TAMILNADU INDUSTRIAL INVESTMENT CORPORATION LIMITED Vs. DEPUTY COMMISSIONER OF INCOME TAX SPECIAL RANGE III CHENNAI

JUDGEMENT

(1.) THIS is an appeal preferred by the assessee against the order of the Income-tax Appellate Tribunal, Madras "a" Bench (hereinafter referred to as'the Appellate Tribunal') dated 12. 4. 2001 made in i. T. A. No. 1992/mds/91 under section 260-A of the Income-tax Act, 1961.

(2.) THE assessment year involved is 1985-86. THE assessment for the assessment year 1985-86 was completed under section 143 (1)of the Income-tax Act, 1961 (hereinafter referred to as'the Act') and after the completion of the assessment proceedings, the assessing officer found that the appellant had received a sum of Rs. 4,09,344/- by way of interest under section 214 of the Act for the assessment year 1981-82 by order dated 6. 9. 1984. THE assessing officer was of the view that the interest received by the assessee is an income of the assessee chargeable to tax which had escaped assessment and reopened the assessment earlier made under section 143 (1) of the Act and assessed the interest income received by the assessee and revised the assessment. THE Commissioner of Income-tax (Appeals), on appeal, held that the receipt by the assessee of interest under section 214 of the Act would constitute income in the hands of the assessee and since it was received by the assessee during the previous year relevant to the assessment year 1985-86, the assessing officer was justified in assessing the income in the assessment year in question. THE assessee carried the matter in appeal before the Appellate tribunal. A difference of opinion arose between the two learned members of the appellate Tribunal who heard the appeal as the learned Accountant Member of the appellate Tribunal held that the interest received by the assessee under section 214 of the Act was income in nature as it accrued in the previous year relevant to the assessment year 1985-86 and it was rightly assessed for the assessment year 1985-86, whereas the learned Judicial Member took a different view and held that though interest received under section 214 of the Act was income in nature, the question whether it is liable to be taxed in the year 1985-86 would depend upon the final outcome of the appeal filed against the order of assessment for the assessment year 1981-82 and hence, he remanded the matter with a direction to the first appellate authority to await the decision on the appeal preferred against the order of assessment for the assessment year 1981-82. Since there was a difference of opinion between two learned members of the Appellate Tribunal, the matter was referred to a third member. Learned third Member held that the interest quantified and paid would retain the character of income and it was assessable as revenue receipt in the year of payment by the Department. He agreed with the view of the learned Accountant member and held that the interest received by the assessee under section 214 of the Act was an income for the assessment year 1985-86. He also gave a direction that in case the assessee repays the excess interest received, that would be allowed as a deduction under section 37 of the Act in the year in which the assessee is called upon to repay and made such repayment. It is against the order of the Appellate Tribunal, the assessee has preferred the appeal. This court admitted the appeal on the following substantial question of law: "whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the interest received by the appellant was income liable to be assessed to tax for the assessment year 1985-86""

(3.) WE are fortified by the view taken by the Allahabad high Court in J. K. SPINNING & WEAVING MILLS CO. v. ADDL. C. I. T. (104 ITR 695) where the Allahabad High Court has taken a view that interest would be taxable in the year in which the right to receive the interest accrued though it was not actually received. The Karnataka High Court in Syndicate bank case (159 ITR 464) has also taken the same view. WE are of the view that so far as the assessee is concerned, the right to receive the interest under section 214 of the Act accrued on 6. 9. 1984 when the assessee was granted interest in the previous year relevant to the assessment year 1985-86.