9911796707
TMI Blog1985 (9) TMI 24X X X X Extracts X X X X X X X X Extracts X X X X ..... count. The year-wise breakup of the interest is as under : ------------------------------------------------------------------------------------------------------------------------------------------------ Assessment year Status Amount of interest ------------------------------------------------------------------------------------------------------------------------------------------------ 1970-71 Non-resident Rs. 37,744.52 1971-72 Resident but not ordinarily Rs. 17,015.54 resident 1972-73 Non-resident Rs. 7,027.76 1973-74 Resident but not ordinarily Rs. 31,171.10 resident --------------------------- Rs. 92,958.92 Say Rs. 92,959.00 ------------------------------------------------------------------------------------------------------------------------------------------------ So far as the payment of tax on the last item of Rs. 31,171.10 is concerned, there is no dispute between the parties. The dispute centres round the taxability of the interest amount in respect of the assessment years 1970-71 to 1972-73 aggregating to Rs. 61,787.82, i.e., Rs. 61,788, out of the total of Rs. 92,959. The assessee's contention throughout has been that the interest amount of Rs. 61, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount held by the bankers in the non-resident account of the assessee may be deemed to have been held in the non-resident (external) account of the assessee from April 1, 1968. In view of these developments, the assessee, while crediting the interest amount relating to the assessment years 1970-71 to 1972-73 amounting to Rs. 61,788 in his account books, carried the same to the capital account after adjusting his income and expenditure account. To put it differently, he credited Rs. 31,171 towards interest whereas the balance of Rs. 61,788 was carried to the capital account de hors the profit and loss account. In view of these book entries, the Income-tax Officer held that the entire amount of Rs. 92,959 was taxable in the assessment year 1973-74. On appeal, the Appellate Assistant Commissioner concurred with the view of the Income-tax Officer. In further appeal, the Tribunal after referring to the decision of the Supreme Court in Raghava Reddi v. Commissioner of Income-tax [1962] 44 ITR 720 and after perusing the correspondence on record, concluded that the bank had not parted with the domain over the funds in question in the relevant years, 1970-71 to 1972-73, and the entire amo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tten by the Bank of India to the Income-tax Officer , Rajkot. In paragraph (ii), it was stated that the interest amount was kept in suspense account pending approval from the Reserve Bank of India to convert the account into nonresident (external) account. In paragraph (iii) of the letter, the bank indicated the circumstances under which it became necessary to transfer the interest amount to the suspense account. In the said paragraph, it was further pointed out that the Reserve Bank had granted approval by its communication of December 7, 1972, to designate the non-resident account of the assessee as "non-resident (external) account" with effect from April 1, 1968. It is, therefore, explained that in view of this change in status, no tax was required to be deducted from the interest amount credited to the account of the assessee in view of the amended section 10(4A) of the Act. This communication does not indicate that before the interest amount was placed in the suspense account of the assessee, it was not deposited in his nonresident account. However, in the statement of the case submitted by the Tribunal to this court, the following statement appears : "Now, pending decision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... b) of subsection (2) of section 5, namely, income accruing or arising or is deemed to accrue or arise to the assessee in India during the relevant year. As against this contention, Mr. Shelat, the learned counsel for the Revenue, submitted that since the Amount was carried to the suspense account from which it could not be withdrawn, there was neither receipt nor accrual, actual or constructive, and, therefore, it was rightly taxed in the assessment year 1973-74 when it was actually transferred from the suspense account to the non-resident (external) account of the assessee. He further submitted that under section 145 of the Act, income chargeable under the head "Profits and gains of business or profession" or "Income from other sources" is to be computed in accordance with the method of accounting regularly employed by the assessee. According to him, the assessee was employing the cash method of accounting as is clear from the statement of account produced at annexure 'I' (annexure 'H' is the English translation thereof) and since the interest stated to have been earned in the assessment years 1970-71 to 1972-73 was not credited in the account books of the assessee, he was liable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pt or accrual of the interest amount to the assessee. We may at the outset examine the relationship between the banker and customer in law. In New Bank of India Ltd. v. Pearey Lal [1962] 32 Comp Cas 91, Pearey Lal a customer of the bank, having his registered office at Lahore, paid an amount into the bank at Lahore to transmit the same to branch of the bank which was proposed to be opened at Calcutta, for making fixed deposits according to his instructions on or after the opening date. The amount was remitted to Calcutta and a branch of the bank was opened there. But within a few days of the opening, an Ordinance was issued declaring moratorium on the bank and prohibiting it from making payments. No instructions were, however, issued by the customer regarding the amount. Under the scheme sanctioned by the High Court, the depositors of the bank were to be paid 70.5 per cent. of the deposits. The Supreme Court held that the transaction was primarily one of entrustment of the amount to the bank for transmission to Calcutta. After the purpose for which the amount was entrusted was carried out, in the absence of further instructions, the bank did not cease to be a trustee and so long a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or dealt with according to its directions. The Supreme Court held that the legal effect of the direction given by the Japanese company was that, as soon as the assessee credited the amounts to the company in the assessee's accounts, the relationship between the parties ceased to be that of debtor and creditor and the amount credited in the accounts had to be treated as moneys deposited by the Japanese company itself with the assessee. The moneys were thus "received" by the Japanese company in India on being credited and the assessee could be assessed as their statutory agent in respect of such moneys. In the instant case, the assessee deposited certain amounts as fixed deposits with the Bank of India as is evidenced by annexure 'K' appended to the statement of the case. On these deposits, the assessee was entitled to interest with six-monthly rests. On the instructions of the assessee, this amount of interest was to be credited by the bank in his account with the bank. Therefore, on such credit entries being made in his account., it can safely be stated that the interest was received by the assessee. The bank could not have transferred the interest amount to the suspense account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d into a nonresident (external) account. As part of that arrangement, with the consent of the assessee, the amount of interest credited in the suspense account of the assessee was not to be withdrawn till the doubt was cleared by the Reserve Bank. Therefore, the fetter against withdrawal of the amount would not change the character of the amount being interest paid on fixed deposits held by the bank. Mr. Shelat submitted that since the assessee followed the cash system of accounting, unless the amount was shown as receipts in the accounts of the relevant years, it could not be said that the amount was received by the assessee during those assessment years. In support of this contention, he invited our attention to annexure 'H' which shows that the entire amount of Rs. 61,788 was carried to the capital account after the doubt, was cleared by the Reserve Bank. .It must, however, be noted that, while doing so, the assessee clearly described the amount as interest received during the relevant assessment years and kept in the suspense account because of the special arrangement arrived at between him and the bank. The first three items totalling Rs. 61,788 have been taken to the capital ..... X X X X Extracts X X X X X X X X Extracts X X X X
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