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TMI Blog1984 (7) TMI 129X X X X Extracts X X X X X X X X Extracts X X X X ..... counting year 1976. From the accounting year 1978 onwards also, that practice has been again followed by the assessee by showing the interest income as its own. It is only for the year under consideration, being calendar year 1977, the claim was that the interest on short-term fixed deposit was not taxable in the hands of the assessee. The ITO observed that for the year under appeal, the assessee has not credited the profit and loss account with the amount of interest received from the fixed deposit. The assessee approached the RBI to get permission for crediting the bank interest to the account of the principals. There is a letter by the RBI informing the assessee that such interest could be credited to the principals' account subject to production of a certificate stating that the said amount is held for meeting the local expenses and the same expenses are included in the respective reimbursement account. 3. The ITO pointed out that from the books of account, it was seen that there was only one account in which all the amounts of the principals are credited and there was no difference in the situation which existed during the earlier years, except that during this year the amou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted to the principals' account "subject to production of a certificate stating that the said amount is utilised for meeting the local expenses and the same expenses are included in the respective disbursement account". The Commissioner (Appeals) also noted that later on, in January 1978, the RBI raised an objection and directed the assessee-company to discontinue the practice of investing the funds of the principals in fixed deposit accounts, etc., forthwith. On receipt of this direction, the assessee reverted to the old practice of crediting the interest on short-term deposits to its own profit and loss account. 6. Before the Commissioner (Appeals), it was urged that no doubt up to the assessment year 1977-78, the interest earned on the short-term deposit had been treated by the assessee as its own income, but that by itself would not establish that the interest income actually belonged to the assessee. It was further contended that there was nothing for the department to lose since the assessments in the case of the non-resident principals have already been completed by including the respective interest incomes in their assessments and that the assessment in the hands of the no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e for consideration presently before us. It is urged that the assessee has got the right to receive the income and, therefore, the same has been wrongly deleted by the Commissioner (Appeals). Reference is made to the decision of the Hon'ble Rajasthan High Court in the case of CIT v. Vijay Laxmi Trading Co. Ltd. [1984] 147 ITR 372, in which on the facts of that case it was stated that income may accrue to an assessee without the actual receipt of the same and if the assessee acquires a right to receive the income, the income can be said to have accrued to him though it may be received later on. The basic conception is that the assessee must have acquired a right to receive the income. Reliance is also placed on the decision in the case of CED v. Mohamed Habib A. Valiwalla [1983] 137 ITR 677 (Bom.), in which, inter alia, it was stated that once the sums were deposited in the firm, they became part and parcel of the capital of the firm and the donees obtained an actionable claim in exchange with the result that the donee had exchanged and converted one form of their property, i.e., money, into another form of intangible property, i.e., actionable claim. The case of the revenue is that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ptly on receipt of such permission for remittance to the non-residents. From the copies of the correspondences placed before us, it is seen that the assessee has got the liability to collect the freight on behalf of the non-residents and after meeting local expenses on behalf of the non-residents, the balance is remitted promptly on receipt of the permission from the RBI. We do not find any indication that there was any stipulation or agreement that pending receipt of RBI's permission, the assessee should deposit the funds in banks for the purpose of earning interest on account of the principals. In fact, from the letter dated 6-6-1974 addressed by the Scandinavian Joint Service to the assessee, it is seen that there was no reference to any claim of the non-resident that interest income should be on account of the non-residents. In fact, it was stressed by the non-residents that promptly on receipt of the required permission, the remittance of the freight should be made to them. In its letter dated 10-6-1974 to the Scandinavian Joint Service, the assessee has stated that in actual practice it has on several occasions in the past encashed short-term deposits foregoing interest in or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 89 ITR 292, in which it was observed that under income-tax law receipt of income either actual or deemed is not a condition precedent to taxability as they are assessable if they have arisen or accrued or deemed to have arisen or accrued to the assessee just as much as if they had been received, even if in a case where the assessee follows mercantile system of accounting. It was also observed that in examining any transaction or situation, the Court would have more regard to the reality of the situation rather than purely theoretical or doctrinaire aspect of it, and greater emphasis will be laid on the business aspect of the matter viewed as a whole when that can be done without disregarding the statutory language. 13. In the instant case, the money on account of the freight was in the custody and control of the assessee till such time the money is remitted to the non-residents and that too after obtaining permission from the RBI. Till such time when the assessee received such permission, the assessee could not have made remittance to the non-residents, due to prohibitive provisions relating to the aspect. In this connection, it is worthwhile to refer to the ratio in the decision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -residents have an enforceable right to the interest received by the assessee on short-term deposits, which is the subject-matter of the present appeal before us. In the case of Sarupchand Hukamchand (P.) Ltd. v. CIT [1982] 133 ITR 295 (MP), it was held that enforceability by legal process is, subject to some qualifications, considered to be the sine qua non of a legal right and that while considering whether or not income had accrued to an assessee, it has to be ascertained whether the assessee is vested with the right to claim that amount, and if the claim is not legally enforceable, then the assessee cannot be said to be vested with a right to claim the amount. On the facts of the case before us, it cannot be said that the non-residents have got enforceable right to the interest income from the fixed deposits, as actually the deposits were made by the assessee from which interest is earned. From the several correspondences made between the assessee and the non-residents, it is apparent that the assessee has been treating the interest income from fixed deposits as its income and assessed it as such in the past. There is no indication from the materials available before us that th ..... 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