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TMI Blog2010 (8) TMI 96X X X X Extracts X X X X X X X X Extracts X X X X ..... ntile system of accounting." 2. Briefly stated, the facts of the case are that the agricultural land belonging to Smt. Ganga Devi was acquired by the Haryana Urban Development Authority (HUDA) on 20.3.1989. Smt. Ganga Devi died on 24.11.1991 and the matter regarding enhancement of compensation was pursued by her son and sole legal heir Khushi Ram who received enhanced compensation amounting to Rs.38,64,062/- including interest of Rs.14,72,006/- on 29.9.1996 for the period from 20.3.1989 to 19.9.1995. Khushi Ram expired on 28.7.2000 leaving behind two sons, namely, S/Shri Karambir Singh and Sushil Kumar. A notice under Section 148 of the Act was served upon Karambir Singh legal heir of late Shri Khushi Ram who filed his return of income on 26.3.2002 declaring total income of Rs.89,300/- from the bank interest. During the course of assessment proceedings, the assessee pleaded that he received the interest amounting to Rs.14,72,006/- on 29.9.1996 pertaining to the period 20.3.1989 to 19.9.1995 on delayed payment of enhanced compensation and no interest accrued in the assessment year 1997-98. Out of the total interest receipts of Rs.14,72,006/-received from HUDA, he had declared inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t year 1997-98 or not. 6. We analyze the concerned provision first. Section 145 of the Act relates to method of accounting. Originally enacted, Section 145 provided that income under the head "profits and gains of business or profession" or "income from other sources" shall be computed in accordance with the method of accounting regularly followed by an assessee. Accordingly the assessee was entitled to choose any one of the following system of accountancy:- (a) cash or receipts system; or (b) mercantile or accrual system; or (c) mixed or hybrid system. 7. Finance Act 1995 with effect from 1.4.1997 relating to assessment year 1997-98 and subsequent years, substituted Section 145 which reads thus:- "145 (1). Income chargeable under the head "Profits and gains of business or profession" or "Income from other sources" shall, subject to the provisions of subsection (2), be computed in accordance with either cash or mercantile system of accounting regularly employed by the assessee. (2) The Central Government may notify in the Official Gazette from time to time accounting standards to be followed by any class of assessees or in respect of any class of income. (3) Where the Asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he head "Profits and gains of business or profession" or "Income from other sources", by notifying the same in official gazette. It may be noticed that the Central Government has issued notification No. S.O.69(E) dated 25.1.1996 published in [(1996) 218 ITR St. 1] in exercise of power under Section 145 (2) of the Act for assessees following mercantile system of accounting. 10. On plain reading of the said Section, it is concluded that prior to amendment by Finance Act, 1995 w.e.f. 1.4.1997, assessee had option of choosing any one of the method of accountancy, i.e. (a) cash system; (b) mercantile system or (c) hybrid or mixed system. However, after the amendment, as assessee has an option to adopt either cash system or mercantile system only. Therefore, income chargeable under the head "Profits and gains of business or profession" or "Income from other sources" is to be computed in accordance with either cash/ receipt basis; or mercantile/accrual system of accounting regularly employed by the assessee. Under cash system of accountancy, the assessee is liable to pay tax on the income on the basis of cash receipts during the year under consideration whereas under the mercantile syste ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cantile system of accountancy and it was no where recorded therein that the assessee was following cash system of accountancy. It was authoritatively held in such circumstances that the interest received had to be spread over all the years to which it related to. 17. Now we advert to decision of the Apex Court in Ghansham's case on the basis of which the matter has been remanded to this Court for considering its effect on the decision of the case. Hon'ble Supreme Court was dealing with the issue relating to assessability of capital gains to income tax under the provisions of Section 45 (5) of the Act. Section 45 was amended by the Finance Act, 1987 w.e.f. 1.4.1988 where under sub-section (5) was inserted as an overriding provision. It was held that the enhanced compensation under the 1894 Act arises and is payable at multiple stages and, therefore, compensation is treated as "deemed income" at the time when it is received and taxed on receipt basis. This is notwithstanding the cases where enhanced compensation may be in dispute in pending appeal and claimant had been permitted to withdraw the amount conditionally. It was further held that interest under Section 28 of 1894 Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X
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