Decided on October 19,1953



SATYANARAYANA RAO, J. - (1.) THE question on which we are called upon to express our opinion is "Whether the assessment for the assessment years 1942-43 and 1943-44 in the hands of the assessee of the two sums of Rs. 17, 928 and Rs. 3, 868 respectively being the accumulated interest which became due on several dates prior to the assessee becoming the owner of the debentures under Section 8 of the Income Tax Act, 1961 is valid" " * On the 29th October, 1941, the assessee obtained a transfer of certain debentures of Sri Salem Rajendra Mills Limited. Apparently the mills were not in a position to pay the interest on the debentures on the due dates, i. e., 1st February and 1st August, each year until 1942. On 2nd February, 1942, the assessee received a sum of Rs. 17, 928 which represented the interest which accrued due prior to the date of his transfer and also a further sum of Rs. 3, 868 during the year ending 31st March, 1943, which also represented interest which accrued due prior to the transfer. THE department claimed that these two amount s were assessable to income-tax as income received by the assessee, and the order of the department was confirmed by the Appellate Assistant Commissioner and also by the Tribunal on further appeal.
(2.) THE facts as stated above do not, in our opinion, present any difficulty in answering the question against the assessee. Section 8 of the Income Tax Act, 1961 provides :- "THE tax shall be payable by an assessee under the head 'interest on securities' in respect of the interest receivable by him on any security of the Central Government or of a Provincial Government, or on debentures or other securities for money issued by or on behalf of a local authority or a company." * It is contended that in view of the language of this section, tax shall be payable in respect of interest receivable by the assessee on any security, that when the interest accrued due prior to the transfer the then owner of the debenture was alone liable to pay the tax in respect of that interest, and that the assessee, though he received the amount after he obtained a transfer of the debentures, could not be taxed as he was not the owner at the time the interest accrued due. This contention in out opinion, proceeds on an erroneous assumption, namely, that soon after the interest became payable it was liable to be taxed as income received by an assessee or income which accrued due to an assessee. In order to understand the import of the expression "interest receivable" in this section, one had to look at Section 18 (3) which lays down that "THE person responsible for paying any income chargeable under the head 'interest on securities', shall unless otherwise prescribed in the case of any security of the Central Government, at the time of payment, deduct income-tax but not super-tax on the amount of the interest payable at the maximum rate." * This sub-clause enables the person responsible for paying interest on securities to deduct the income-tax at the time of payment, which clearly implies that unless the amount is paid or received it does not become liable to tax. Merely because the interest accrued due and became receivable, it does not attract the liability to pay tax at that point of time. The position may be different in respect of matters falling under Sections 10 and 12 of the Income Tax Act, 1961 which attract the provisions of Section 13. But on the interest which accrues due in respect of securities, debentures, etc., referred to in Section 8, the liability to pay tax arises only when the interest is received. The expression "interest receivable" in our opinion is used to denote that in computing the income for the purposes of this section the amount of interest calculated as per the terms of the security or the debenture should be taken into account, though, in fact, the assessee might have received a lesser amount in view of the deduction provided for under Section 18 (3) of the Act. The language of the section does not, in our opinion, when interpreted in the light of the language of Section 18 (3), support the argument of learned counsel for the assessee, though at first sight it might seem plausible. The assessee must have under the transfer acquired not only the security and the interest to accrue due thereafter but also the interest which accrued previous to the transfer. He was therefore entitled to receive not only the future interest but also the interest prior to the date of the transfer. The interest receivable by him is undoubtedly liable to tax, and the view taken by the Appellate Tribunal is, in our opinion, correct. The question referred to us must therefore be answered in the affirmative and against the assessee. As he had failed, the assessee must pay the costs of the Income-tax Commissioner which we fix at Rs. 250. Reference answered accordingly.;

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