Govinda Bhat, J.
1. This is a reference under section 256(1) of the Income-tax Act, 1961, made at the instance of the assessee. The question of law referred for our opinion is :
'Whether, on the facts and in the circumstances of the case, and the provisions of the Partnership Act, the sum of Rs. 50,000 was properly assessable in the previous year relevant for the assessment year 1962-63 ?'
2. The material facts as found by the Tribunal so far as they are necessary for the decision of this case are as follows :- The assessee is the widow of one J. B. Pinto who was a partner in five partnership firms. J. B. Pinto died on 8th July, 1958. According to the partnership deeds there of the said five firms, the partnerships were not to be dissolved on the death of any partner but accounts were to be taken as on the date of the death and the legal heirs of the deceased partner were entitled to interest on the amounts due at 5 per cent. per annum. The surviving partners carried on the business of the said five firms even after the death of the assessee's husband. By virtue of the provisions of section 37 of the Indian Partnership Act, 1932, the assessee who is the legal representative of the deceased, J. B. Pinto, became entitled to interest at the rate of 6 per cent. per annum on the amount of the said J. B. Pinto's share in the properties of the order two firms. Disputes arose between the assessee on the one hand and the surviving partners of the said five firms on the other. The dispute ultimately ended in a settlement under which the assessee executed a release deed dated June 21, 1961, whereby a sum of Rs. 5,76,582 was agreed to be paid to the assessee in full and final settlement and quittance of all rights, title, interest-claim, etc., against the other parties in respect of all and every part of the estate of her deceased husband.
3. It was found by the Income-tax Officer that out of the aforesaid sum of Rs. 5,76,582, a sum of Rs. 50,000 represented the total amount of interest due to the assessee up to April 2, 1960, which was the date on which there a settlement of accounts. That finding of the Income-tax Officer has not been disputed before the appellate authorities and has been accepted by the Tribunal.
4. The contention urged by the assessee before the Appellate Assistant Commissioner and also before the Tribunal was that the said amount of Rs. 50,000 ought to have been assessed in the assessment years 1959-60 and 1960-61, since the assessee followed the mercantile system of accounting. The Appellate Assistant Commissioner and also the Tribunal have rejected that contention and assessed the assessee on the receipt basis which was during the relevant previous year to the assessment year 1962-63.
5. In the assessment order made by the Income-tax Officer, it is shown that the method of accounting of the assessee is the mercantile system of accounting. Section 145 of the Income-tax Act provides that income chargeable under the head 'Profits and gains of business or profession' or 'Income from other sources' shall be computed in accordance with the method of accounting regularly employed by the assessee. It is for the assessee to elect the method of accounting. The assessee having elected the mercantile system of accounting it was not open to the Income-tax Officer, unless he proceeds to act under the proviso to sub-section (1) of section 145, to make the assessment on the cash basis. Under there of the five partnership deeds, accounts were to be taken as on the date of death of one of the partners and the legal heirs of the deceased were entitled to interest on the amounts due at 5 per cent. per annum. In regard to the remaining two firms, by virtue of section 37 of the Indian partnership Act, the legal heirs of the deceased because entitled to interest at 6 per cent. on the amount of the deceased's share in the properties of the firms. Therefore, by virtue of the statute and also by virtue of the terms of the partnership deeds, the assessee became entitled to interest from the death of her husband; the interest accrued to her as found by the Income-tax Officer between July 8, 1958, the date of the death of the assessee's husband and April 2, 1960, the date of settlement of account. The entire period during which the income accrued falls outside the relevant accounting period in relation to the assessment year 1962-63. If the mercantile system of accounting is adopted the entire interest income of Rs. 50,000 is not liable to the assessed for the assessment year 1962-63.
6. In our opinion, the Tribunal was in error in the view it has taken that the sum of Rs. 50,000 is assessable for the assessment year 1962-63.
7. We accordingly answer the question referred to us in the negative in favour of the assessee and against the department. The assessee will be entitled to her costs. Advocate's fee Rs. 250.
8. Question answered in the negative.