assessee is in appeal before us against order of learned CIT(A), XVI, Mumbai dt. 7th March, 2000 passed for asst. yr. 1996-97. first ground of appeal raised by assessee reads as under: "1. CIT (A)-XVI, Mumbai (hereinafter referred to as CIT(A)) erred in upholding that interest earned on nostro account balances is taxable in India under s. 5(2) of IT Act, 1961 (the Act). Your appellants submit that on facts and in circumstances of case, CIT(A) ought to have held that interest earned on nostro account balances is not chargeable to tax under ss. 5 or 9 of Act. Your appellants pray that AO be directed to delete interest of Rs. 5,74,45,794 earned on nostro account balances in computing their income." brief facts of case are that assessee is non-resident company engaged in business of banking. It is having its Head Office at Paris and carries on business throughout world including India through branch thereof. For asst. yr. 1996-97 it had filed its return of income on 30th Nov.,1996 declaring total income of Rs. 8,97,11,720. return was processed firstly under s. 143(l)(a) and thereafter it was selected for scrutiny and notice under s. 143(2) was issued. learned AO while going through accounts found that assessee has credited sum of Rs. 5,74,45,794 to P&L Account under head "Interest on nostro account". As against this assessee has paid interest to Headquarter/Branches amounting to Rs. 7,48,468. interest received from branches as well as on nostro account have been excluded from taxable income in computation filed along with return and interest paid has been added to income. notice under s. 142(1) along with letter dt. 7th Dec., 1998 was written to assessee inviting its explanation as to why interest earned in nostro account should not be construed as income of assessee and should not be added in total income. In response to show-cause notice assessee filed reply on 29th Jan., 1999 and submitted as under: "As regards, interest on nostro balances assessee explained as follows: Further our clients have claimed amount of Rs. 5,74,45,794 being interest on nostro balances exempt from tax as indicated in Part V of return o f income. It is submitted that our clients head office at Paris and entire branch network maintain US dollar account (the nostro account) with Bankers Trust Company, New York (BTC). balance to credit of this account is available as US dollar float to our clients to be drawn upon as and when required. nostro account is made up of transactions of our clients entire network in US dollar accounts, insofar as Indian branch is concerned, major part of account comprises of amounts credited in respect of funds received through FCNR-B Deposits from clientele abroad in foreign currency. As forward cover costs prevailing at time are high Mumbai branch decided not to convert these into local currency but leave them in USD nostro account overseas till such time that it was economically feasible to convert funds into rupees for local lending. BTC pays interest on credit balances at rate which is 2 per cent less than fed funds rate. BTC sends statement of interest payable but it on such account directly to Bombay Branch. However, our clients, to their internal accounting purposes treat such interest as received through its head office for credit to Mumbai branch. It is submitted that s. 4 of Act provides that IT shall be charged for every year in respect of total income of previous year of every person. s. 5 defines scope of total income. Sec. 5(2) provides that total income of any previous year of person who is non-resident includes all income from whatever sources derived which (a) is received or is deemed to be received in India in such year by or on behalf of such person; or (b) accrues or arises or is deemed to accrue or arise to him in India during such year. Interest from BTC is neither received nor could it be deemed to have been received in India by our clients. Such interest also does not accrue or arise to our clients in India." learned AO has considered this contention of assessee and rejected same. He made addition of Rs. 5,74,45,794 as interest income accrued to assessee. learned AO in this connection assigned mainly two reasons, firstly he observed that assessee has credited in its books of account interest earned by placing funds through FCNR-B deposits in bank abroad, therefore, such interest is accrued in India. Secondly he observed that in any way that interest is deemed to accrue or arise in under s. 9(1)(i) of Act. Thirdly interest is received from Head Office/Branches. Dissatisfied with addition assessee carried matter in appeal before leaned CIT(A) and reiterated its contention as raised before AO. Leaned first appellate authority has gone through contentions of assessee and reproduced them at pp. 2 to 6 of impugned order. After going through all these contentions leaned. CIT(A) has culled out following material, facts and circumstances for adjudication of this issue: "1. appellant has branch in New York. It is above branch which mobilies FCNR-B deposits. expenses of New York branch are debited to P&L A/c. of applicants Indian Branch A/c. mobilization of FCNR-B deposits was done under Reserve Bank of India FCNR scheme which permits mobilization of foreign currency funds abroad. interest earned on Nostro account and placed with BTC New York has been credited to P&L A/c. of bank in India but not finally offered for taxation as claimed exempt. In previous year similar interest income was offered for taxation as funds were brought into India. In subsequent years also similar interest income has been offered for taxation since funds have been brought in India. During this year interest earned on nostro account maintained with BTC, New York has not been offered for taxation and claimed exempt as funds were not brought into India as forward cover cost prevailing at that time were high. Mumbai branch decided not to convert this into local currency but leave them in USD-nostro account overseas till such time it was economically feasible to convert funds into rupee for local lending. BTC sends statement of interest payable by it on such account directly to Mumbai Branch." On basis of above facts and circumstances and on strength of two decisions of Hon ble Supreme Court rendered in case Performing Right Society Ltd. & Anr. vs. CIT (1976) CTR (SC) 429: (1977) 106 ITR 11 (SC) and CIT vs. Toshoku Ltd. (1980) 19 CTR (SC) 192: (1980) 125 ITR 525 (SC) respectively has concluded that s. 5(2) of IT Act would be applicable to facts of present case. He further held that s. 9 as relied upon by assessee is not applicable. In opinion of learned CIT(A) entire business operations including that of branch in New York of assessee were conducted as whole composite unit and can be seen mobilization of deposit maintained to NRI Indians settled abroad under specific scheme of RBI and expenses pertained to assessee s branch office in New York has been debited to P&L a/c of assessee company in India and claimed as expenditure. learned first appellate authority further observed that deposits received have been shown in Indian accounts and interest income also been credited in accounts finalized in India. According to learned. CIT(A) while business activities have been conducted as one operation by office of assessee in India, can it said by merely taking decision in one particular year and not bringing deposit and interest income into India same would be allowed to escape taxation under Indian IT Act. learned. first appellate authority further observed that in present context of globalization, information technology, use of computers and world banking operation, claim of assessee appears to be incorrect and accordingly learned. first appellate authority has upheld order of AO. learned counsel for assessee while impugning order of revenue authorities submitted that RBI had introduced foreign currency (non-resident) Account (Bank) Scheme (hereinafter referred as FCNR-B Scheme) in 1993. Under this scheme assessee was permitted to raise deposits outside India from non-resident Indians and Other overseas corporate bodies. Up to 4th December, 1995 funds raised under FCNR-B Scheme were required to be brought into India immediately as per guidelines of RBI. However, thereafter, these funds were permitted to be invested with banks abroad as short-term deposits by RBI, provided banks abroad made rating criteria set out by RBI. Thus for first time during asst. yr. 1996-97 assessee, non-resident raised and received deposits outside India invested amount in bank account with BTC in New York and received interest on that investment in New York. This investment was made for short- term period pending final utilization of funds in India. He pointed out that deposits raised outside India has not been disputed by Department. investment made were also outside India, interest thereon also being received outside India. Thus no income could be considered as accrued or arisen or deemed to have been accrued or arisen in India. While taking us through order of AO he further submitted that AO h s observed that FCNR deposits are through assessee s own branch abroad. According to him learned AO has miserably failed to appreciate that assessee is itself branch and branch cannot have another branch, it is Head Office who has branches all over world. learned AO has held that borrowings of assessee in India at end of year have been increased by amount of Rs. 546.63 crores, thus it indicates that assessee had obtained funds through deposits and borrowings in India and deployed these outside India to earn interest. On such premises learned AO held that interest have deemed to have accrued in India. Controverting this finding he submitted that above borrowings do not consist of FCNR-B deposits alone which are, in fact, shown under head Deposits . Taking us through written submission filed before learned CIT(A) he