Case Law Details
We find from the records that the assessee has computed his interest income arising on the difference between purchase price of the debenture and redemption price after six years and calculated the income on amortization basis.
Today, the controversy is very narrow. The question is, whether such interest income should be taxed on accrual basis in the year of allotment of debenture itself or whether it should be taxed on spread-over basis?
The matter has also been settled by various decisions of the Court, including the judgement of the Bombay High Court in the case of Taparia Tools Limited vs. Joint Commissioner of Income Tax, reported in [2003] 260 I.T.R. 102, which refers to matching principle in order to arrive at the real income of the assessee.
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO.205 1 OF 2007
Rakesh Shantilal Mardia, Ahmedabad
Versus
Deputy Commissioner of Income Tax
With Civil Appeal No.2052/2007 and Civil Appeal No.2053/2007
O R D E R
Heard learned counsel on both sides.
For the sake of convenience, we may refer to the facts in Civil Appeal No.2051 of 2007, which concerns Assessment Year 1995-1996.
We find from the records that the assessee has computed his interest income arising on the difference between purchase price of the debenture and redemption price after six years and calculated the income on amortization basis.
Today, the controversy is very narrow. The question is, whether such interest income should be taxed on accrual basis in the year of allotment of debenture itself or whether it should be taxed on spread-over basis?
At this point of time, in our view, it would be futile to ask the Department or the assessee to recompute the income as it would merely be a theoretical exercise. On principle, the matter has also been settled by various decisions of the Court, including the judgement of the Bombay High Court in the case of Taparia Tools Limited vs. Joint Commissioner of Income Tax, reported in [2003] 260 I.T.R. 102, which refers to matching principle in order to arrive at the real income of the assessee.
In the circumstances, on the peculiar facts of this case and in order to avoid further litigation, we set aside the order of the High Court and restore the order passed by the Income Tax Appellate Tribunal.
Consequently, the civil appeals filed by the assessees are allowed. No order as to costs.
September 13, 2012.
Add-on (unedited)>
It has been one’s long standing conviction, also aired whenever occasion arose in the past, the viewpoints canvassed (ref. (2009) 14 CPT pg 819) are primarily related to ‘accounting’. As such, for obvious reason, it is for the ICAI, being the concerned regulatory authority in the realm of ‘accounting’ (albeit, also as a representative body of its members actively engaged in practice of tax laws,mainly income-tax) to have an insightful study made by its in-house experts and come out with incisive suggestions to the Government; sooner done, the better.
It is common knowledge that the ICAI has always been keenly interested and taken upon itself the onerous task of suggesting to the Government the ways and means as to how best to reform/improve upon the taxation laws (income-tax being one of them). Such suggestions made in the past , as one understood, had the primary objective or aim of securing , not just maximization of Revenue, but also ensuring what should be done from the point of view of the taxpaying public, and essentially having regard to their common interests.
Keeping the foregoing in mind, it is earnestly expected that the ICAI would, living up to the tradition, strive and come forth with its valuable contribution in regard to the subject matter herein as well. It goes without adding, that should go a long way in, – improving upon, by setting right the deficiencies long obtaining, in the income-tax regime in general; and in better, if not in a foolproof manner, of administration of the law in particular; and in turn, result in profoundly securing / safegaurding the ‘public intererest’.
View taken is quite pragmatic, and down to earth based on common sense thinking- a strict view , regardless of based on any legal principle or accounting principle , as experience has shown, often turns out to be futile; especially, if no loss to Revenue or taxpayer-barring the possible advantage of timing difference, favourable or unfavourable’
Points worth pondering: Is it not prudent to permit tax accounting, so long as it is in line with book accounting or vice versa ? In any case, not permit litigation beyond say, Tribunal – advantage, indisputably, being SAVING COST OF LITIGATION, wORK PRESSURE,leading to easily avoidaBLE stress ON COURTS, ALSO AVOID / OBVIATE NATIONAL WASTE OF TIME (MANHOURS) AND INHERENT COST TO THE EXCHEQUER ?
key note: TO EXAMINE , with wisom gathered in hindsight,, IN THE LIGHT OF LITIGATION GALORE ON ISSUES SUCH AS WRT CLAIM OF ‘DEPRECIATION’, SO ON!
The concepts such as,- ‘method of ccounting’, ‘incurred’, ‘accrual’,’paid’, so on, have been rather unduly stresed and accorded undue relevance or importance, to such an extent that they have invaraiably been the root cause of proliferation of court litigation.
A critical analysis of related accounting concepts, wprt to a provision introduced in the extant tax law- section 14A , which, in recent years, has proved to be a BREEDING GROUND FOR and led to a fresh spate of controversies and resulting in proliferation of court litigation, has been attempted in the published article – (2009) 14 CPT pg 819.