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Commissioner of Income-tax Vs. Sachindramohan Nandy and ors. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata High Court
Decided On
Case NumberIncome-tax Reference No. 28 of 1977
Judge
Reported in(1983)34CTR(Cal)181,[1984]146ITR597(Cal)
AppellantCommissioner of Income-tax
RespondentSachindramohan Nandy and ors.
Appellant AdvocateB.K. Naha, Adv.
Respondent AdvocateBimal Kumar Banerjee and ;S.N. Dutta, Advs.
Excerpt:
- .....in holding that only the portion of the interest relatable to the previous year relevant to the assessment year 1966-67 and not the entire interest of rs. 35,190 awarded by the land acquisition collector could be included as the income of the assessee for the assessment year 1966-67 ?'2. the land acquisition collector acquired the 'rani bagan' property measuring 6'959 acres belonging to the assessee. the date of acquisition was 29th august, 1963, and the date of the award was 29th march, 1966. for the period of 2 years and 7 months a sum of rs. 35,190 was allowed as interest by the land acquisition collector. it was common ground that in the subsequent year the district judge further allowed a sum of rs. 1,05,643 as interest. the ito treated the entire interest receipt of rs. 35,190.....
Judgment:

Sabyasachi Mukharji, J.

1. In this reference under Section 256(1) the following question for the assessment year 1966-67 has been referred to this court:

'Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that only the portion of the interest relatable to the previous year relevant to the assessment year 1966-67 and not the entire interest of Rs. 35,190 awarded by the Land Acquisition Collector could be included as the income of the assessee for the assessment year 1966-67 ?'

2. The Land Acquisition Collector acquired the 'Rani Bagan' property measuring 6'959 acres belonging to the assessee. The date of acquisition was 29th August, 1963, and the date of the award was 29th March, 1966. For the period of 2 years and 7 months a sum of Rs. 35,190 was allowed as interest by the Land Acquisition Collector. It was common ground that in the subsequent year the District Judge further allowed a sum of Rs. 1,05,643 as interest. The ITO treated the entire interest receipt of Rs. 35,190 as income of the year in question which the AAC upheld in appeal. The appeal was taken up to the Tribunal and it was contended that interest had accrued in each of the years from the date of acquisition till the date of payment. Hence it was submitted that only the portion of interest relatable to the years should be included in this year but not the entire interest. The Tribunal after hearing the contentions of both the parties referred to the decision of the Mysore High Court in the case of CIT v. Sampangiramaiah : [1968]69ITR159(KAR) and also referred to some other decisions and came to the conclusion that only the portion of interest relatable to the year should be included as the income of the assessee in that year and directed the ITO to modify the assessment accordingly. Upon this the question as indicated above has been referred to this court. Learned advocate for the Revenue drew our attention to the column of the assessment order indicating the method of accounting under the head 'Method' which indicated neither the cash nor mercantile. Therefore, it was contended on behalf of the Revenue that it was presumed that the assessee followed the cash system of accounting in respect of the interest received by it and, therefore, the entire interest received by the assessee in the year in question should be assessed in this year. We find that similar was the position in the case before the Mysore High Court in CIT v. V. Sampangiramaiah : [1968]69ITR159(KAR) , where the Mysore High Court at pp. 164 and 165, inter alia, observed as follows:

'But Mr. Rajasekhara Murthy asks us to say that even if the right to interest had accrued to the assessee periodically during the many years which preceded the assessment year 1962-63, so long as the assessee did not maintain his accounts on the mercantile basis, the interest received by him during the previous year relating to the assessment year 1962-63 could be taxed during that assessment year. In support of this argument he depended upon the observations in Gajapathy Naidu's : [1964]53ITR114(SC) , in which there was an explanation of the familiar rule that income is taxable when it accrues or is earned, if the assessee's accounts are maintained on the mercantile basis, and when it is received, if the method of accounting is the cash system. But this elucidation does not take the Department far enough. The mercantile system which, when regularly employed, credits income immediately after it becomes due and recoverable, dispenses, in a proper case, with further proof, that it then accrued, while the cash system which displays the choice of the assessee to treat the income as having arisen when it was received, regulates the computation accordingly. And in the case before us, in which the Appellate Tribunal did not find that the method of accounting employed was the one or the other, the income became taxable when it become legally due and recoverable, for, it is then that it accrued.

That being so, we must answer the question referred to us in favour of the assessee, and our answer is that the Appellate Tribunal was right in holding that the entire interest amount of Rs. 87,265 was not assessable in the assessment year 1962-63 and that only the proportionate interest referable to the assessment year 1962-63 was assessable in that year.'

3. The conclusion arrived at by the Mysore High Court is in consonance with the decision arrived at by this court in the case of CIT v. Santi Devi : [1983]139ITR489(Cal) . It has also been noted by the Tribunal, as we have indicated before, that the view of the Mysore High Court on this aspect has also been followed by the Madras High Court in the case of T.N.K. Govindarajulu Chetty v. CIT : [1973]87ITR22(Mad) . We are of the opinion, that this conclusion would be a proper and equitable conclusion to be arrived at.

4. We must, however, observe that the learned advocate for the Revenue drew our attention to a decision of the Gauhati High Court in the case of N.R. Sirker v. CIT , where the Gauhati High Court observed that where the assessee did not indicate the method of accounting followed, either cash system or mercantile system, in that case in the ordinary course, the receipt should be taxed on the cash system. But this observation of the Gauhati High Court, it must be remembered, was made not in the context of interest received in land acquisition compensation award case, where the basic principle is that the interest is the compensation that is paid for the deprivation of the right of the use of the land. In that view of the matter, we do not think that the decision of the Gauhati High Court would be of much assistance in this case.

5. In the premises, the question referred to us is answered in the affirmative and in favour of the assessee.

6. Parties will pay and bear their own costs.

Suhas Chandra Sen, J.

7. I agree.


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