contended that break-up of deposits between mobilization in and outside India is required to be made in form of balance sheet prescribed only in case of nationalized bank and not in case of assessee being branch of foreign bank. Thus, learned. AO is not justified in coming to above conclusion on basis of year end balances, borrowings, and deposits. interest income will depend upon balances available during previous year at any point of time. He further pointed out that current account maintained by assessee with Head Offices branches do not consist of balance which include monies borrowed locally and placed abroad as deposits. On strength of Hon ble Madras High Court s decision in case of C.G. Krishnaswami Naidu vs. CIT (1966) 62 ITR 686 (Ori) learned. counsel for assessee contended that in money lending transaction decisive factors would place where money is actually lent irrespective of where it came from. He pointed out that interest income would accrue or arise at place where it was lent. learned. counsel for assessee further submitted that for treating interest income as accrued in India learned. AO had taken help of s. 9. He submitted that this section provides for circumstances in which income is deemed to accrue or arise in India. Sec. 9(1)(v)(c) provides that income by way of interest payable by person who is non-resident shall be deemed to accrue or arise in India only where interest is payable in respect of any debt incurred or monies borrowed and used for purpose of business or profession carried on by such person in India. He emphasized that BTC is non-resident. interest payable by BTC is not in respect of any debt incurred or monies borrowed and used for purpose of business or profession carried on by it in India. Thus interest paid by BTC cannot be regarded as income deemed to accrue or arise in India. He further submitted that learned. AO while considering this issue has applied s. 9(1)(i) of Act which deals with all other incomes not covered by clauses (ii) to (vii) of sub-s. (1) of s. 9. According to learned. counsel for assessee specific clause for ascertaining whether interest is deemed to accrue or arise in India under s. 9(1)(v) is provided then unless case of assessee is examined under this clause it should not be considered under general provision. learned. counsel for assessee further submitted that learned. CIT(A) has confirmed addition with aid of s. 5(2) of Act, however, learned. first appellate authority failed to take note of Expln. 1 appended with this learned. first appellate authority failed to take note of Expln. 1 appended with this sub-section. In support of his contention learned. counsel for assessee placed on record copies of circulars at p. 40 issued by RBI exhibiting amendment to Exchange Control Manual (ECM) 1993 edition and has relied upon decision of Hon ble Rajasthan High Court in Mansinghka Bros. (P) Ltd. vs. CIT (1983) 37 CTR (Raj) 19: (1984) 147 ITR 361 (Raj), CIT vs. Tata Chemicals Ltd. (1974) 94 ITR 85 (Bom) and (Anglo-French Textile Co. Ltd. vs. CIT (1954) 25 ITR 27 (SC) . Controverting contention of learned. counsel for assessee learned Departmental Representative placed small compilation of 8 pages, wherein details of expenses as disclosed by assessee are being reflected. It also contains letter dt. 18th Dec.,1995 written from Head Office. On strength of these details he submitted that alleged raising of loan outside India is not independent activity, rather employees of assessee went abroad for raising such funds and assessee has debited expenses incurred for their salaries etc. deputed staff was under direct control of assessee. He further submitted that interest expenses on loans which was ultimately used for making deposit with BTC have been booked in books of Indian Branch and had been claimed as deduction. Inviting our attention towards s. 5(2)(a) he submitted that expression "by and on behalf of such persons" has been used in this clause, thus deputed persons were under control of Mumbai Branch had raised funds for assessee and deposited them outside India but claimed interest expenses on such funds do indicate that there is direct nexus between funds which were otherwise meant for Indian Branch and deployed outside. He further invited our attention to s. 9(1) of Act and contended that assessee has been receiving interest as business income resulted by way of direct connection, thus interest income is to be treated as accrued or arise to assessee and liable to be taxed. Alternatively he submitted that only net interest income is to be excluded and not gross interest income. In this connection he invited our attention towards r. 10 of IT Rules, 1962 and submitted proportional division is possible. He further submitted that s. 14A has been brought on statute book with retrospective effect. If interest income earned by assessee cannot be included in total income then expenditure incurred for earning such interest income is