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TMI Blog1995 (2) TMI 148X X X X Extracts X X X X X X X X Extracts X X X X ..... t. A sum of Rs. 93,040 was also awarded as interest for the period from 1-2-1988 to 31-5-1989 in accordance with the provisions of sec. 132B(4) of the Act which was paid by cheque on 26-61989. 4. The assessee declared the following income for each of the three years : 1988-89 1989-90 1990-91 Rs. Rs. Rs. 1. Interest on I.T. -- 1,148 1,692 refund 2. Profit on sale of generator -- 104 --- ------------- ----------------- ---------------- 3. Proportionate interest on income-tax refund 11,293 67,755 11,292 11,293 69,007 12,984 5. Against the above income the assessee also claimed certain deductions towards expenditure, the details of which are as under : 1988-89 1989-90 1990-91 (i) Interest on borrowed Rs. Rs. Rs. capital 77,762 -- -- (ii) Bank charges 1,835 405 64 (iii) Legal expenses -- 1,700 4,050 (iv) Loss on sale of furniture -- 391 -- (v) Employees' provident fund -- -- 10,471 ------------- ------------ ------------- 79,597 2,496 14,585 6. The A.O. was of the view that the interest amount awarded to the assessee on the seized amount was taxable in the assessment year 1990-91 since the order under section 132(12) as also the interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the decision of the Hon'ble Rajasthan High Court in the case of CIT v. Gambhir Mal Pandya [1986] 160 ITR 903. The A/C further fortified his view on account of the provisions of sub-section (3A) of section 176 of the Act which says that where any business is discontinued in any year, any sum received after the discontinuance shall be deemed to be the income of the recipient and charged to tax accordingly in the year of receipt, if such sum would have been included in the total income of the person who carried on the business had such sum been received before such discontinuance. Being aggrieved with the finding and conclusion of the A/C, the matter thus rests with us by way of second appeal. 7. The assessee's counsel, Shri S. B. Saboo filed a written submission and relied upon the decisions referred therein and pleaded for allowing the appeals filed by the assessee. The departmental representative, Smt. Lekha Kumar, on the other hand, submitted that the appeals had no merit and deserved to be dismissed as the A/C has given very valid and cogent reasons for agreeing with the A.O. 8. We have given our anxious consideration to the submission made before us by the ld. representativ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed and fully explained and was not liable for seizure on the search days nor was lawfully required to be retained in pursuant to an order passed under section 132(5) of the Act. In such a case the appropriate course would be to order release and refund of the seized amount and award interest as statutorily laid down in sec. 132B(4) of the Act. This is what the ITC precisely did. The intention of the Legislature is amply clear in enacting sec. 132B(4) that those persons should be compensated, by way of interest whose assets have, been seized and retained contrary to law. Had the Search Party or the Authorised Officer not seized the sum of Rs. 4,51,700 from the assessee on the search day, then the assessee would have invested such sum and earned some income or it could have perhaps utilised the said seized sum for business purposes and would have earned some income, gains or profits which in turn would have been offered and subjected to tax in accordance with the provisions of the I.T. Act, 1961. When such income which could have been earned on the seized amount can be taxed on accrual basis, we fail to understand why the interest awarded to the assessee on the said seized sum of Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat amount. The further fact that the amount of income is not subsequently received by the assessee would also not detract from or efface the accrual of the income, although the non-receipt may, in appropriate cases, be a valid ground for claiming deductions. The accrual of an income is not to be equated with the receipt of the income. That the two, accrual and receipt of income, have different connotations is also from the language of section 4 of the Act. Clause (a) of sub-section (1) of section 4 of the Act deals with the receipt of income while the accrual of income is dealt with in clause (b) of that sub-section." 12. In CIT v. Hira Lal Mittal Sons [1972] 86 ITR 463, a Bench of Allahabad High Court has expressed the view that the method of accounting is not relevant if the accrual of income is by operation of law. In that case, there was a decree passed by a civil court in a sum of Rs. 68,454 against the Government for breach of a contract. The decree amount was realised in the year 1950 along with interest. The amount realised and the interest earned thereon were all credited in the same account of the assessee. The assessee showed the receipt in its return and was taxed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt. On a reference, Madras High Court held that the amount should be treated as income, and remitted the matter to the Tribunal to decide the other question regarding apportionment of the same. The decision of the Court was ultimately upheld by the Supreme Court on a further appeal by the assessee. Thereafter, the Tribunal went into the question of apportionment and held that the amount would have to be allocated to the two years in which the amounts were received, viz., 1955-56 and 1956-57. The Court, however, disagreed with the view taken by the Tribunal and held that the liability to pay interest would arise when the compensation amount due to the assessee had not been paid in each of the relevant years and the method of accounting of the assessee being mercantile, the accrual of interest would have to be spread over the years between the date of acquisition and the date of actual payment. This decision of the Madras High Court was also affirmed by the Supreme Court in the case of CIT v. T. N. K. Govindarajulu Chetty [1987] 165 ITR 231 and again in the case of Rama Bai v. CIT [1990] 181 ITR 400. 14. The Madras High Court again in the case of CIT v. M. K. KR. Muthukaruppan Chet ..... X X X X Extracts X X X X X X X X Extracts X X X X
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