessee's system of accounting is cash. He pointed out that the ITO has assessed interest of Rs. 3,000 on bank FDRs on mercantile basis and if the ITO really believed that assessee's system of accounting was cash, the interest on FDRs should not have been taxed this year. He submitted that this shows that the ITO himself had accepted that assessee's system of accounting was mercantile and hence this amount cannot be taxed in the assessment year under consideration. 13. We have carefully considered the arguments advanced from both the sides and have also perused the material on record. However, we are of the opinion that the case of the assessee fails. So far as the assessee's first objection that it is a capital receipt is concerned, we are of the opinion that the arguments advanced by the ld. D/R are fully justified and that assessee's reliance on the case of Veerappa Chettiar is not on a sound footing. For this purpose, we would quote from the decision of the Hon'ble Supreme Court in the case of RM. AR. AR. Veerappa Chettiar itself, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich Shri Jhabarmal Dugar is the Karta still exists and as per the observations of the Hon'ble Supreme Court quoted above, interest on the estate duty accrued as income to the joint family. In these circumstances, the argument on behalf of the assessee that it was a capital receipt and not a revenue receipt, has no force and is rejected. 14. Regarding the alternate arguments of the assessee also that even if it is a revenue receipt, it is not taxable in this year, our opinion is against the assessee. The facts show that the assessee might have followed some mercantile system long time back but atleast in the assessment years 1974-75, 1981-82 and the assessment year under consideration the assessee was following cash system of accounting. The chart filed by the ld. counsel for the assessee for the years 1956 to 1971 may indicate that the assessee might have followed mercantile system yet the years which become relevant i.e., after 28-2-1973 when the refund of estate duty was given to the assessee, the assessee positively followed cash system of accounting and that is why for the assessment year 1974-75, the record of which is available, the assessee positively and consciously indic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ipt. All these factors show that it is only an after-thought that the assessee wants to argue that even if it is a revenue receipt, it had accrued a long time back, i.e., upto 28-2-1973 and on that basis it is not taxable this year. The genuineness of assessee's conduct in this regard is further disbelieved on account of the fact that if the assessee really thought it was accruing to the assessee on mercantile basis the assessee should have been making relevant entries in its books of accounts ever since it was claiming that the amount of estate duty claimed by the department is not payable by it and the assessee is entitled to the interest on the excess amount of estate duty paid by it. We further agree with the argument of the ld. D/R that even if the argument of the assessee is accepted that it had followed mercantile system of accounting, since the assessee could know the exact quantification only when it actually received the refund voucher in this year and which it accounted for this year in its books of accounts, it would be treated as assessee's income of this year itself, just as credit notes and debit notes are accounted for only when they are received even by those asses ..... 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