CIT Vs. PUSHPA VIJOY

JUDGEMENT

(1.) The question raised in the two sets of appeals filed by the Revenue against the orders of the Tribunal issued in favour of the two assessees is one and the same, i.e., whether the assessees are entitled to credit tax deducted at source in the assessment year following the previous year in which deduction of tax at source and remittance was made by the payer even though income in respect of which deduction is made is not returned or assessed in that assessment year. We have heard senior counsel Sri. P.K.R. Menon appearing for the. Revenue and the learned counsel Sri. P. Balakrishnan appearing for the respondents-assessees. The undisputed facts leading to the controversy are the following.

(2.) The respondents-assessees were holding cumulative terra deposits in banks entitling them for interest on deposits which was periodically credited by the bank in the deposit account. As required under s. 194A of the IT Act, the banks recovered tax at source on the interest credited in the deposit account of the respondents-assessees and issued TDS certificates to the respondents. Though the respondents did not return interest income from these deposits as their income of the following assessment years, they claimed credit of tax based on TDS certificates issued by the banks. The assessment years concerned are 1997-98 to 2000-01. The AO declined to give credit for the tax recovered and remitted by the banks in the name of the respondents in the following assessment years for the reason that interest income on which recovery of tax is made by the banks is not returned or assessed as income for the said assessment years.

(3.) In so far as the assessees' claim that interest income credited by the bank is not assessable in the assessment year following the year of deduction is concerned, the respondents-assessees' claim is that they are following cash system of accounting and so much so they are liable to pay tax on the interest income only on collection of the interest amount from the banks which is on maturity of the deposit amounts. The AO accepted the respondent's contention that interest is assessable based on the system of accounting followed by them, i.e., cash. As a consequence of this, the AO did not assess any interest income for the assessment year following the year of deduction, but declined to give credit for the tax recovered and remitted by the banks at source at the time of credit of interest based on TDS certificates produced, probably by applying s. 199 of the IT Act.