SUHAS CHANDRA SEN,J. - (1.) THE following three questions of law have been referred by the Tribunal to this Court under s. 256 (2) of the IT Act, 1961 : "(1) Whether, the finding of the Tribunal that the interest became due to the assessee during the previous years and was liable to assessment on accrued basis is perverse and/or is based upon its failure to take into consideration relevant materials and evidence and/or by taking into consideration irrelevant materials and/or is sustainable ? (2) Whether the finding of the Tribunal that the amount due from Brahmachari Research Institute (P) Ltd. cannot be said to be irrecoverable unless there is evidence of that the official Liquidator declares the final dividend or writes to the creditor that the full amount is not likely to be recoverable, is based on its failure to take into consideration on the relevant materials and/or evidence and/or by taking into consideration irrelevant materials and/or is perverse ? (3) Whether on the facts and in the circumstances of the case the Tribunal was justified in sustaining the additions of Rs. 41,534 and Rs. 43,240 for the asst. yrs. 1971-72 and 1972-73 respectively being the estimated amount of interest as income from undisclosed sources on accrual basis and in doing so whether the Tribunal has acted perversely and/or by not taking into consideration that relevant facts and materials and/or by failing to take into consideration the relevant materials and evidence ?"
(2.) THE assessment years involved are asst. yrs. 1971-72 and 1972-73, for which the corresponding period of account were the financial years ending on 31st March, 1971 and 31st March, 1972 respectively. In making the assessment for the aforesaid two years, the ITO added interests of Rs. 41,534 and Rs. 43,240 respectively for the two asst. yrs. 1971-72 and 1972-73. The finding of fact is that the assessee lent certain sums of money to Brahamchari Research Institute (P) Ltd. This company was passing through financial crisis. The total advances made by the assessee to the company was about Rs. 4 lakhs but the total liability of the company was about Rs. 18 lakhs, whereas the value of the assets of the said company was about Rs. 5 lakhs. Ultimately the company went into liquidation on 16th March, 1972. The dispute in this case was about the justifiability of exclusion of the interest payable on the loan by Brahmachari Research Institute (P) Ltd. to the assessee on accrual basis. The Tribunal noted that Brahmachari Research Institute was maintaining its accounts on mercantile basis and the interest payable to the assessee was shown on accrual basis in its accounts. The Tribunal has also noted that the assessee was maintaining regular books of account on cash basis. The Tribunal came to the conclusion that the assessee had to be assessed on accrual basis.
(3.) THE assessee is an individual. If an individual lends money to a company and receives interest, he has to be assessed in accordance with the system of accounting he follows. The company may maintain its accounts on mercantile basis. From that it does not follow that the individual assessee must be taxed on mercantile basis. If an individual does any business with a company, he cannot be taxed on accrual basis only because the company maintains its accounts on accrual basis.;