These are appeals by revenue relating to consecutive assessment years 1974-75 to 1976-77 against orders of Commissioner (Appeals). Involving common grounds, all three appeals are disposed of together by combined order. 2. first common ground relates to disallowance of expenditure incurred on Delhi flat. case of assessee is that flat No. B-168 had been taken by assessee in Defence Colony, New Delhi, for holding meeting of directors. assessee claimed rent and other maintenance charges in connection with that flat. This flat remained in occupation of assessee till November 1973 and from December 1973, assessee took on rent certain premises in Vasant Vihar at New Delhi. ITO rejected claim of assessee relying on past history. Admittedly, claim of assessee was rejected in past right up to stage of Tribunal on ground that no evidence had been led to establish that flats had been used for business purposes by assessee. For years under appeal, Commissioner (Appeals) accepted claim of assessee observing that there was evidence to show that flats had been used for business purposes. He observed that notices for holding meeting of board of directors were given by assessee and they clearly proved that premises were being used for business purposes, meaning thereby for holding meetings of board of directors. We agree with Commissioner (Appeals) that decisions relating to earlier years are distinguishable inasmuch as for years under appeal assessee produced evidence in shape of notices pertaining to meetings of board of directors. Shri Pandey, learned representative for assessee, submits that all directors belong to erstwhile royal family and that they always stayed in some prestigious hotels in New Delhi and that premises having been taken on rent for holding meetings of directors could not have been used for residential purposes by directors. This is how, he argues that on facts and in circumstances of case, it is highly improbable that premises in question were ever used for personal purposes by directors. We quite agree with his submissions. For reasons, we uphold orders of Commissioner (Appeals) on this issue. 3. next common ground relates to disallowance of interest calculated on compound interest system. case of assessee is that no compound interest was charged by assessee from Citric India Ltd. IAC, while giving direction under section 144B of Income-tax Act, 1961 ('the Act'), observed in para 6(iv) as reproduced in order of ITO relating to assessment year 1974-75 is follows: "(iv) There was search in premises of assessee and among records seized from branch office of assessee situated at Rajmahal, Jaipur, there is paper bearing No. 107. In this paper, figures of yearwise accrued interest on loans advanced to Citric India Ltd. have been given. From these figures, it appears that interest had been worked out by assessee on loans advanced to Citric India Ltd. have been given. From these figures, it appears that interest had been worked out by assessee on gross amount of loans including accrued interest. This paper was shown by ITO to assessee's representative. Regarding this paper, he has stated that it has no relevance as figures of interest shown therein are financial yearwise whereas accounting year of assessee ended on 30th June of each year. He has further stated that figures of interest shown in this paper do not also tally with interest provided for in account books for assessment years 1967-68 and 1968-69." 4. It is on these facts, ITO calculated compound interest purportedly having been received by assessee from Citric India Ltd. Commissioner (Appeals) relying on his combined order dated 28-3-1980, pertaining to assessment years 1971-72 to 1973-74, copy of which is included in paper book, took view that only simple interest at rate of 12 per cent was chargeable. He accordingly, directed ITO to recompute interest on simple interest basis. This is how addition was deleted in varying amounts for years under appeal. Against combined order dated 28-3-1980 of Commissioner (Appeals), Tribunal heard appeals being IT Appeal Nos. 944 to 947 (Jp.) of 1980, assessment years 1971-72 to 1973-74, and they were decided by order dated 10-7-1981 (see pages 61 to 63 of paper book). said order was delivered by learned Accountant Member, to which one of us (Judicial Member) was party. Tribunal came to conclusion that of us (Judicial Member) was party. Tribunal came to conclusion that there was no evidence to show that compound interest was charged by assessee from Citric India Ltd. It was clearly held that as per written agreement of parties, interest was payable at rate of 12 per cent only and that no evidence was there to prove that said agreement was, in any way, modified by parties. slip of paper which was seized during search operation from premises of assessee, showed working of interest on compound interest basis, but Tribunal took view that that could not constitute supplementary agreement modifying original agreement. Tribunal, in order dated 10-7-1981 found as follows: "5. We have heard rival submissions. reference to accounts of assessee in books of Citric India Ltd., shows that for financial year 1965-66, interest was charged at 12 per cent. In next year, although opening balance included interest charged in earlier years, entry regarding interest was reversed on 31-1-1967 and then interest up to 31-3-1967 was calculated. This means principal amount on which interest was charged for financial year 1966-67 did not include interest charged in financial year 1965-66. Further, no