Allowing the appeal of the revenue the Court held that ; interest for the period during which the amounts stood in deposit, accrued on the close of the previous year and became the income of that particular assessment year, liable to be taxed in that year. In view of the fact that the assessee had exercised the option to let the interest accumulate to the deposit and thereby earned compound interest by the end of the deposit term, it would not mulct any liability on the bank to pay tax on periodical accrual of interest to the Income-tax authorities. The bank’s liability to deduct tax at source arose only when it paid the interest. The amount that was to be received as interest, was known to the assessee and was accounted, as income accrued by way of interest in the account books of the assessee following the mercantile system. The interest income that accrued could not, by any stretch of imagination, be termed hypothetical income.( AY. 2009-10)