PADAMSEY MULJI GINNING AND PRESSING CO P LTD Vs. INCOME TAX OFFICER
INCOME TAX APPELLATE TRIBUNAL
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K.S. Viswanathan, Accountant Member -
(1.) THESE are two appeals filed by the assessee-company against the orders under Section 263 of the Income-tax Act, 1961 ('the Act') passed by the Commissioner, Nasik. In these orders, the Commissioner had directed the ITO to include the income from interest amounting to Rs. 1,30,947. In another order, he had directed the ITO that he should also charge interest under Section 217 of the Act, while passing the consequential order in pursuance of the Commissioner's order under Section 263.
(2.) The assessee is a private limited company. This company is holding controlling shares in two other private limited companies by the name of Lalji Ramji Ginning & Pressing Co. (P.) Ltd. ('Lalji') and Magnotape Co. (P.) Ltd. ('Magnotape'). The assessee-company holds 88 per cent of the shares in Magnotape. The holding-company had been advancing funds to Magnotape. We are concerned with the accounting year ended 30-6-1975. The accounts of Magnotape show advances received from the holding company totalling Rs. 18,55,001 as on the last day of the accounting year. We may say that the accounting year followed by both the companies, is the same.
Up to and including the accounting year ended 30-6-1974, the assessee-holding-company was charging interest on such loans. The subsidiary company was also crediting interest to the assessee-company's accounts. This was being taxed in those years.
(3.) ON 30-6-1975, the board of directors of the assessee-company passed a resolution. In that resolution the assessee-company noted, that although the subsidiary-company had come into existence in 1965, it had not yet started production and was in financial difficulties. Therefore, it would be difficult to recover any interest from such advances which had been lent from time to time. It was, therefore, resolved that interest receivable from the subsidiary companies on those advances would be accounted for on cash basis, but a suitable note would be put in the accounts forming part of the balance sheet for the year ended 30-6-1975. As a consequence of this resolution, the accounts for the year concerned did not show the interest accruing on the advances.;
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