PINTO B N Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THIS is a reference under s. 256(1) of the IT Act, 1961, made at the instance of the assessee. The question of law referred for our opinion is :

(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 of three 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 s. 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 other 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.) IN the assessment order made by the ITO, it is shown that the method of accounting of the assessee is the mercantile system of accounting. Sec. 145 of the IT 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 ITO, unless he proceeds to act under the proviso to sub-s. (1) of s. 145, to make the assessment on the cash basis. Under three 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 s. 37 of the INdian Partnership Act, the legal heirs of the deceased became 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 ITO 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 asst. yr. 1962-63. If the mercantile system of accounting is adopted the entire interest income of Rs. 50,000 is not liable to be assessed for the asst. yr. 1962-63.