INCOME TAX OFFICER v. SMT.SAVITRI DEVI
[Citation -1984-LL-0903-2]

Citation 1984-LL-0903-2
Appellant Name INCOME TAX OFFICER
Respondent Name SMT.SAVITRI DEVI
Court ITAT
Relevant Act Income-tax
Date of Order 03/09/1984
Assessment Year 1976-77
Judgment View Judgment
Keyword Tags method of accounting • payment of interest • accrued interest • interest income • unsecured loan • accrual basis • receipt basis
Bot Summary: The Income-tax Officer noted in the assessment order that the assessee did not show interest income from M/s Chinder Agricultural Farm and Estate Pvt. Ltd. The assessee was asked to explain why the interest income should not be included as in the past years, which worked out about Rs. 24,000 The ITO noted that no satisfactory explanation was furnished. The assessee preferred appeals before the AAC for short contending that n o interest was received from the above party and they have not credited any interest in her account in their books. 1976-77 the assessee has stated the same point and also about the assessee s doubt of receiving back the principal. The AAC pointed out that from the assessment records, it is seen that the assessee, applied for change of accounting system from accrual basis to receipt basis but no order was passed by the ITO. The assessee also filed an affidavit indicating all these facts. According to the assessee, the case laws relied on by the revenue are not applicable at all as in those cases accrual of such income was not disputed, whereas in the case of the assessee the fact on accrual was actually not there and there was no question of any taxability, even on the mercantile system. From the facts available on record it is seen that the debtor company also has not shown any credit on account of interest in the loan account of the assessee and no such interest was claimed as deduction in its own computation of income. Keeping all these different facts and aspects of the matter in view, and having regard to the ratio of the decisions cited above and keeping in mind the facts of the case, we are of the opinion that the AAC was justified; in holding that the interest income had not accrued during the years under appeal and that the ITO can tax the same in the years of receipt whenever such interest is received by the assessee.


EGBERT SINGH, A.M. revenue have taken common point for all years under appeal. issue relates to addition of interest income by assessee on basis of accrual. Income-tax Officer (ITO for short) noted in assessment order that assessee did not show interest income from M/s Chinder Agricultural Farm and Estate Pvt. Ltd. assessee was asked to explain why interest income should not be included as in past years, which worked out about Rs. 24,000 ITO noted that no satisfactory explanation was furnished. He, therefore, included interest income at Rs. 24,000 on basis of past records. In this way, ITO completed assessments for all years under appeal. assessee preferred appeals before AAC for short contending that n o interest was received from above party and they have not credited any interest in her account in their books. Necessary certificate to that effect was given,. It was also contended that no; interest was received from that party since long, and assessee s Advocate issued legal notices to above company not only for payment of interest but also for returning principal amount. According to assessee, since income was not received and company has not shown such payment, there was no question of taxing such imaginary income in her hands, relying on decision in case of CIT vs. Motor Credit Co. Pvt. Ltd (1981)127 ITR 572 (Mad) and also in case of Eastern Bengal Jute Trading Co. Ltd (1978) 51 Tax 2. AAC gave finding that in return for asst. yr. 1976-77 assessee has stated same point and also about assessee s doubt of receiving back principal. AAC pointed out that from assessment records, it is seen that assessee, applied for change of accounting system from accrual basis to receipt basis but no order was passed by ITO. assessee also filed affidavit indicating all these facts. AAC considered all above submissions and facts of case and was of view that ITO was not justified in taxing interest income. He also referred to commentary of Kanga and Palkhivala on point. He also referred to decision in case of Keshav Mills Ltd. (SC) AAC was of view that case of assessee was squarely covered by decision in case of M/s Whitworth Park Coal Co. Ltd vs. Inland Revenue Commissioner (1960) 40 ITR 517 (HL) on reasons recorded by him, AAC deleted addition of Rs. 24,000 each for assessment years under appeal. He also mentioned that ITO can tax same in year of receipt whenever interest was received by assessee. Hence these appeals by revenue. It is submitted by ld. Departmental representative that AAC erred in deleting above amount without considering facts of case in their proper perspective. It is reiterated that in past, assessee had shown interest income on accrual basis from above company. Actually, it is pointed out that during immediately preceding years, interest had actually not been received, but assessee had shown such interest income in her returns on accrual basis. It is also stated that method of accounting of assessee was all along on mercantile basis. It is urged that under these circumstances interest income was rightly considered by ITO in assessment order, on accrual basis. It is also argued that it was real income that ITO had taken into account. In this connection, reliance was made to decision of Hon ble Bombay High Court in case of CIT vs. Confinance Ltd.