Method of accounting: Hybrid system: Section 145: A.Y. 1991-92: Amendment of Incometax Act w.e.f. 1-4-1997 not permitting hybrid system: Assessee can follow hybrid system in A.Y. 1991-92: Amendment of Companies Act in 1988 not permitting hybrid system: Not applicable.

 For the A.Y. 1991-92, the assessee-company had followed hybrid system of accounting for the purpose of computation of income. The Assessing Officer discarded the hybrid system and adopted the mercantile system and made addition. The Tribunal upheld the order of the Assessing Officer.

On appeal by the assessee, the Calcutta High Court reversed the decision of the Tribunal and held as under: “

(i) The method of accounting referred to section 145 of the Income-tax Act, 1961, prior to its substitution by the Finance Act, 1995. w.e.f. 1-4-1997, included hybrid or mixed systems of accounting and it was open to a company-assessee to follow the cash system of accounting in respect of a particular source of income and the mercantile system in respect of the others.

(ii) The provisions of the Companies Act, 1956, are meant for the requirement of the 1956 Act and in case of infraction thereof necessary consequences as provided in the 1956 Act itself follows. Section 209 of the 1956 Act does not have overriding effect over any other law, nor has the 1956 Act elsewhere provided that the provisions of the 1956 Act have overriding effect over income-tax and fiscal statutes.

(iii) The Tribunal was not right in holding that for the A.Y. 1991-92, the assessee could not follow the cash system for accounting for its interest income and in upholding the assessment of interest income on accrual basis.”