JUDGMENT : K.L. Issrani, J. - On a reference u/s 256(2) of the Income Tax Act, 1961, this court in this case has framed the following, question for opinion : "Whether, on the facts and in the circumstances of the case, the income received by the assessee by way of interest u/s 244 of the Income Tax Act, 1961, on refund determined and quantified u/s 240 of the said Act was not assessable in the year of receipt ?" 2. The assessee is a registered firm. The assessment year involved is 1982-83 for which the accounting year ended on October 27, 1981. The Assessing Officer found that during the year the assessee received a sum of Rs. 40,315 as interest on refund of Income Tax u/s 244 of the Income Tax Act, 1961. The refund voucher was received on April 22, 1981. The entire amount of interest was assessed under the head "Other sources" by the Assessing Officer in the assessment year 1982-83. 3. The assessee appealed to the Deputy Commissioner of Income Tax (Appeals) against the inclusion of the interest of Rs. 40,315 to the total income. His submission was that the interest though received on April 22, 1981, related to the period from 1957-58 to 1973-74. Since the assessee was following the mercantile system of accounting, it was claimed that the interest be spread over the years in which it accrued. The records of the case were not available with him. In the absence of the relevant records, the Deputy Commissioner of Income Tax (Appeals) could not verify the system of accounting followed by the assessee in general and the system of accounting in respect of interest income in particular. He, however, accepted the assessee's claim in principle and restored the matter to the file of the Assessing Officer to verify the system of accounting followed by the assessee in the case of its interest income. He further directed the Assessing Officer that if the system of accounting was mercantile, the assessee's view on the taxability of interest on refund on accrual basis be accepted. 4. On further appeal by the Department, the Income Tax Appellate Tribunal, Cuttack Bench, Cuttack, confirmed the order of the Deputy Commissioner of Income Tax (Appeals) and dismissed the Departmental appeal. This shows how the matter was referred by the Department to this court for opinion on an answer to the question. 5. 4. On further appeal by the Department, the Income Tax Appellate Tribunal, Cuttack Bench, Cuttack, confirmed the order of the Deputy Commissioner of Income Tax (Appeals) and dismissed the Departmental appeal. This shows how the matter was referred by the Department to this court for opinion on an answer to the question. 5. Before the Income Tax Appellate Tribunal, the representative for the assessee, Mr. G. N. Padhi, has contended that the assessee is following the mercantile system of accounting and, therefore, the interest received by him on the refund of Income Tax for several years should be allowed to be spread over. The Income Tax Appellate Tribunal held that there is substance in the assessee's contention to spread over the interest received on refund of the Income Tax. Therefore, the view taken by the Appellate Assistant Commissioner was upheld, but the reasoning was not given by the Income Tax Appellate Tribunal in affirming the view taken by the Assistant Appellate Commissioner. 6. Shri A.K. Ray, learned standing counsel appearing for the Income Tax Department, submits that the assessee could not know and has no reason or basis to know as to whether he was entitled to the refund of the amount and the interest thereon. It is only when the assessment came to be final, that it was determined that the income of the assessee in that year was that particular amount and that he was entitled to the refund of the excess amount of tax deposited by him. It was only because of the effect of Section 240 of the Income Tax Act that when the assessment is finalised, on appeal the assessee becomes entitled to refund of the balance amount and the amount of interest as per Section 244 of the Income Tax Act. Learned counsel has relied on the decisions of the apex court in The Commissioner of Income Tax, Madras Vs. A. Gajapathy Naidu, ; Commissioner of Income Tax, Madhya Pradesh, Nagpur and Bhandara Vs. Swadeshi Cotton and Flour Mills Private Ltd., and Commissioner of Income Tax, West Bengal-II, Calcutta Vs. Hindustan Housing and Land Development Trust Ltd.. In support of his contention, he, therefore, submits that it will be the income of the assessment year in which the assessee actually received the payment. Swadeshi Cotton and Flour Mills Private Ltd., and Commissioner of Income Tax, West Bengal-II, Calcutta Vs. Hindustan Housing and Land Development Trust Ltd.. In support of his contention, he, therefore, submits that it will be the income of the assessment year in which the assessee actually received the payment. It cannot be allowed to be spread over the different years in between, as it will amount to the reopening of the accounts and assessment of the particular year which is already assessed. Such practice is not permissible under the Act. 7. Shri Mohanty, learned counsel appearing for the assessee, refuted the contention of learned standing counsel for the Department and submits that such process is permissible under law and the Income Tax Act protects such procedure- He submits that the right accrued to the assessee in the year for which he was assessed and not in the subsequent year when the payment was made. He led us to the definition of "interest" as defined u/s 2, Clause (28A), and also the provisions of Sections 9, 66 and 145 of the Income Tax Act. 8. It is to be seen as to actually when the right to receive the interest accrued to the assessee. Whether it accrued in the year of assessment for which the refund and interest was made or the date on which the interest was actually received by the assessee ? 