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TMI Blog1999 (12) TMI 14X X X X Extracts X X X X X X X X Extracts X X X X ..... accounting accepted for the assessment under the Income-tax Act, 1961 ? (2) Whether, on the facts and circumstances of the case, on account of doctrine of incorporation, section 145 of the Income-tax Act, 1961, having been incorporated in section 21 of the Interest-tax Act, 1974, when the assessee maintains books of account on cash system and being assessed under the cash system under the Income-tax Act does not the chargeable interest deserve to be computed on cash method and if the intention of the Legislature would have been to tax on mercantile system, the Legislature in their wisdom would not have included section 145 of the Income-tax Act, 1961, in section 21 of the Interest-tax Act ? A short but interesting question arises for consideration. The reference has its foundation in sections 5 and 21 of the Interest-tax Act, 1974 (in short "the Interest Act"), in the background of section 145 of the Act. The assessee is a Corporation controlled by the State Government. Its main object is to aid and finance industrial projects. A return for the year 1993-94 was filed on December 16, 1993. Subsequently, a revised return was filed on August 18, 1994, declaring the total income a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act with effect from October 1, 1991, in the said section. Interest-tax can be levied on the interest income as computed on the basis of the method of computation and accounting regularly employed by the assessee. By way of elaboration, it is submitted that section 145 of the Act has been incorporated in section 21 of the Interest Act and since the assessee maintains books of account in cash system and he has to be assessed under the said system, the method adopted by the Revenue is erroneous. Learned counsel for the Revenue, on the other hand, submitted that the scope of "chargeable interest" is provided in section 5, which clearly says that subject to the provisions of the Interest Act, the chargeable interest of any previous year of a credit institution shall be the total amount of interest other than interest on loans and advances made to other credit institutions or to any co-operative society engaged in carrying on the business of banking accruing or arising to the credit institution in that previous year. Therefore, there is a basic difference between section 5 of the Act and section 5 of the Interest Act. The chargeable interest of any previous year under the Interest Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest-tax shall be charged in respect of any chargeable interest accruing or arising after the 31st day of March, 1983, shall be three and a half per cent. of such chargeable interest. (2) Notwithstanding anything contained in sub-section (1) but subject to the other provisions of this Act, there shall be charged on every credit institution for every assessment year commencing on and from the 1st day of April, 1992, interest-tax in respect of its chargeable interest of the previous year at the rate of three per cent., of such chargeable interest. 5. Scope of chargeable interest.---Subject to the provisions of this Act, the chargeable interest of any previous year of a credit institution shall be the total amount of interest (other than interest on loans and advances made to other credit institutions or to any co-operative society engaged in carrying on the business of banking) accruing or arising to the credit institution in that previous year : Provided that any interest in relation to categories of bad or doubtful debts referred to in section 43D of the Income-tax Act shall be deemed to accrue or arise to the credit institution in the previous year in which it is credite ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nglish Dictionary defines "accrue" as "to fall as a natural growth or increment ; to come ... as an accession or advantage". It defines "arise" as "to spring up, come into existence". In Rogers Pyatt Shellac and Co. v. Secretary of State for India [1924] 1 ITC 363 (Cal), it was observed that perhaps the two words seem to denote the same idea or ideas very similar, and the difference only lies in this that one is more appropriate than the other when applied to particular cases. It is clear, however, as pointed out by Fry L.J. in Colquhoun v. Brooks [1888] 21 QBD 52 (CA), that both the words are used in contra-distinction to the word "receive" and indicate a right to receive. It may be taken that all the three expressions, i.e., "accrue", "arise" and "receive", would not have been used unless it was thought that they exhibited some variation in meaning and that a case might possibly arise which would come under one only of the three. If on a question as to the exact meaning of "accruing", it were to be suggested that this only means "received", this can hardly be accepted as correct, even though the difficulty of distinguishing between "accruing" and "arising", as indicated above, ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n accordance with the method of accounting regularly employed by it. This submission overlooks an important aspect which is laid down in the proviso to sub-section (1) of section 145 of the Act. It states that in any case where the accounts are correct and complete but the method employed is such that in the opinion of the Assessing Officer the income cannot properly be deduced therefrom, computation shall be made upon such basis and in such manner as the Assessing Officer may determine. "Chargeable interest" is defined in section 5 of the Interest Act. As indicated and analysed above, it refers to accruing and arising of interest. Therefore, the Assessing Officer can, by applying section 5 of the Interest Act, in the background of the proviso to sub-section (1) of section 145 of the Act, compute income on accrual basis. The statute must be read as a whole and one provision thereof should be construed with reference to another provision, so as to make a consistent enactment of the whole statute. It is a rule now firmly established that the intention of the Legislature must be found by reading the statute as a whole (see Philips India Ltd. v. Labour Court [1985] 66 FJR 474 ; AIR 198 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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