Law:

Section:

Section 5, read with section 244, of the income-tax act, 1961-Income-Accrual of-Assessee received interest on refund of tax for the period from 5-6-1965 to 16-6-1971 on 24-9-1971 in assessment year 1972-73-Whether interest accrued from year to year irrespective of assessee's method of accounting and entire sum received by assessee was not liable to tax in assessment year 1972-73 on receipt basis-Held, on facts, yes Facts As a result of the Supreme Court decision in favour of the assessee a certain refund became due to the assessee on 5-6-1965 but it was paid only on 16-6-1971. The interest on delayed refund from 5-6-1965 to 16-6-1971 was paid on 24-9-1971 in the assessment year 1972-73. The ITO proceeded to assess the entire amount received as interest as income of the assessment year 1972-73 even though the assessee had included in his returns filed for the years 1966-67 to 1971-72 the interest accrued for those years for the purpose of assessment. Both the AAC and the Tribunal held that only the amount of interest that accrued in the accounting year relevant to the assessment year 1972-73, and not the entire interest received could be brought to tax in the said assessment year. On reference : Held Where there is a statutory liability, the method of accounting is not quite relevant, and in such a case the date of accrual alone should be taken as the basis for assessment and not the actual receipt. In the instant case, the interest on the delayed refund which became due on 5-6-1965 would be liable to be assessed on accrual basis only, from year to year, and there was no justification for assessing the entire interest in the year of receipt, i.e., the previous year relevant to the assessment year 1972-73, on the basis of actual receipt. The assessee had included in his returns filed for the assessment years 1966-67 to 1971-72, the interest accrued for those years for the purpose of assessment, which was also a relevant factor to be taken into account. The assessee was said to be adopting the hybrid system of accounting. Whatever be the method of accounting that was followed by the assessee, the fact remained that the assessee, adopting the accrual basis had…

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