9911796707
TMI Blog2009 (1) TMI 80X X X X Extracts X X X X X X X X Extracts X X X X ..... , all the assessees had subscribed to two sets of debentures issued by M/s Oswal Agro Mills Limited. The first set of debentures was issued on 2.7.1984; whereas the second set of debentures was issued on 23.6.1986. The assessees had paid for these debentures through convertible foreign exchange by remittances from abroad. As such, the assets in the hands of the assessees were in the nature of foreign exchange assets as defined in Section 115C of the Act. The controversy in the present references pertains to the interest income derived by the assessees from the aforesaid debentures. The claim of the assessees is that the aforesaid income derived as interest from debentures should be assessed on receipt basis, and not on accrual basis. The claim of the Revenue is to the contrary. 2. Interest on the aforesaid two sets of debentures was payable biannually. Interest on the debentures accrued on 1st July and 31st December of every year. The issue to be adjudicated upon in the instant six references is, whether interest on the debentures would be deemed to have accrued/arisen to the assessees on 1st July and 31st December, or whether the assessees would be liable to payment o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fact, the entire controversy revolves around the interpretation of Section 5 (2) of the Act. Section 5 (2) of the Act is being extracted here as under:- "5.Scope of total income-......(2) Subject to the provisions of this Act, the total income of any previous year of a person who is a non-resident includes all income from whatever source derived which- (a) is received or is deemed to be received in India in such year by or on behalf of such person, or (b) accrues or arises or is deemed to accrue or arise to him in India during such year. Explanation 1- Income accruing or arising outside India shall not be deemed to be received in India within the meaning of this section by reason only of the fact that it is taken into account in a balance-sheet prepared in India. Explanation 2- For the removal of doubts, it is hereby declared that income which has been included in the total income of a person on the basis that it has accrued or arisen or is deemed to have accrued or arisen to him shall not again be so included on the basis that it is received or deemed to be received by him in India." 7. Since it is not a matter of dispute that from the two sets of debentures, the assessees ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of accrual of income to a non-resident, the actual date of receipt is inconsequential. In view of the above, we are satisfied that the income of a non-resident has to be included in the previous year on accrual basis, i.e. as and when such income arises (or is deemed to have arisen) to the assessee, in a specific definite and crystalized measure. 10. The debentures purchased by the assessees from M/s Oswal Agro Mills Limited bore interest receivable by the assessees on the 1st day of July of every year as well as on the 31st December of every year. In the aforesaid view of the undisputed factual position, the interest income from the debentures purchased by the assessees must be deemed to have accrued or arisen to the assessees, in specific definite and crystalized amount on 1st July 1986, as also on, 31st December 1986, and as such, was required to be added to income received by the assessees during the financial year 1986-87 (i.e. the assessment year 1987-88). The same factual position applies to the subsequent financial years as well. In the aforesaid view of the matter, it is inevitable to answer the reference in favour of the revenue and against the assessees. In spite of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... distinct from the actual payment of tax. It is for the purposes of determining the year of assessment to which the income of a non-resident is to be added, that the mandate of Section 5 (2) of the Act makes a specific provision, requiring income which has accrued (or which arises) to a non-resident, to be treated as income for the previous year in which such income has accrued (or has arisen), and as such, reference to Section 195 (1) of the Act at the hands of the learned counsel for the petitioners is wholly irrelevant. Secondly, Explanation 2 under Section 5 (2) of the Act removes all ambiguity from the issue under reference. Even if it is accepted that the assessees in the present case were paid the interest component on the debentures purchased by them from M/s Oswal Agro Mills Limited, after deduction of income-tax in terms of the mandate to Section 195, it is open to the assessees to claim an appropriate reduction in terms thereof, during the course of assessment of the aforesaid income towards tax, as the said income has already been subjected to tax on accrual basis under Section 5 (2) (b) of the Act. 14. It would be relevant to mention that during the course of hearing, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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