COMMISSIONER OF INCOME TAX Vs. CONFINANCE LIMITED
LAWS(BOM)-1972-9-3
HIGH COURT OF BOMBAY
Decided on September 29,1972

COMMISSIONER OF INCOME TAX Appellant
VERSUS
CONFINANCE LTD. Respondents

JUDGEMENT

KANTAWALA,J. - (1.) THE questions of law in this reference are as under : "Whether, having regard to the admitted fact that the assessee's method of accounting was mercantile, the interest of Rs. 9,275 for the asst. yr. 1959 -60 was liable to inclusion in the assessee's total income having regard to the provisions of ss. 10 and 13 of the Indian IT Act ? and Whether, having regard to the admitted fact that the assessee's method of accounting was mercantile, the interest of Rs. 13,033 for the asst. year 1960 -61 was liable to inclusion in the assessee's total income having regard to the provisions of ss. 10 and 13 of the Indian IT Act?"
(2.) THE questions that arise for determination for these two years are identical. The assessee is a limited company which is mainly carrying on money -lending and banking business. Its method of accounting is mercantile. For the accounting year ending March 31, 1959, in the balance -sheet of the company, the loans and advances due to the company were shown as Rs. 2,80,095.62. This was the amount due from five debtors of the company. A note was put up at the foot of the profit and loss account to the effect that "no credit is taken into account in respect of interest due on loans outstanding on 31st March, 1959". The directors in their report to the shareholders stated as under : "The directors regret that the monies advanced to various persons have remained unpaid and even the interest thereon from March 31, 1956, have not been paid by them. In view of this, the directors have resolved not to take any credit for the interest in respect of loans which are repaid in full and also on loans outstanding as on March 31, 1959. Every effort is being made by the directors to recover the principal amount of the loan as well as the interest charged up to March 31, 1956." For the accounting year ending 31st March, 1960, the amount appearing as loans due to the company was Rs. 2,72,209.66. This was the aggregate of the amounts due to the company by six debtors.
(3.) FOR both the assessment years in respect of the amount due from one of the debtors, New Prahlad Mills, interest at the rate of 6 per cent. per annum was charged and was shown in calculating the income of the company. In respect of the amounts payable by the other debtors to the company no interest whatsoever was shown for either of the two years. The ITO, for the asst. yr. 1959 -60, took the view that in respect of the loans and advances amounting to Rs. 2,80,095.62 the interest at the rate of 6 per cent. per annum will come to Rs. 16,806 and, after taking into account the interest charged to New Prahlad Mills, the balance of Rs. 9,275 was brought to tax as balance of interest in respect of the amount due by the remaining debtors. On the same footing for the asst. year 1960 -61, after taking into account the interest charged to New Prahlad Mills, the balance of the amount of Rs. 13,033 was brought to tax in respect of the interest payable by the other debtors of the company. The order passed by the ITO was confirmed by the Appellate Asstt. CIT. It was reversed by the Tribunal. In its order, the Tribunal, pointed out that, looking at the matter from the accrued interest and mercantile method angle, it is not denied that the advances in question originated as business advances, so that if in fact interest is receivable, it is liable to inclusion whether the interest has been adjusted or not. The Tribunal, however, took the view that the records amply bore out the apprehension of the assessee that the accounts may not after all turn out well and that there had been hardly any receipts at all for a number of years past.;


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