SUHAS CHANDRA SEN, J. - (1.) THE Tribunal has referred the following two questions of law to this Court under s. 256(1) of the IT Act, 1961 : " 1. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that interest on the loan advanced to Newspaper Ltd., was not part of the real income of the assessee and was, therefore, not liable to be assessed to tax? 2. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the interest forgone by the company was for commercial expediency and that should be treated as business expenditure in computation of the income of the assessee for the asst. yr. 1980-81 ?"
(2.) THE assessment year involved is 1980-81 for which the relevant accounting period ended on March 31, 1980. The facts narrated by the Tribunal in the statement are as follows : "The assessee-company filed its return on June 17, 1980 showing "nil" income. In the course of examination of the accounts, it was found that a loan of Rs. 2,90,000 was advanced by the assessee-company to Newspaper Ltd. earlier and for which the company charged interest regularly in these years but, in the relevant accounting year, no interest was, however, charged on the said loan. It was submitted before the ITO that a resolution was passed by the board of directors on March 21, 1980, wherein it was decided that from April 1, 1979, that loan should be treated as a non-interest bearing loan and this was done by the company taking into consideration a letter dated November 20, 1979, received from Newspaper Limited. In the said letter, Newspaper Ltd., made a request in this regard on the ground of the difficult financial position of the concern. The ITO, however, held that the resolution was passed on March 21, 1980, when the accounting year of the assessee had almost ended and since the assessee was following the mercantile system of accounting, the interest on the loan had already accrued to it. The ITO, in this connection, relied on the decision of the Supreme Court in the case of Morvi Industries Ltd. 1974 CTR (SC) 149 : (1971) 82 ITR 835 (SC). According to the ITO, there was nothing to show that the interest was forgone for the purpose of the assessee's business on the ground of commercial expediency. It was, however, noted by the ITO that it was stated in the letter of Newspaper Ltd. that it had initiated certain measures to improve the working condition of the organisation to liquidate the outstanding as soon as their financial position permitted. The ITO, therefore, held that the interest of Rs. 44,950 on the basis of the previous years had accrued and had to be assessed as income of the year.
(3.) IN view of the discussion made in the earlier paragraphs on the subject drawing support from the Supreme Court's decision in the case of Morvi Industries Ltd. (supra), I am of opinion that the interest of Rs. 44,950 on the basis of the previous year which accrued to the assessee cannot escape assessment by a stroke of the pen in a resolution passed just a few days before the end of the accounting year.";