(1973)89ITR 292 (Bom). It is submitted further that in similar situation in case of Shiv Prasad Ram Sahaivs. CIT (1966) 61 ITR 124(All) Hon ble Allahabad High Court held that accrued interest was liable to tax. Further, reliance is placed by ld. Departmental representative in another decision of Hon ble Allahabad High Court in case of Balraj Virmani vs. CIT (1974) 97 ITR 69 (All) in which it was held that interest on loans accrued under mercantile system and, therefore, same was taxable even if it has not been received. In course of his arguments, it is pointed out that assessee was also relying on resolution passed by debtor company to effect that interest on loans would not be paid due to financial losses of that company. But it is stated that this aspect of matter was not relevant to years under appeal; or at any rate interest income had already accrued prior to that date of resolution which income was not shown by assessee. In this connection reference is also made to different pages of paper-book filed by assessee in order to stress case of revenue. In short, it is urged that appeals by revenue on facts of case may be allowed and order of AAC may be reversed. assessee s ld. Counsel admits that if income had accrued, then it would be taxable. It is pointed out by him that in instant case, no income has accrued at all and there was no question of any real income to be brought to tax. He refers to decision of Hon ble Bombay High Court in case as reported in H.M. Kashiparekh & Co. Ltd. vs. CIT (1960)39 ITR 706 (Bom) He also placed reliance on decision as reported in CIT vs. Shoorji Vallabhdas & Co. (1962)46 ITR 144 (SC) and Poona Electric Supply Co. Ltd. vs. CIT (1965)57 ITR 521 (SC) He also relied on another decisions as reported in (1981) 127 ITR 572 (Mad), CIT vs. Ferozepur Finance (p) Ltd (1980) 18 CTR (P&H) 227:(1980)124 ITR 619 (P&H). He also points out that in case of CIT vs. Cosmopolitan Trading Co. (1978)CTR All 360 (1979)116 ITR 815 (All), decision was in favour of assessee, whereas in case of assessee itself at p.728 (CIT vs. Cosmopolitan Trading Co. 1978 CTR (All) 71:(1979) 116 ITR 728 (All) of same ITR decision was against assessee in view of fact that assessee has been receiving such interest earlier. It is also argued that assessee has intimated lower authorities that loan itself was in jeopardy and there were attempts made by assessee to get back loan. Reference is made to different slander s notices placed in paper- book. Reliance is placed on decision in case as reported in CIT vs. Birla Gwalior (p) Ltd 1973 CTR (SC) 349:(1973)89 ITR 266 (SC) He also refers to decision of Hon ble Allahabad High Court in case of Beni Prasad Gopal (1983) 15 TAXMAN 191 (All) in order to support claim of assessee. According to assessee, case laws relied on by revenue are not applicable at all as in those cases accrual of such income was not disputed, whereas in case of assessee fact on accrual was actually not there and there was no question of any taxability, even on mercantile system. It is pointed out before that assessee has given loan to debtor company as unsecured loan and no civil action was taken as yet for recovery of principal amount. In brief, it is urged that on facts of case, AAC was justified in his findings that income had not accrued at all and accordingly, no interest income could be brought to tax during years under appeal. We have perused orders of authorities below for our consideration along with submissions made by both sides. case of revenue has been discussed briefly above. ld. Departmental representative points out that matter at issue is regarding interest and not principal, as in fact, there was no evidence or material on record to say that loan was in jeopardy as claimed on behalf of assessee. We have taken into account ratio of sides. As stated earlier, it is pointed out before us that loan given by assessee was unsecured loan. There is no indication on record that there was any contract or condition of loan made between assessee and above company. In absence of which it cannot be said that assessee has acquired enforceable right against debtor on account of interest. From facts available on record it is seen that debtor company also has not shown any credit on account of interest in loan account of assessee and no such interest was claimed as deduction in its own computation of income. Keeping all these different facts and aspects of matter in view, and having regard to ratio of decisions cited above and keeping in mind facts of case, we are of opinion that AAC was justified; in holding that interest income had not accrued during years under appeal and that ITO can tax same in years of receipt whenever such interest is received by assessee. AAC has also pointed out that assessee applied to ITO for change of method of accounting, but no order was passed by ITO. Taking totality of facts of case as discussed above, we find no justification or reasons to interfere with order of AAC on point, which we hereby confirm. In result, appeals by revenue are dismissed. *** INCOME TAX OFFICER v. SMT.SAVITRI DEVI
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