interest has been credited by Citric India Ltd., to assessee in accounting years relevant to assessment years in appeal. reading of agreement clearly shows that simple interest was being charged at 12 per cent. In fact, assessee's claim was that no interest accrued to it but we have held in appeals against original assessment orders that interest accrued to assessee by virtue of its agreement with Citric India Ltd. point before us is whether seized paper could be considered as supplementary agreement enabling assessee to charge interest on compound interest basis. In our opinion, such inference cannot reasonably be drawn. seized paper cannot be taken as evidence that assessee was receiving interest under table over and above what was stipulated in agreement and ITO cannot have reasonable belief that income escaped assessment on basis of these papers. We, therefore, agree with learned Commissioner (Appeals) that assessments have been wrongly reopened under section 147(a). We confirm his orders and dismiss departmental appeals." 5. Relying on said order of Tribunal, we hold that there was no agreement between parties to charge compound interest and that no compound interest was charged by assessee from Citric India Ltd. assessee, however, denied even to having received agreed interest. For reasons, we uphold orders of Commissioner (Appeals) in this regard. 6. There is one more ground relating to assessment years 1975-76 and 1976-77 only. ground relates to disallowance of salary having been paid to one Shri Harishchand. registered office of assessee-company is at Hauz Khas, New Delhi. Shri Harishchand, according to assessee, attends t o registered office. He is not regular employee of assessee-company. T h e premises, in which registered office of assessee-company is situated, belongs to his wife. Shri Pandey submits that Shri Harishchand used to receive dak of assessee-company and some other papers and for such service, he was being paid by assessee-company meagre amount. There is nothing on record to disbelieve case of assessee. Shri Harishchand having actually rendered services to assessee-company, we hold that payment made to him is connected with business and is, therefore, allowable. For reasons, we agree with Commissioner (Appeals). 7. In result, all appeals are dismissed. Per Shri Ram Rattan, Accountant Member -- I have gone through combined order passed by learned Judicial Member. I do not fully endorse views expressed therein. There are following three issues involved in these appeals by revenue: 1. Disallowance of expenditure incurred on Delhi flat common for all three years. 2. Disallowance of salary paid to Shri Harishchand at registered office at Delhi. 3. Disallowance of interest calculated on compound interest basis. 2. So far as first two issues are concerned, I agree with conclusions arrived at by learned Judicial Member. I have, however, my own reservations arrived at by learned Judicial Member. I have, however, my own reservations regarding third issue. I am, therefore, recording my separate decision thereon. It is admitted fact that during course of search made under section 132 of Act at business premises of assessee, inter alia, paper bearing No. 107 was found and seized. assessee had loaned certain sums to Citric India Ltd. There is some controversy about charging of interest from Citric India Ltd. by assessee. assessee did not show any interest income from this source, even at simple rate of interest. This controversy is, however, not before Tribunal in this appeal. It is enough to make mention of this fact to have idea of background in this case. According to IAC, to whom reference was made under section 144B, document bearing No. 107 seized during course of search showed figures of yearwise accrued interest on loans advanced to Citric India Ltd. calculation of interest in this paper is on compound interest basis. It further shows that calculation of compound interest is on basis of financial years and not years ending 30th June as followed by assessee. figures of interest mentioned in this document also do not tally with figures of interest provided by assessee in books of account maintained by it for assessment years 1967-68 and 1968-69 where interest for these two years was provided. ITO calculated compound interest on basis of this document and included same in income of assessee for three assessment years under appeal. Commissioner (Appeals), however, took view that only simple interest at rate of 12 per cent was chargeable and directed ITO to compute interest income from loans to Citric India Ltd., on that basis. He deleted interest income calculated at compound interest rate basis our simple rate at 12 per cent. learned Judicial Member has upheld order of Commissioner regarding deletion of interest income calculated at compound rate of interest. According to him, seized paper cannot be taken as evidence that assessee was receiving interest under table over and above what was stipulated in agreement. He has further held in combined order that there was no agreement between parties to charge compound interest. assessee even denied having charged agreed interest at simple rate. main argument is that seized paper has no evidentiary value and entries in books of account have to be accepted as correct. This document does not constitute supplementary agreement, nor it suggests more interest received or agreed to be received under table. 