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TMI Blog1984 (1) TMI 5X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee, as a result of the order passed by the courts, was entitled to receive interest on the enhanced compensation and the interest received on enhanced compensation was Rs. 33,000 for the assessment year 1969-70 and Rs. 15,799 for the assessment year 1970-71. Since the assessee had not maintained books of account and had actually received these amounts in the assessment years 1969-70 and 1970-71, the Income-tax Officer assessed these amounts on receipt basis for the assessment years 1969-70 and 1970-71. The assessee filed an appeal before the Appellate Assistant Commissioner contending that the interest should have been assessed on accrual basis and not on receipt basis. The Appellate Assistant Commissioner agreed with the assessee's contention and held that the interest accrues each year and is payable as such after possession was taken from the assessee and, therefore, the interest income was assessable on accrual basis and not on receipt basis and that the interest on accrual basis works out to Rs. 1,484 for the assessment year 1969-70 and Rs. 3,313 for the assessment year 1970-71. The Revenue took the matter in appeal to the Income-tax Appellate Tribunal contending ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... K Govindarajulu Chetty's case [1967] 66 ITR 465 (SC). However, the Appellate Assistant Commissioner upheld the assessee's contention that the interest income is to be charged on accrual basis and not on receipt basis relying on the decision of the Punjab and Haryana High Court in the case of Dr. Sham Lal Narula [1972] 84 ITR 625 (P & H). When the matter was taken to the Tribunal, it agreed with the view taken by the Appellate Assistant Commissioner relying on the decisions in CIT v. V Sampangiramaiah [1968] 69 ITR 159 (Mys) and CIT v. Dr. Sham Lal Narala [1972] 84 ITR 625 (P & H). The view taken by the Tribunal is that in all cases where interest is payable on enhanced compensation, it accrues year after year after the assessee was deprived possession of the land under the provisions of the Land Acquisition Act and, therefore, the interest income can be assessed only on accrual basis irrespective of the fact whether the assessee maintains accounts on cash basis or on mercantile basis. The question is whether the view taken by the Tribunal can be legally sustained. In this case, the Tribunal has given a specific finding that the assessee has not maintained any books of account and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loyed, a non-trader can be assessed only on receipt basis. As pointed out by Rowlatt J. in Leigh v. IRC [1927] 11 TC 590 (KB), for income-tax purposes receivability without receipt is nothing and this principle applies to a restricted number of cases where the provisions of the Act or the assessee's method of accounting requires receipt as the solid test of taxability. Therefore, it is stated by the Revenue that the receivability or accrual cart be adopted only in cases where the assessee's method of accounting required accrual as the test of taxability. If in cases where the receivability or accrual does not apply, the income cannot be brought to charge if it has not been received. Section 13 of the Indian Income-tax Act, 1922, corresponding to section 145 of the 1961 Act came up for consideration before the Supreme Court in Keshav Mills Ltd. v. CIT [1953] 23 ITR 230 (SC) where the court held that in dealing with the method of accounting, section 13 is an integral part of the computation of the total income by the assessee and, therefore, it is compulsory on the incometax authorities as well when computing the total income to accept the mode of accounting regularly adopted by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e a non-trader has had to do this whereas there are at least three cases to the opposite effect-Lambe v. IRC [1934] 18 TC 212 ; 2 ITR 494 (KB), Dewar v. IRC [1935] 2 KB 351 ; 51 TLR 536 ; 19 TC 561 (CA) and Grey v. Tiley [1932] 16 TC 414 (CA), and I would also refer to what was said by Lord Wrenbury in St. Lucia Usines and Estates Co. Ltd. v. St. Lucia (Colonial Treasurer) [1924] AC 508 (PC). I certainly think that it would be wrong to hold now for the first time that a non-trader to whom money is owing but who has not yet received it must bring it into his incometax return and pay tax on it. And for this purpose I think that the company must be treated as a non-trader, because the Butterley case [1957] AC 32 (HL) makes it clear that these payments are not trading receipts." Therefore, in cases where no method of accounting is regularly employed by an assessee, the method of computation will generally depend on the question as to whether the assessee is a trader or a non-trader. If interest income has been received by a non-trader who is not expected to adopt regular method of accounting, assessment can be made on receipt basis and not on accrual basis. The decision of the Supreme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R 22 (Mad), to which one of us was a party and also the decision in CIT v. M K KR. Muthukaruppan Chettiar [1984] 145 ITR 175 (Mad), to which also one of us was a party, appear to be relevant in this regard. In the first case, it has been pointed out that where a statute brings to charge certain income, its intention is to enforce the charge at the earliest point of time, that if the income had accrued earlier and the assessee treats it as taxable during the year of accrual, it is not open to the Revenue to treat it as an income in the year of receipt in a case where the assessee follows the mercantile basis of accounts and that in order to ascertain the method of accounting adopted by the assessee, it is not necessary to cut up the various sources, profits and gains and find out the method adopted in relation to each source of income. That was also case relating to the interest payments arising out of the delayed payment of the compensation for the lands acquired. The court 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing to the court, the legal position is settled that if income has accrued during any particular year, it is not open either to the assessee or to the Income-tax Officer to take that income into consideration in any other year, that the right to receive interest under the Land Acquisition Act is based on the concept that the owner of the land entitled to receive compensation is kept out of the land by being dispossessed and has not received the compensation representing the market value of such land and that interest accrues during the intervening period between the dispossession on one side and payment of compensation on the other as a result of the statutory provisions and that the right to receive interest was not contingent but absolute and only the amount thereof awaited quantification. CIT v. Santi Devi [1983] 139 ITR 489 (Cal) also is a similar one. In that case, the assessee's land was acquired in 1950 and a sum of Rs. 1.4 lakhs was paid as compensation. In 1961, a sum of Rs. 86,208 was paid as interest on the compensation under section 34 of the Land Acquisition Act. The question arose whether the entire sum of Rs. 86,208 was assessable in the assessment year 1962-63 when ..... X X X X Extracts X X X X X X X X Extracts X X X X
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