Sabyasachi Mukharji, J. - (1.) In this reference under Section 256(1) of the I.T. Act, 1961, the following questions have been referred to this court : " (i) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the right to receive further interest from the date of the suit accrues to the assessee only when the court passes decree ? (ii) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the matter of assessment of interest cannot be decided unless the result of the suit already filed is known ? (iii) Whether, on the facts and in the circumstances of the case, and particularly in view of the fact that the debtor-company in its written statement has admitted the liability with regard to the quantum of loan advanced and the rate of interest, the Tribunal was justified in sending the matter back to the Appellate Assistant Commissioner to decide the issue afresh after the result of the suit is known ?"
(2.) This reference relates to the assessment years 1971-72 and 1972-73 for which the corresponding accounting years ended on 31st October, 1970, and 31st October, 1971. The assessee is a company carrying on the business of manufacture of jute. The dispute which the Tribunal was called upon to decide for these two years related to the inclusion, by the authorities, of the sums of Rs. 4,99,984 in the assessment year 1971-72 and Rs. 5,28,762 in the assessment year 1972-73. It appears that the assessee had been advancing moneys, from time to time, to another jute company, known as M/s. Chandpur Jute Co. Ltd., during the period between 1951 and 1961. The advances were interest bearing. By the end of April, 1961, after giving credit for the amounts repaid by the debtor-company, a sum of Rs. 57,59,532 was found to be the balance of principal still outstanding. On 6th October, 1961, the assessee-company filed a suit, being Suit No. 1772 of 1961, to recover the debt from the debtor-company of the aforesaid sum of Rs. 57,59,532 and also a further sum of Rs. 1,13,771 being interest on the said sum for the period from May 1, 1961, to September 4, 1962, at the rate of 5 3/4 per cent. per annum together with interim interest and further interest from the date of decree till the date of realisation and costs of the suit. The debtor-company filed their written statement admitting the liability to pay the amount of Rs. 58,73,304 as the aggregate sum of Rs. 57,59,532 and Rs. 1,13,771, being the interest from 6th October, 1961, to the date prior to the filing of the suit. The debtor-company, however, disputed or pleaded that in August, 1961, there was an agreement between the assessee and the said debtor-company as a result of which the amount would not be payable to the assessee-company by the said debtor-company before 31st December, 1967. It was, therefore, pleaded that the suit was premature and was not maintainable. At the time of the assessment proceedings, the assessee contended that the awarding of interest for the period subsequent to the filing of the suit was a matter of discretion of the court and there was no interest on the loan due by the debtor-company and, as such, the assessee could not be taxed on the interest on accrual basis for the year under consideration. The ITO rejected this contention and included, for the assessment year 1971-72, a sum of Rs. 4,99,984 and for the assessment year 1972-73, a sum of Rs. 5,28,760 as accrued interest. On appeal, the AAC confirmed the order of the ITO.
(3.) Being aggrieved by the said orders of the AAC, the assessee went up in appeal before the Tribunal. The Tribunal was of the opinion that in view of the stand taken by the debtor-company in its written statement, the point in issue could not be determined unless the result of the suit was known. If the suit was decreed for the said amount and also further interest from the date of the plaint till the date of the decree, as such, at such rate as was specified in the decree, the entire interest from the date of the suit till the date of the decree at such rate would only be assessed to tax in the year in which the decree was passed. The Tribunal held that the interest from the date of the suit could not be assessed to tax each year on the basis that the interest had continued to accrue from year to year at the contracted rate. If the suit was ultimately dismissed on the ground that it was premature, according to the Tribunal, then the position would be different. It would be desirable to put the observations in the words of the Tribunal. The Tribunal observed as follows: " It is no doubt a well-established proposition that the interest accrues from year to year and in a case where an assessee adopts the mercantile system of accounting the interest accruing to the assessee each year has to be computed at the contract rate and assessed to tax in the relevant assessment year on accrual basis. But this principle is subject to one qualification. Where an assessee files a civil suit against his debtor for recovery of the debt, the further interest from the date of the suit cannot be assessed to tax on accrual basis, computing the same at the contract rate. In a suit for recovery of a debt he can ask for a decree for the principal amount and the interest accruing, as per the contract rate, up to the date of the suit and he can also ask for further interest from the date of the suit. Even if the court passes a decree for the principal amount and the interest accruing up to the date of the suit at the contract rate, it may not grant further interest from the date of the suit at the contract rate. Under Section 34 of the Code of Civil Procedure, the awarding of further interest from the date of the suit up to the date of the decree and the rate of such further interest are matters within the discretion of the court passing the decree. At the time of the filing of the suit for recovery of the debt the plaintiff has merely the right to claim further interest from the date of the suit up to the date of the decree. But the right to receive such further interest from the date of the suit up to the date of the decree at such rate as is determined by the court accrues to the plaintiff only when the court passes the decree awarding the plaintiff further interest from the date of the suit at such rate as is determined by it. The right of a plaintiff to a suit to receive interest from the date of the suit till the date of the decree, as awarded by the court under Section 34 of the Code of Civil Procedure, is analogous to the right of a person whose land has been acquired by the Government under the Land Acquisition Act to the interest on the enhanced compensation awarded by the civil court under Section 28 of the Land Acquisition Act. ";