3. I am afraid, I cannot subscribe to above views. Search and seizure provided under section 132 is very drastic measure against tax evaders. It is resorted to by department, when authority competent to order search has reasonable belief of suppressed income, assets, documents, account books, etc. To say that document found during course of search has no evidentiary value is to forfeit very purpose of provisions contained in section 132. In fact such incriminating material found during course of search would depict real state of affairs against entries in account books. drastic action under section 132, in fact, is with view to show, with help of incriminating material found during course of search, if any, that entries in account books do not reflect real state of affairs. I shall now usefully refer to provisions contained in section 132(4A), which reads as under: "(4A) Where any books of account, other documents, money, bullion, jewellery or other valuable article or thing are or is found in possession or control of any person in course of search, it may be presumed-- (i) that such books of account, other documents, money, bullion, jewellery or other valuable article or thing belong or belongs to such person; (ii) that contents of such books of account and other documents are true; and (iii) that signature and every other part of such books of account and other documents which purport to be in handwriting of any particular person or which may reasonably be assumed to have been signed by, or to be in handwriting of, any particular person, are in that person's handwriting, and in case of document stamped, executed or attested, that it was duly stamped and executed or attested by person by whom it purports to have been so executed or attested." 4. plain reading of these provisions reveal that ITO may, inter alia, presume (i) assessee to be owner of document, and (ii) contents thereof are true. ITO has presumed assessee to be owner of said documents and its contents as true. In my opinion, these presumptions are, however, rebuttable and assessee may adduce evidence to dislodge these presumptions. There is not iota of evidence to show that contents of document are not true, or assessee is not owner of this document. only submissions made on behalf of assessee were that figures of interest shown therein were financial yearwise whereas accounting year of assessee ended on 30th June and further, figures shown therein also did not tally with those provided in account books for assessment years 1967-68 and 1968-69. These submissions do not even suggest that assessee was not owner of document or contents thereof were not true what to speak of n y evidence rebutting same. I, therefore, hold that this document has evidentiary value in view of discussions made above and contains true state of affairs about interest income from Citric India Ltd. figures of interest calculated in document are admittedly on basis of compound interest. It is immaterial whether these have been calculated on financial year basis or otherwise. assessee, it appears, kept these details on financial year basis as it was considered convenient. fact of charging compound rate of interest is positively established from this document. It is very vital document for purpose of considering accrual or otherwise of interest income from Citric India Ltd. It is, however, unfortunate that neither revenue nor assessee has ventured to file copy of this document in paper book. It is, therefore, not known as to on what capital interest has been calculated in different years. I am, therefore, not in position to comment further on this document. Suffice it to say that this document overrides entries in account books. In circumstances, I am unable to sustain order of learned Commissioner (Appeals). same is, therefore, reversed with reference to compound interest and orders of ITO are restored. It may not be out of place to mention that Jaipur Bench of Tribunal has already set aside order of Commissioner (Appeals) for assessment year 1976-77 and restored issue regarding taxability of interest income from Citric India Ltd. on simple interest basis. It would, therefore, be in fitness of things to restore issue regarding compound interest also to his file for considering same afresh. I, therefore, set aside order of Commissioner (Appeals) for assessment year 1976-77 on this limited issue and restore same to his file for fresh determination. 5. In result, all three appeals are partly allowed. REFERENCE TO THIRD MEMBER UNDER SECTION 255(4) OF INCOME-TAX ACT, 1961 Per Shri Om Prakash, Judicial Member -- As members of Bench differ in opinion on one of points, we refer same for decision by Third Member as follows: "Whether, on facts and in circumstances of case, can it be said that there was agreement between assessee and Citric India Ltd. to charge compound interest?" Per Shri Ram Rattan, Accountant Member -- I have gone through combined order passed by learned Judicial Member under section 255(4) of Act. issue framed therein, in my opinion, does not cover real controversy. issue in appeals before Bench was whether ITO was justified in charging interest at compound rate of interest on loans to Citric India Ltd. addition made by ITO is based on document Sl. No. 107 found by department at business premises of assessee and seized during course of search under section 132. This document has been discarded by learned Judicial Member as having no evidentiary value. I shall, therefore, refer following points to Hon'ble President, Tribunal, for being referred to other Member(s): "1. Whether, on facts and in circumstances of case, it can be said