also to be disallowed to assessee. learned Departmental Representative further submitted that though AO has not made disallowance of interest income because he has added interest income in total income of assessee then Tribunal has power to direct AO to disallow interest expenses. In support of his contention he relied upon Ahmedabad Electricity Co. Ltd. vs. CIT (1992) 106 CTR (Bom)(FB) 88: (1993) 199 ITR 351 (Bom)(FB) and CIT vs. Mahalakshmi Textile Mills Ltd. (1967) 66 ITR 710 (SC). In rebuttal learned counsel for assessee submitted that whether interest expenses is to be allowed to assessee or not is separate issue and AO has not gone in that issue, therefore, it is not within realm of Tribunal s power to go into that arena. We have duly considered rival contentions and gone through record carefully. There is no dispute that funds were raised or borrowed outside India. Those funds were deposited outside India with BTC. Whether interest income on such deposit with BTC had accrued or arose or deemed to have been accrued or arose to assessee or not in accounting period relevant to this assessment year is core issue for our adjudication. Secs. 5(2) and 9(1)(v) are relevant sections which have direct bearing on controversy, therefore, it is salutary upon us to take note of these clauses: "5. Scope of total income. (2) Subject to provisions of this Act, total income of any previous year of person who is non-resident includes all income from whatever source derived which (a) is received or is deemed to be received in India in such year by or on behalf of such person; or (b) accrues or arises or is deemed to accrue or arise to him in India during such year. Explanation 1-Income accruing or arising outside India shall not be deemed to be received in India within meaning of this section by reason only deemed to be received in India within meaning of this section by reason only of fact that it is taken into account in balance sheet prepared in India. Explanation 2-For removal of doubts, it is hereby declared that income which has been included in total income of person on the, basis that it has accrued or arisen or is deemed to have accrued or arisen to him shall not again be so included on basis that it is received or deemed to be received by him in India". ** ** ** "9. Income deemed to accrue or arise in India. (1) following incomes shall be deemed to accrue or arise in India: (i) all income accruing or arising, whether directly or indirectly, through or from any business connection in India, or through or from any property in India, or through or from any asset or source of income in India, or through transfer of capital asset situate in India. Explanation 1: For purposes of this clause: (a) in case of business of which all operations are not carried out in India, income of business deemed under this clause to accrue or arise in India shall be only such part of income as is reasonably attributable to operations carried out in India; (b) in case of non-resident, no income shall be deemed to accrue or arise in India to him through or from operations which are confined to purchase of goods in India for purpose of export;" "(v) income by way of interest payable by (a) Government; or (b) person who is resident, except where interest is payable in respect of any debt incurred, or moneys borrowed and used, for purposes of business or profession carried on by such person outside India or for purposes of making or earning any income from any source outside India; or (c) person who is non-resident, where interest is payable in respect of any debt incurred, or moneys borrowed and used, for purposes of business or profession carried on by such person in India;" Let us see whether alleged interest income earned on deposits with BTC falls in scope of s. 5(2) of Act as held by learned. CIT(A). IT Act provides two points of time at which liability to tax is attracted namely either accrual of income or its receipt. There is distinction between accrual arising and income received. accrual or arousal has nothing to do with actual receipt. income may accrue or arise in one place or it may be received at different places. But crucial issue would be that it would happen at one given point of time. For assessee either that income liable to tax would be accrued, arose or received or no income would result. If money had already received by non-resident outside India as income and later transmitted same to India, it will not be received as income in India. Similar treatment would be given to income which had accrued or arisen or is deemed to have accrued or arisen. If such event has taken place out of India then how that income would be taxable in India. If it is brought to tax in India then benefit of double taxation would be available to assessee because income has already accrued or arisen in taxable territory of foreign country. In this connection at cost of repetition we would like to make reference of Expln. 