Law:

Section:

section 145 of the income-tax act, 1961-method of accounting-charge on accrual, receipt or other basis-whether, where assessee's regular system of accounting is found to be neither cash nor mercantile, interest awarded on compensation for acquired land would accrue in each year falling between date of acquisition and date of payment and hence entire interest received by assessee cannot be brought to tax in the year of receipt-held, on facts, yes Facts The assessee's property was acquired on 29-8-1963 and the compensation along with interest was awarded on 29-3-1966. For the period of two years and seven months, the assessee was allowed interest by the Land Acquisition Collector. The ITO treated the entire interest receipt as income of the year in which it was received, i.e., the assessment year 1966-67. The AAC upheld the ITO's action. On appeal before the Tribunal, the assessee contended that interest had accrued in each of the years from the date of the acquisition of the property to the date of payment. The Tribunal accepted the assessee's contention and held that only the portion of interest relatable to the assessment year in question should be included as the income of the assessee in that year. On reference, the revenue contended that since the method of accounting followed by the assessee was neither cash nor mercantile, it must be presumed that the assessee followed cash system of accounting in respect of the interest and hence the interest received by the assessee in the year in question should be assessed in that year. Held Where the Tribunal does not find that the method of accounting adopted by the assessee is either cash or mercantile, the income becomes taxable when it becomes legally due and recoverable, for it is then that it accrues. Hence, in the instant case, the Tribunal was right in holding that only the portion of the impugned interest relatable to the previous year relevant to the assessment year 1966-67 and not the entire receipt was taxable in the assessee's hands in the assessment year 1966-67. Case review CIT v. V. Sampangiramaiah [1968] 69 1TR 159 (Mys. ) followed. Cases referred to CIT v. V. Sampangiramaiah [1968] 69 ITR 159…

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