that document Sl. No. 107 found by department at business premises of assessee during course of search and seizure under section 132 of Act has evidentiary value and overrides entries in books of account and other documents relating to loan to Citric India Ltd.? 2. If so, whether ITO was justified in charging compound interest on loans advanced to Citric India Ltd.?" THIRD MEMBER ORDER Per Shri T.D. Sugla, President -- learned Members, who heard above appeals, originally have differed on one issue, namely, whether loan by assessee to Citric India Ltd. was advanced on simple or compound rate of interest. It is pertinent to mention that learned Members have differed not only on issue involved but also on framing of points of difference. While, according to learned Judicial Member, point of difference is: "Whether, on facts and in circumstances of case, can it be said that there was agreement between assessee and Citric India Ltd. to charge compound interest?" learned Accountant Member is of view that following two are points of difference: "1. Whether, on facts and in circumstances of case, it can be said that document Sl. No. 107 found by department at business premises of assessee during course of search and seizure under section 132 of Income-tax Act, 1961, has evidentiary value and overrides entries in books of account and other documents relating to loan to Citric India Ltd.? 2. If so, whether ITO was justified in charging compound interest on loans advanced to Citric India Ltd.?" 2. It may not be out of place to observe that learned Accountant Member has, as matter of fact, not decided issue finally. Observing that Tribunal has already set aside order of Commissioner (Appeals) for assessment year 1976-77 and restored issue of taxability of interest income from Citric India Ltd. to file of Commissioner (Appeals), he has held that it will be in fitness of things that this issue is also restored to his file for consideration afresh. This is correct also as otherwise, supposing I come to conclusion that income by way of interest on this amount accrues on compound rate basis, it will be difficult, if not impossible, for Commissioner (Appeals) to decide restored appeal with open mind. Again, question whether document, being Exhibit No. 107, seized from assessee's premises constituted piece of evidence and, if so, what is its evidentiary value, according to me, is merely argument in support of respective views taken by learned Members. They certainly do not and should not constitute separate and independent points of difference. 3. As Third Member, I have to agree with points of difference stated b y one or other Member. In circumstances. I am inclined to agree with t h e learned Judicial Member so far as point of difference is concerned. However, I would like to clarify that in case I do not agree with learned Judicial Member, effect of my order would be that I would be, in that case, agreeing with learned Accountant Member and issue will be restored to file of Commissioner (Appeals) for consideration afresh. 4. Briefly stated, relevant facts are that assessee-company agreed t o advance loan of Rs. 20 lakhs to Citric India Ltd. in terms of letter of agreement written by Citric India Ltd. on 27-7-1965 which was confirmed by assessee. In terms of agreement, principal company was to submit credit notes for interest amount at end of each year and was also to pay amount of interest on or before 30th June every year. contemplated rate of interest was 12 per cent per annum. amount of Rs. 20 lakhs, it was contemplated, was to be advanced in two instalments of Rs. 10 lakhs each, one t o be released immediately on confirmation of arrangement and other after six months, i.e., near about February 1966. However, amounts have been advanced from time to time commencing from 4-8-1965 to 15-10-1969. assessee, it may be stated, disclosed interest on above loan as its income in assessment years 1967-68 and 1968-69. Subsequently thereto, no interest income has been shown though ITO has been assessing assessee on basis of assumed interest income. 5. In first two years, i.e., accounting years ending 30-6-1966 and 30-6-1967, assessee has charged interest, debited debtors' account and credited its interest account which has been disclosed as its income as stated above. What has happened in next four years is not known as assessee h s not filed copies of debtor-company's account in its books nor has furnished copies of profit and loss account and balance sheet in spite of specifically asking assessee-company to do so. audit notes in its profit and loss account and balance sheet for years ending 30-6-1972, 30-6-1973 and 30-6-1974 indicate that amounts of interest on this loan worked out to Rs. 3,28,156, Rs. 2,04,876 and Rs. 2,04,876, respectively, but same was not debited to debtors' account and/or credited to interest/profit and loss account. Audit note in profit and loss account and balance sheet for year ended 30-6-1975 indicated that assessee considered interest as not accruing. copies of assessee's account in books of debtor- company which have been produced before me indicate different story. debtor-company observed financial year as its previous year. For years ended 31-3-1966 and 31-3-1967, debtor-company credited assessee- company's account by way of interest with Rs. 21,369.86 and Rs. 1,27,187.21, respectively. amount of Rs. 21,369.86 being interest for year ended 31-3-1966 had been debited to liabilities' account for year ended 31-3- 1967 but same has again been credited to assessee's