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TMI Blog2014 (11) TMI 179X X X X Extracts X X X X X X X X Extracts X X X X ..... which has become due and payable should alone be considered as income accrued and that should be offered as tax - The fact that the assessee in its internal books of accounting mentions the proportionate interest, which is entitled to receive, in its balance sheet for the purpose of profit and loss cannot be deemed as income accrued, unless such income has become due and payable – there was no inconsistency between the amended provisions of Sections 145 and 5 of the I.T. Act - the amended provisions of Sections 145 now insists mercantile system of accounting where on the income accrued the tax can be levied whether or not received unlike in cash system - Merely because in the books of account, the interest income, which is not due and payab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... KUMAR AND B. MANOHAR, JJ. For The K.V. Aravind For The G. Sarangan and Balram R. Rao JUDGMENT 1. In these two appeals preferred by the Revenue, they have raised the following three substantial questions of law: (1) Whether the Appellate Authorities were correct in reversing the finding of the Assessing Officer that the assessee was following dual method of accounting i.e., one method for arriving at book profits and another method for arriving at taxable income which was not permissible, as per Section 145(1) of the Act, after amendment, which was rectified resulting in addition of ₹ 7,24,96,894/- in respect of accrued interest on government securities (including broken period interest)? (2) Whether the Appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... For its accounting purpose, it has shown the proportionate interest entitled to receive on the Government securities. But for the assessment year, although it is not accrued, in the legal sense and in terms of Sections 5 and 145 of the I.T Act. The contention of the Revenue that in the books of account, the proportionate interest shown for the broken period in the balance sheet, should be construed as the income accrued, is not tenable. In other words, the income which has become due and payable should alone be considered as income accrued and that should be offered as tax. The contention that Assessing Officer is entitled to tax on the interest income although not due and payable as accrued, is untenable. The fact that the assessee in its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... educted from the said income. Though benefit u/s. 80M is granted on the net income, when no expenditure is incurred in earning the dividend income, the gross income would become the net income. Thus, there is no scope for any estimation being made or any amount being deducted as notional expenditure. 12. In the instant case, facts set out above demonstrates the income is derived by the dividends u/s. 10(33) of the Act and interest on tax free bonds u/s. 10(15)(h) of the Act and interest on long term finance to infrastructure companies u/s. 10(23G) of the Act. In other words, the persons with whom the amounts are invested by the assessee are crediting the aforesaid amount to the assessee's account by way of a bank transfer. Therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d provisions fell for consideration. 7. Interpretation placed by the three authorities are not in conformity with the interpretation placed by the Hon'ble Apex Court in the aforesaid judgment. Therefore, the impugned orders insofar as the said substantial questions of law are concerned cannot be sustained. Accordingly, it is set aside. 8. Before a finding is recorded on the said question, the aforesaid two provisions have to be taken note of and then in the light of the judgment rendered by the Hon'ble Apex Court the order is to be passed. 9. Therefore as far as that aspect of the matter is concerned, we remand the matter back to the assessing authority with a direction to decide the said aspect in the terms of the judgment ..... X X X X Extracts X X X X X X X X Extracts X X X X
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