1 and 2 appended with s. 5(2) of IT Act. Explanation 1-Income accruing or arising outside India shall not be deemed to be received in India within meaning of this section by reason only of fact that it is taken into account in balance sheet prepared in India. Explanation 2-For removal of doubts, it is hereby declared that income which has been included in total income of person on basis that it has accrued or arisen or is deemed to have accrued or arisen to him shall not again be so included on basis that it is received or deemed to be received by him in India" In brief position of non-resident in regard to charge of tax would be (i) non-resident will be assessed on income received by him or on his behalf in India during previous year, i.e. received as income for first time in India, but not that much, having been received as income outside India in earlier year, is brought into India in year of account (ii) on income deemed by statute to be received by him or on his behalf in India during previous year (iii) on income accruing or arisen to him in India during previous year (iv) on income deemed by statute to accrue or arise to him during previous year. next point emerges out from facts of present case is place and point of accrual of interest income to assessee. Hon ble Madras High Court in case of C.G. Krishnaswami Naidu (supra) has held that in money lending transaction decisive factor would be place where money is actually lent irrespective of where it came from. In that case agreement to lend money was made in India though actual lending took place in State of Mysore. Thus according to Hon ble High Court interest income had arisen at place where money was actually lent. Similarly Hon ble Rajasthan High Court in case of Mansinghka Bros. (P) Ltd. vs. CIT (1983) 37 CTR (Raj) 19: (1984) 147 ITR 361 (Raj) has held that place of accrual of income would place where right to receive income arise. In present case right to receive interest income had arisen to assessee out of India. Thus principally we agree with contention of assessee than interest income did not accrue to it within India. Though learned. CIT(A) has pointed out certain peripheral facts in his order, wherein he highlighted that entire business operation including that of branches out of India are conducted as whole unit and in pace of technology development coupled with computerization it is very difficult to determine very situs of funds. According to him it is quite difficult to locate assessee has raised its loan on which branch actually carried out this business activity specifically. In our opinion facts of present appeal on this issue are little intermingled in such way that possible novel arguments in both sides can be raised. But while dealing with such issue one should realize that carrying on banking business is not single activity in isolation. It is bundle of activities. Thus for carrying out number of activities deputation of staff and claiming of salary expenses etc. solely cannot be considered for raising funds outside India. other arguments raised by learned Departmental Representative is other arguments raised by learned Departmental Representative is that expenses towards interest on funds received from outside India have b e e n booked in India. Thus according to learned Departmental Representative in way moment assessee raised funds or interest outside India and such interest expenses are booked within India it amounts constructive transmission of funds within India and thereafter it was deployed outside India with BTC in constructive way. According to learned. Departmental Representative if controversy is appreciated with this angle then source of interest income is linked within India and interest income would fall in s. 9(1)(a)of Act. To some extent this argument of learned Departmental Representative appears to be temptative but in our opinion for accepting such arguments we have to deem so many circumstances and in way we would bring this income to tax only in fictional way. Contrary to arguments of learned Departmental Representative learned. counsel for assessee submitted that interest expenses were paid by assessee towards its liability on such funds raised outside India. According to him it was distinct to deposits assessee made with BTC. If assessee had not made deposits with BTC and kept this fund idle in that case also interest expenses were to be borne by assessee. Thus according to learned. counsel for assessee merely by debiting interest expenses within India in accounts it would not be considered that funds had been transmitted in India constructively and thereafter they were deployed as deposits with BTC. We find force in this contention of learned counsel for assessee and reject arguments of learned Departmental Representative. that constructive transmission of funds should be accepted Though in ground of appeal assessee is only challenging addition of interest income which is not