account for year ended 31-3-1968. No entry has been made by debtor-company in respect of interest in its books in assessee's account in any subsequent year. Instead, debtor-company has issued sort of confirmatory letter dated 18-6-1975 to assessee to effect that it has not paid any interest after 1-4- 1967 nor is any interest payable to assessee in view of assessee- company not complying with terms of advancing loan. It may be stated that assessee's claim that interest is not taxable in this case after 1-4-1967 as nothing has accrued or being received has not been accepted by departmental authorities and Tribunal. Except for assessment year 1976- 77, it has been consistently held by Tribunal that income by way of interest accrued to assessee from year to year, of course, on basis that interest to be charged is simple and not compound. For assessment year 1976-77, it appears, appeal has been restored to file of Commissioner (Appeals) for decision afresh, inter alia, because of new piece of evidence in shape of abovesaid letter dated 18-6-1975 issued by debtor-company. In any event, issue in proceedings before me is only whether assessee is assessable in respect of interest income on amount advanced to debtor-company on basis of simple or compound rate of interest, i.e., whether interest had to be calculated on basis of Rs. 17,05,888, being amount outstanding as on 30-6-1971, i.e., Rs. 2,04,876, or on basis of aforesaid sum plus interest accruing year after year which would mean higher and higher figures of income in all these years. 6. parties have been heard by me at length. I have also gone through entire records as is evident from manner in which I have been able to s ta te facts in earlier paragraph. In order to appreciate rival contentions, it is desirable to make reference to debtor-company's letter dated 27-7-1965 to assessee which incorporates terms and conditions on which parties have agreed to land and borrow said sum of Rs. 20 lakhs. On face of it, it is not very clear from terms whether interest payable is simple or compound. On other hand, undertaking given by debtor- company to effect that they will issue credit notes and also make payments yearly, i.e., on or before 30th June every year, indicates that interest was to be paid yearly and nothing more. In other words, if interest is not paid as contemplated, what will happen to unpaid interest, i.e., whether it will form part of principal and carry interest or whether it will simply remain as amount outstanding, is not at all clear from agreement. ordinary presumption, according to me, would be that outstanding interest, if any, will stand as separate debit to debtor-company's account and whether it will or will not carry interest will depend upon parties after mutual agreement. It will not automatically carry further at rate of 12 per cent per annum as prescribed in case of principal amount under agreement. 7. Then, I come to document, being Exhibit No. 107 seized from assessee's premises in course of search conducted by Income-tax Department. photostat copy of same is on record. While said search took place some time in year 1975, document hears signature of assessee's director who is incidentally also director of debtor-company of 1977. interest calculations are on basis of financial year as accounting year. There is no other signature and paper is not on printed form. figures are typed out. document having been found in assessee's premises, it is certainly relevant though its weight or value will depend upon so many other things. Having regard to facts stated by me above, I am of view that only reasonable inference that can be drawn from this document is that it shows calculations by somebody from debtor-company of debtor-company's liability on account of interest from year debtor-company of debtor-company's liability on account of interest from year to year. It does not automatically mean that assessee is or was entitled to charge interest on same basis. assessee's chargeability will depend upon assessee's conduct and its understanding of agreement. It is in this context that auditors' notes for different years, as extracted by me earlier, assume importance. For assessment years 1974-75 and 1975-76, interest amount has been mentioned at Rs. 2,04,876 while for assessment year 1976-77, it is shown at nil. interest having not been credited to profit and loss account and debited to debtor-company's account, it is also reasonable to infer that interest would not be charged or be chargeable on interest accruing under agreement mentioned separately in auditors' notes. Having regard to above discussion, I am in agreement with learned Judicial Member that there was no agreement between parties to charge compound interest and that no compound interest was, in fact, charged by assessee-company from debtor-company. document in form of Exhibit No. 107 is relevant piece of evidence. However, it cannot be inferred from this document that assessee-company was charging interest on loan at compound rate of interest or that there was any agreement between parties to charge compound interest. 8. In result, my order will now go to Bench for disposal of appeals according to majority view. ORDER UNDER SECTION 255(4) As per opinion of majority, it is held that there was no agreement between parties to charge compound interest and that no compound interest was in fact charged by assessee-company from debtor-company and in result, all appeals stand dismissed. *** INCOME TAX OFFICER v. S.M.S. INVESTMENT CORPORATION (P) LTD.