9. In The Commissioner of Income Tax, Madras Vs. A. Gajapathy Naidu the apex court has decided the question as to when an Income Tax Officer proceeds to include a particular income in the assessment. For that, the Income Tax Officer should ask himself, inter alia, two questions, namely: (i) what is the system of accountancy adopted by the assessee, and (ii) if it is the mercantile system, subject to the deeming provisions, when has the right to receive accrued ? If he comes to the conclusion that such a right accrued or arose to the assessee in a particular accounting year, he should include the said income in the assessment of the succeeding assessment year. No power is conferred on the Income Tax Officer under the Act to relate back an income that accrued or arose in a subsequent year to another earlier year, on the ground that that income arose out of an earlier transaction. No power is conferred on the Income Tax Officer under the Act to relate back an income that accrued or arose in a subsequent year to another earlier year, on the ground that that income arose out of an earlier transaction. Nor is the question of reopening of accounts relevant in the matter of ascertaining when a particular income accrued or arose. Such amounts are in law received by the assessee only in the year in which they are paid. It was a case where the assessee, who supplied bread to a Government hospital under a contract during the period April 1, 1948, to March 31, 1949, made certain representations to the Government after the close of the year that he had incurred loss. The Government directed payment of the sum of Rs. 12,447 to the assessee by way of compensation, for the loss sustained in respect of the supply of bread. That amount was received by the assessee in the accounting year 1950-51. It was held that the amount was to be included in the profits of the year 1950-51 relevant to the assessment year 1951-52, and that it could not be related back to the earlier year during which the assessee actually supplied bread to the hospital. 10. In Commissioner of Income Tax, Madhya Pradesh, Nagpur and Bhandara Vs. Swadeshi Cotton and Flour Mills Private Ltd. it was a case where the assessee having the mercantile system of accounts, paid bonus to its employees for the calendar year 1947 in terms of an award made on January 13, 1949, under the Industrial Disputes Act. It debited this amount in its profit and loss account for the year 1948, but in fact paid it to the employees in the calendar year 1949. It was held that it was only in 1949 that the claim to profit bonus was settled by an award of the Industrial Tribunal and the only year to which the liability under the award could be properly attributed was 1949 and that therefore the sum had to be deducted in the calendar year 1949 relevant to the assessment year 1950-51. 11. A similar question arose in Commissioner of Income Tax, West Bengal-II, Calcutta Vs. Hindustan Housing and Land Development Trust Ltd.. There in a case of compulsory acquisition of land additional compensation fixed by the arbitrator was deposited in court. 11. A similar question arose in Commissioner of Income Tax, West Bengal-II, Calcutta Vs. Hindustan Housing and Land Development Trust Ltd.. There in a case of compulsory acquisition of land additional compensation fixed by the arbitrator was deposited in court. The assessee was permitted to withdraw it only on furnishing security. It was held that additional compensation does not accrue and is not taxable as profit at that stage. The Tribunal had held that the amount did not accrue to the respondent as its income during the relevant previous year ending on March 31, 1956, and was, therefore, not taxable in the assessment year 1956-57. On a reference, the High Court had affirmed the decision of the Tribunal. On an appeal to the Supreme Court, it was held, affirming the decision of the High Court, that although the award was made by the arbitrator on July 29, 1955, enhancing the amount of compensation payable to the respondent, the entire amount was in dispute in the appeal filed by the State Government and the dispute was regarded by the court as real and substantial because the respondent was not permitted to withdraw the amount deposited by the State Government without furnishing a security bond for refunding the amount in the event of the appeal being allowed. There was no absolute right to receive the amount at that stage. If the appeal were allowed in its entirety, the right to payment of enhanced compensation would have fallen altogether. The extra amount of compensation was not income arising or accruing to the assessee during the previous year relevant to the assessment year 1956-57. 12. Therefore, the contention of learned standing counsel for the Department that the right to receive the amount accrued to the assessee only when his Income Tax return was finally assessed even by the appellate authority, has much force because at the time the returns were submitted and the advance tax was paid, nobody was sure about the figure on which the assessee in fact is to be assessed. Though learned counsel for the assessee says that he was sure about that, his assertion cannot be accepted. If he was sure, he would not have deposited the excess amount of advance tax. That means, the amount was yet to be determined and the determination was finalised later on. Though learned counsel for the assessee says that he was sure about that, his assertion cannot be accepted. If he was sure, he would not have deposited the excess amount of advance tax. That means, the amount was yet to be determined and the determination was finalised later on. It was only as per Section 240 where, as a result of the order passed in appeal or other proceedings, the refund of amount becomes due to the assessee which is to be paid to him without his having to make a claim in that behalf. The interest on the amount so refunded is payable u/s 244 of the Income Tax Act in pursuance of the order referred to in Section 240 of the Income Tax Act and the Assessing Officer does not grant the refund within a period of three months from the end of the month in which such order is passed, the Central Government shall pay to the assessee simple interest at fifteen per cent. per annum on the amount of refund due from the date immediately following the expiry of the period of three months aforesaid to the date on which the refund is granted. Though it is not disputed that the assessee is following the mercantile system of accounting, the amount accrued to him was not earlier but on the date when he received the same and the assessee is liable to be assessed on that in that corresponding year accordingly. Here, it is not disputed that the amount of interest accrued to the assessee, but the contention of learned counsel for the assessee cannot be accepted that it accrued to him in that particular year for which he had submitted his returns as against the principle laid down in the aforesaid decisions of the apex court. 13. We, therefore, answer the question in favour of the Department by holding that the income received by the assessee by way of interest u/s 244 of the Income Tax Act on refund determined and quantified u/s 240 of the said Act was assessable only in the year of receipt and not earlier. G.B. Patnaik, J. 14. I agree.