Law:

Section:

Section 5 of the Income-tax Act, 1961 [Corresponding to section 4 of the Indian Income-tax Act, 1922] - Income - Accrual of - Assessment year 1956-57 - Assessee, a HUF, was following cash system of accounting - It had filed a suit for recovery of certain amount alongwith interest thereon against a company which was compromised - Company thus executed a simple mortgage in favour of sons of karta of assessee - HUF for aggregate sum including interest - Whether since assessee maintained cash system of accounting, amount of interest was not assessable as income of assessee in assessment year 1956-57 - Held, yes FACTS The assessee, a HUF maintained its accounts on cash basis and was taxed on that basis. Its only source of income in the year was interest on securities. It had instituted a suit for recovery of money earlier advanced to a company alongwith interest thereon, which was compromised on 6-2-1956. In pursuance of compromise, said company executed a simple mortgage in favour of sons of karta of assessee-HUF for aggregate sum, including interest. The ITO included the amount of interest in the total income of the assessee for the assessment year 1956-57 (year ending 31-3-1956) which was upheld by the AAC. On second appeal, the Tribunal held that since the amount of interest was not received by the assessee during the relevant previous year it was not assessable in that year on the basis of cash system of accountancy maintained by the assessee. On reference, the High Court held in favour of the Department on the ground that there was constructive payment of interest. On appeal to the Supreme Court : HELD In view of the decision of Supreme Court in CIT v. Amalgamated Development Ltd. [1967] 65 ITR 395 , it was to be held in the instant case that the decision of the High Court was clearly wrong. Thus, the Tribunal was right in holding that amount of interest was not…

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