COMMISSIONER OF INCOME TAX Vs. POPSINGH RICE MILL

JUDGEMENT

(1.) ON a reference under S. 256(2) of the IT Act, 1961, this Court in this case has framed the following question for opinion :

(2.) THE assessee is a registered firm. The assessment year involved is 1982 83 for which the accounting year ended on 27th Oct., 1981. The Assessing Officer found that during the year the assessee received a sum of Rs. 40,315 as interest on refund of income tax under S. 244 of the IT Act, 1961. The refund voucher was received on 22nd April, 1981. The entire amount of interest was assessed under the head "Other sources" by the Assessing Officer in the asst. year 1982 83. The assessee appealed to the Dy. CIT(A) against the inclusion of the interest of Rs. 40,315 to the total income. His submission was that the interest though received on 22nd April, 1981, related to the period from 1957 58 to 1973 74. Since the assessee was following the mercantile system of accounting, it was claimed that the interest be spread over the years in which it accrued. The records of the case were not available with him. In the absence of the relevant records, the Dy. CIT (A) could not verify the system of accounting in respect of interest income in particular. He, however, accepted the assessee's claim in principle and restored the matter to the file of the Assessing Officer to verify the system of accounting followed by the assessee in the case of its interest income. He further directed the Assessing Officer that if the system of accounting was mercantile, the assessee's view on the taxability of interest on refund on accrual basis be accepted. On further appeal by the Department, the Tribunal, Cuttack Bench, Cuttack, confirmed the order of the Dy. CIT(A) and dismissed the Departmental appeal. This shows how the matter was referred by the Department to this Court for opinion on an answer to the question.

(3.) SHRI A.K. Ray, learned counsel appearing for the IT Department, submits that the assessee could not know and has no reason or basis to know as to whether he was entitled to the refund of the amount and the interest thereon. It is only when the assessment came to be final, that it was determined that the income of the assessee in that year was that particular amount and that he was entitled to the refund of the excess amount of tax deposited by him. It was only because of the effect of S. 240 of the IT Act that when the assessment is finalised, on appeal the assessee becomes entitled to refund of the balance amount and the amount of interest as per S. 244 of the IT Act. Learned counsel has relied on the decisions of the apex Court in CIT vs. A. Gajapathy Naidu (1964) 53 ITR 114 (SC), CIT vs. Swadeshi Cotton & Flour Mills Private Ltd. (1964) 53 ITR 134 (SC) : TC 15R.792 and CIT vs. Hindustan Housing & Land Development Trust Ltd. (1986) 38 CTR (SC) 179 : (1986) 161 ITR 524 (SC). In support of his contention, he, therefore, submits that it will be the income of the assessment year in which the assessee actually received the payment. It cannot be allowed to be spread over the different years in between, as it will amount to the reopening of the accounts and assessment of the particular year which is already assessed. Such practice is not permissible under the Act.