592. Interest on deposit made under National Deposit Scheme – Whether taxable in the year of accrual
1. The National Deposit Scheme was launched by the Central Government with effect from 30-7-1984. Interest on deposits under this Scheme is paid or compounded on half-yearly basis. The Central Government has amended the Scheme to provide that in respect of deposits made in financial year 1984-85, interest up to 31-3-1985 will be deemed to have accrued on 31-3-1985 even though the actual payment or compounding is made on half-yearly basis.
2. The Board is of the view that such interest is taxable in the year of accrual.
Circular : No. 406 [F. No. 178/289/84-IT(A-I)], dated 15-1-1985.
JUDICIAL ANALYSIS
REFERRED TO IN – The above circular was referred to in Mrs. Ira Nenazie v. Fifth ITO [1993] 46 ITD 1 (Bom.) with the following observations :
“. . . the assessee’s case is supported not only by the terms of the fixed deposit receipt but also the decision of the Supreme Court in the case CIT v. T.N.K. Govindarajulu Chetty [1987] 165 ITR 231 as well as the CBDT Circular No. 371, dated 21-11-1983 and No. 406, dated 15-1-1985. Moreover, under section 4 of the Income-tax Act, total income of the previous year is assessable to tax and section 5 defines ‘total income’ to include income which accrues or is received. Obviously, it has to be taxed at the earliest point of time, namely, accrual, unless the assessee chooses to offer it on receipt basis by maintaining the cash system of accounting. In the present case, the assessee had, no doubt, offered the entire receipt originally but on the footing that it was a capital receipt. Once it is held that it is a revenue receipt, the assessee has to be given the option as indicated in the Circulars of the CBDT and consequently the assessee is entitled to succeed in the claim that only the interest which accrued in the previous year should be assessed to tax in this previous year . . . .” (p. 3
