JUDGMENT judgment of court was delivered by L. Narasimha Reddy J.-These two appeals filed under section 260A of Income-tax Act, 1961 (for short "the Act"), arise out of common order dated November 9, 2001, passed by Visakhapatnam Bench of Income-tax Appellate Tribunal (for short "the Tribunal"), in I. T. Nos. 2254 and 2257 of 1996 and batch. assessee is appellant. appellant was functioning as managing director of M/s. A. P. Tanneries Ltd. (for short, "the first company"). He gave loan of certain amounts to said company as well as to another company by name M/s. Associated Tanners (for short, "the second company"). latter was paying interest on amount advanced by him regularly whereas former was just showing accumulated interest in its account books without making actual payment. It was also his case that even while showing interest payable to him in account books, first company deducted tax at source (TDS) on amount of interest payable and issued certificates in relation thereto. In returns filed by him, appellant was adopting hybrid procedure. While in respect of his transaction with first company, he adopted cash system, as regards transaction with second company, he adopted mercantile system. result was that he did not pay tax on interest payable to him by first company, even while he enjoyed entire benefit of TDS made in that behalf. There is no dispute about interest paid by second company since appellant has shown same as income and paid tax thereon. Assessing Officer took objection to this and passed order of assessment treating interest payable by first company on transfer basis as income and levied tax. same result ensued for various financial years. Aggrieved by that, appellant filed appeals before Commissioner of Income-tax, Visakhapatnam. appeals were dismissed. Thereupon, appellant filed further appeals before Tribunal. Through order dated November 9, 2001, Tribunal dismissed appeals. Learned counsel for appellant submits that it is open for assessee to adopt partly cash system and partly mercantile system and even while holding same as permissible, authorities under Act have adopted principles underlying mercantile system for entire returns. It is pleaded that when first company did not pay interest at all, appellant ought not to have been levied tax on such amount. She has also urged that once TDS is deducted even while withholding payment of corresponding amount, appellant was entitled to claim benefit thereof. Sri S. R. Ashok, learned senior counsel for Income-tax Department, submits that though it is permissible for assessee to adopt dual method for same returns appellant cannot claim benefit of TDS in its entirety and at same time, refuse to pay tax on corresponding interest. Learned senior counsel submits that appellant acquired right to receive interest from first company once it was shown in account books of that organisation; and that is sufficient to levy tax upon appellant, particularly when he is taking full advantage of amount recovered as TDS. assessee has option to file returns by adopting cash system or mercantile system. In given case, he can adopt both systems for different components in one and same returns. broad distinction between these two systems is well known. Under cash system, assessee would be under obligation to pay tax only on such of amount which has been actually received by him. In contrast, under mercantile system, mere entitlement to receive would bring about obligation to pay tax. assessees choose one of them or both of them for different parts, after taking note of advantages and disadvantages in adopting these methods. We are concerned with income of appellant in form of interest, on loans which he has advanced to two companies referred to above. As matter of fact, he is managing director of first company. His case is that second company was paying interest regularly and in relation to transaction of that company, he adopted mercantile system. There is no dispute about payment of tax on that. For transaction with first company, he has chosen to adopt cash system. He stated that though amount payable to him as interest was being shown in account books of company, actual payment of amount was not done. Another contention was that even while not paying amount, TDS was effected. By adopting cash system for this component of his returns, appellant did not pay any tax on interest payable to him by first company, on ground that amount has not been paid at all. If that were to have been all, there would not have been any controversy. reason is that under cash system, liability to pay tax arises only when concerned amount is received as income. first company made TDS in respect of amount payable to appellant as interest and issued certificate. appellant wanted to use certificate in its entirety. In other words, amount reflected in TDS certificate was being shown as tax already paid. This would have devastating effect. amount covered by certificate would take care of interest payable on other income of appellant. For example, if amount reflected in TDS constitutes tax payable on sum of Rs. 1,00,000, that would have taken care of income of appellant to extent of Rs. 1,00,000 from other sources, though interest as regards which TDS was effected, was not reflected in returns at all. All authorities under Act, i.e., Assessing Officer, Commissioner (Appeals) and Tribunal did not approve method adopted by appellant. appellant cannot be permitted to blow hot and cold at one and same time. If no TDS was effected and interest was not paid, he would not have been under obligation to show amount of interest in his returns, much less to pay tax thereon. However, once TDS is effected, he cannot be permitted to use certificate to cover other amounts even while refusing to show amount of interest in his returns. steps taken by authorities in this behalf cannot be treated as applying parameters for mercantile system to component of returns filed under cash system. effect of order passed by Assessing Officer as upheld by Commissioner (Appeals) and Tribunal is only that appellant must desist from having best of both systems and discarding one, which is disadvantageous to him. Once he intends to treat amount deducted as TDS as component of tax paid, corresponding to TDS must form part of returns and assessment. On corresponding to TDS must form part of returns and assessment. On other hand, if he intends to pay tax on interest as and when he receives it, amount covered by TDS certificate can be treated as just income outstanding, till actual date of receipt. In facts of present case, section 198 gets attracted. Whenever amount deducted as tax at source becomes incapable of being adjusted or counted towards tax payable, it acquires character of income. In such event, it partakes of character of any other income and is liable to be dealt with accordingly, in order of assessment. Since appellant has adopted cash system and he did not receive interest regarding which TDS was effected, TDS amount deserves to be treated as income. However, attempt made by him to treat that amount as tax for corresponding amount, cannot be permitted. For foregoing reasons, we partly allow appeals holding that appellant cannot be permitted to give credit to amount representing TDS as tax and on other hand, it shall be treated as item of income for concerned assessment year. miscellaneous petitions filed in these appeals shall also stand disposed of. There shall be no order as to costs. *** Y. Rathiesh v. Commissioner of Income-tax