Thursday, 4 January 2018

HC : Reverses ITAT; Accrued FD interest not hypothetical income, TDS non-deduction u/s 194A irrelevant

Kerala HC reverses ITAT order for AY 2009-10, rules that interest income from bank deposits accrued but not due and hence not credited to assessee’s (a Public sector undertaking) account is taxable; Assessee had disclosed Rs. 3.23 cr accrued in the balance sheet as interest receivable on fixed deposits but excluded the same in its tax return claiming that it was only a hypothetical income and the right to receive had not accrued; Rejects assessee’s stand that since the b ank neither credited/paid the interest nor deducted TDS u/s. 194A, the question of accrual did not arise; HC observes that assessee follows mercantile system of accounting, further observes that assessee had exercised the option to let the interest accumulate to the deposit and thereby earned compound interest by the end of the deposit term; Clarifies that the Bank's liability to deduct tax at source arises only when it pays the interest and not on periodical accrual of interest, remarks that “the interest income that accrued cannot, by any stretch of imagination, be termed as hypothetical income”, relies on SC rulings in Tuticorin Alkali Chemicals and Fertilizers, Keshav Mills Ltd., distinguishes assessee’s reliance on SC ruling in Excel Industries Ltd.:HC 

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