This appeal by department relates to assessment year 1973-74, for which previous year ended on 31-3-1973. 2. assessee is Government company, which was incorporated on 16-2-1972 to take over business of F. X. P. Minerals, Chavara, which was being run by Government as Government department. business was being over on 31-3-1972. assessment year year now under appeal relates to first year of business. original assessment was completed on 31-12- 1974. This was reopened and reassessment was made in which addition was made of sum of Rs. 41,250 as is interest on securities. This was comprised of Rs. 33,062.50, Rs. 4,750 and Rs. 3,437.50 being interest at rate of 5 3/4 per cent on K. S. D. Loan, 4 3/4 per cent on K. S. D. Loan Bonds and 5 1/2 per cent on K. S. D. Loan Bonds, respectively. interest amounts had accrued during period when assets were held by Government and was not, therefore, taxable. amounts were brought to tax by ITO in reassessment by resorting to section 18(2) of Income-tax Act, 1961 ('the Act'). 3. Commissioner (Appeals) held that section 18(2) is not attracted in t h e present case and deleted addition. Aggrieved by same, department has come up in appeal. grounds taken by department are to effect that Commissioner (Appeals) erred in holding that interest amounts cannot be brought to tax in assessment year under appeal under section 18(2). 4. In present case, there is no dispute about fact that interest amounts accrued due in earlier assessment year and that during that assessment year, amounts could not have been brought to tax as recipient of interest was Government of Kerala. amount is now sought to be taxed in subsequent year on receipt basis taking advantage of fact that assets have become property of Government-owned company and that income of company can be brought to tax. 5. Section 18 reads thus: "(1) following amounts due to assessee in previous year shall be chargeable to income-tax under head 'Interest on securities', - (i) interest on any security of Central or State Government not being interest payable under section 280D respect of annuity deposit made under Chapter XXIIA; (ii) interest on debetures or other securities for money issued by or on behalf of local authority or company or corporation established by Central, State or Provincial Act. (2) Nothing contained in sub-section (1) shall be construed as precluding n assessee from being charged to income-tax in respect of any interest on securities received by him in previous year if such interest had not been charged to income-tax for any earlier previous year." Sub-section (2) provides that interest on securities received by assessee in previous year can be charged to fix if such interest has not been charged to tax for any earlier previous year. purpose of section is to tax interest amount on receipt basis when it had not been taxed on accrual basis. This presupposes that amount could have been taxed either in earlier previous year or in previous year. Sub-section (2) does not seem to cover case where interest was not chargeable to tax at all when it accrued due and where it could have been charged to tax in subsequent assessment year on receipt basis. sub-section is intended to cover cases where there was omission to charge interest income to tax on accrual basis. In such cases, sub-section empowers ITO to tax interest income on receipt basis. sub-section does not seem to have been intended to cover change in assessee after accrual of interest and before actual payment of interest. In fact, sub-section presupposes that interest amount could have been brought to tax on accrual basis in earlier previous year. In present case, interest amount was not chargeable to tax at all in earlier previous year. It is stated at page 993 of Vol. I of Sampath Iyengar's Law of Income-tax, Seventh edn., that Act made departure in respect of basis of charge of interest on securities, that under Indian Income-tax Act, 1922 charge was on receipt basis, that under Act, charge was created on accrual basis and that purpose of sub-section (2) was to cover switch over to due basis, which was only prospective. This confirms view expressed by us earlier that sub-section is not intended to take advantage of transfer of assets from one assessee to another after accrual of interest and before receipt of same. 6. assessment of interest amount in hands of assessee is bad for another reason. assessee-company has taken over assets and liabilities of business carried on by Government. When assessee took over business, interest amount had already accrued due to Government and it formed part of assets taken over by assessee. This is confirmed by deed of sale executed in favour of company by Governor or Kerala and connected papers regarding valuation of assets. assesse merely collected amount which had accrued due to predecessor in interest. It was not, therefore, case of assessee receiving income. It was only case of recovery of asset. In this view of matter also, interest amount cannot be brought to tax in hands of assessee. We, therefore, confirm order of Commissioner (Appeals) deleting additions. 7. In result, appeal is dismissed. *** INCOME TAX OFFICER v. KERALA MINERALS & METALS LTD.