arising within India but controversy has another angle also. Learned Departmental Representative at time of hearing raised argument that as to how interest expenses can be claimed against exempted income. He emphasized on point that assessee raised funds out of India. These are interest-bearing funds and interest expenses have been booked within India. If these interest-tearing funds are deployed out of India for earning tax-free income then how interest expenses which are directly relatable to tax free income can be allowed to assessee. learned counsel for assessee fervently opposed contention of learned Departmental Representative, on ground that it is appeal of assessee. AO has nowhere made disallowance of interest expenses in assessment order, thus it is not case of AO to disallow interest expenses. claim of expenses is all together separate issue and such expenses have been considered as business expenses allowable to assessee. How Tribunal while sitting in second appeal can take up such issue? We have duly considered rival contentions. We are conscious of f c t that we are sitting in second appeal and issue regarding disallowance of interest expenses has not been examined by AO at any stage. Thus by entertaining such type of arguments as advanced by learned Departmental Representative we will be putting assessee at loss even in its appeal. If AO was interested in disallowing interest expenses it was his discretion. Before us both parties are at par and we do not want to open altogether new area of dispute. Therefore, we reject contention of learned Departmental Representative that issue regarding disallowance of interest expenses be set aside to AO. next ground of appeal reads as under: "(2) CIT(A) erred in upholding that your appellants income is taxable at rate of 55 per cent Your appellants submit that on facts and in circumstances of case CIT(A) ought to have held that in accordance with provisions of art. 2 6 of Agreement for Avoidance of Double Taxation between India and France (AADT) tax on business income should have been levied at rate of 46 per cent Your appellants pray that AO be directed to recomputed their tax liability in accordance with provisions of Article 26 of AADT." learned. counsel for assessee while impugning finding of Revenue Authorities below contended that treaty is in existence between India and France which has been amended by several protocol rights up to 2000. Under art. 26(2) of treaty it is specifically provided that permanent establishment of French resident will not be less favourably treated with regard to taxation than enterprise carrying on same activities in India. He emphasized that it is accepted in international arena that discrimination with regard to taxes on business profits is prohibited in respect of enterprises carrying on same activities in either of two States. He further submitted that no doubt Tribunal has taken view in number of cases that explanation added to s. 90 of IT Act with retrospective effect providing charge of tax in respect of foreign company at rate higher than rate at which domestic company is chargeable, shall not be regarded as Jess favourable charge and non-discriminative explanation. He pointed out that Tribunal failed to take note of aspects that amendment to domestic law where provision of contrary exists in treaty has no effect without treaty itself being amended. On strength of Tribunal decision rendered in case of Siemens Aktiengesells chaft vs. ITO (1986) 26 TTJ (Bom) 566: (l987) 22 ITD 87 (Bom) he contended that provision of treat had overriding effect over provisions of IT Act. According to learned. counsel for assessee in case of Aktiengesellschaft Siemens (supra), Hon ble Special Bench of Tribunal has to consider effect of retrospective amendment made to definition of "royalty" where there was no amendment to treaty Tribunal has held that retrospective amendment cannot take away right which person has under treaty and amendment introduced in domestic law subsequently cannot have any roll in interpreting scope of terms of DTAA. He also relied upon decision of Hon ble Bombay High Court in case of CIT vs. Tata Chemicals Ltd. (supra). On strength of Hon ble Supreme Court decision in case of Union of India vs. Azadi Bachao Andolan (2003) 184 CTR (SC) 450: (2003) 263 ITR 706 (SC) apprised us approach required to be adopted by Tribunal while considering retrospective amendment carried out in s. 90 by insertion of explanation. On other hand, learned. Departmental Representative contended that this issue has been examined in detail by Tribunal in number of cases namely, (i) ITO vs. Decca Survey Overseas Ltd. (ITA No. 8489/Bom/1991), (ii) ITO vs. Decca Survey Overseas Ltd. (ITA No. 3604/Bom/1994), (iii) ABN Amro Bank NV vs. Jt. CIT (2005) 96 TTJ (Kol)(TM) 1041 and (iv) Chohung Bank vs. Dy. Director of IT (2006) 104 TTJ (Mum) 612: (2006)102 ITD 45 (Mum) (ITA No. 4948/Mum/2005). We have duly considered rival