Law:

Section:

Section 18 of the Income-tax Act, 1961 [Corresponding to section 8 of the Indian Income-tax Act, 1922] - Interest on securities - Chargeable as - Assessment years 1945-46 - Whether there can be no mercantile method basis as far as section 8 of 1922 Act is concerned and, therefore, interest on securities only becomes "income" when it is actually received and not when it is due or capable of being received - Held, yes Words and phrases : Word 'receivable' as occurring in section 8 of the Indian Income-tax Act, 1922 FACTS The relevant accounting year of the assessee-HUF was from 30-10-1943 to 17-10-1944. One of the sources of income of the assessee-HUF was interest on tax-free war loan. Interest on these securities was payable on the 15th April and 15th October every year. These securities were lodged with the bank. 15-10-1944, was a holiday, 16-10-1944 was a working day and 17/18-10-1944 were again Diwali holidays. The bank collected the interest in respect of this half year on 21-10-1944. The Income-tax Department treated this half-yearly income which was received by the bank on 21-10-1944, as the income of the assessee for the assessment year 1945-46. The contention of the assessee was that this income should be included in the assessment year 1946-47. The Tribunal accepted the contention of the Commissioner and rejected the contention of the assessee. On reference : HELD It is clear from the scheme of the Act that "receivable" in this case does not mean "capable of being received". Section 8 was enacted to provide that tax was payable not on the actual amount received by way of interest on securities, but on the amount to which the assessee was entitled on the face of the securities. Therefore, the Legislature had to draw a distinction between the amount actually received and the amount which was receivable according to the tenor of the securities, and it is from that point of view that the expression "receivable" has been used by the Legislature. In the instant case, the Tribunal had taken the view in their order that in the past the assessee had maintained the mercantile system of accounting and that was one reason why in the opinion of the Tribunal the…

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