contentions and gone through record carefully. issue in dispute is covered against assessee by series of decisions as demonstrated by learned. Departmental Representative It is operative force of s. 90 of IT Act enable assessee covered by DTAA to claim applicability of more beneficial provision either of Act or of treaty. Thus s. 90 is exception to general provisions of Act. It is Act which provides exception and enforceability of DTAA. explanation appended to this section further creates exception out of general exception. It carves out area where provisions of s. 90(2) would not be applicable. It provides that as far as applicability of tax rate is concerned applying higher rate of non-domestic company could not be treated as less favourable. This is exception to general exception that assessee who are non-resident and with whom s country India has DTAA will be treated as favourably or equally vis-a vis resident taxpayers. In other words, in event of allegation of discrimination on basis of rates of non-resident companies, explanation clarifies position. explanation does lay out new law it only clarifies position as it stood earlier also. Moreover, s. 90(2) only authorize Central Government to make agreement with foreign countries in respect of assessability and computation of income and not about rates of taxes on income so computed as it falls in domain of Annual Finance Act. contention of learned. counsel for assessee that unless treaty is amended or any protocol thereto is being issued modifying treaty, its provisions are required to be given more weightage are concerned, we are of view that no doubt for honouring international agreement one has to take care about all these aspects but power of Parliament to make amendment in law is not assigned or compromised by virtue of DTAA in force. force of applicability of treaty even preferential treatment which is favourable to assessee is by virtue of provision in IT Act and if that source is being modified then assessee cannot say that treaty would be given preference over that source. As far as decisions relied upon by learned. counsel for assessee are concerned they are not applicable on facts of present case. Here explanation as appended with source from where operative force of implementing treaty is drawn. In all cases cited by learned. counsel for assessee this source has not been touched, rather, contrary treatment was purported to be given on certain issue. Therefore, they are quite distinguishable. Thus this ground of appeal is rejected. next ground of appeal reads as under: "3. CIT(A) erred in holding that net interest paid for broken period, after setting off interest received for broken period, is not allowable deduction in computing your appellants total income. Your appellants submit that interest paid for broken period is not capital in nature. Further it is submitted that they have consistently followed this method of accounting and over period of time, it is not likely to have impact on their profits. Yours appellants, therefore, pray that AO be directed to grant deduction in respect of interest paid for broken period in computing their income." learned. counsel for assessee at very outset pointed out that this issue is covered in favour of assessee by decision of Tribunal rendered in asst. yr. 1991-92. Tribunal while deciding this issue has recorded following finding: "The first ground of appeal is that IT authorities erred in holding that net interest paid in respect of securities for broken period, after setting off interest received from them for broken period is not allowable deduction in computing total income. It is claimed that since assessee has been consistently following system of adjusting interest paid in respect of broken period against interest received for broken period, method has to be recognized and income computed on that basis. In support of claim, our attention is drawn to orders of Tribunal for asst. yrs. 1987- 88 and 1988-89 in ITA Nos. 4921 and 4922/Mum/1995 (dt. 8th Oct., 2003) and for asst. yr. 1990-91 in ITA No. 3510/Mum/1996 (dt. 30th June, 2003) and judgment of Bombay High Court in American Express International Banking Corporation vs. CIT (2002) 177 CTR (Bom) 442: (2002) 258 ITR 601 (Bom). We have gone through same and find contention to be correct in fact, in order for asst. yr. 1990-91 Tribunal has observed that parties had conceded that issue is covered by above judgment of Bombay High Court. Therefore, respectfully following orders of Tribunal cited above and judgment of Bombay High Court, we allow ground and directs AO to set off interest paid in respect of broken period against interest received in respect of broken period." In view of above we set aside order of learned. AO and direct him to readjudicate this issue in light of Tribunal s decision in asst. yr. 1991- 92. In result, appeal of assessee is partly allowed. *** CREDIT AGRICOLE INDOSUEZ v. JOINT COMMISSIONER OF INCOME TAX