V.K. Singhal, J. - (1.) THE Income-tax Appellate Tribunal has referred the following question of law arising out of its order dated November 27, 1980, in respect of the assessment year 1977-78 : "Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in upholding the order of the Commissioner of Income-tax (Appeals) deleting the addition of Rs. 56,493 made by the Income-tax Officer in respect of interest."
(2.) THE brief facts of the case are that the Government of India has issued a Scheme which is known as "10 per cent. Central Outright Grant or Subsidy Scheme, 1971, for industrial units to be set up in selected backward districts/areas". This Scheme was published on August 26, 1971, in the Gazette of India and subsequent amendments were made on September 30, 1972, and June 19, 1973. According to the Scheme, if a new industrial unit is established or there is a substantial expansion of an existing industrial unit which is to be assisted by a financial institution, then the subsidy is payable to such industrial unit. Under the Scheme, the amount was to be disbursed to the units by the financial institution in instalments as the loan was disbursed by such financial institutions. These financial institutions were ultimately to claim reimbursement of the amount of subsidy paid to the new industrial units or a unit where substantial expansion has been carried out from the Ministry of Industrial Development of Government of India. It was also provided in the Scheme itself that in case of delay in the reimbursement of the subsidy by the Government of India to these financial institutions, the Government of India shall pay to these financial institutions interest on the amount of subsidy paid by them for the period of delay and the relevant provision contained in proviso 8 of the Scheme is as under : "Provided, however, if there is any delay in the financial institution concerned getting reimbursement of the subsidy or instalment thereof from the Central Government the financial institution shall be reimbursed by the Central Government of the interest chargeable from the industrial concern for the period between the relevant date of disbursal of the loan by the financial institution to the industrial concern and the date of corresponding reimbursement thereof of the instalment of the element of subsidy to the financial institution by the Central Government." The assessee is a financial institution and in accordance with the Scheme has disbursed the subsidy to several industrial units. The subsidy so disbursed was subsequently claimed as reimbursement from the Ministry of Industrial Development, Government of India. There was delay in the reimbursement of the subsidy by the Government of India to the assessee and accordingly in accordance with the above provision the assessee was entitled to interest on the amount of subsidy paid for which there was delay in reimbursement in respect of the period of delay. The assessee preferred the claim of interest with the Central Government for various previous years commencing from 1972-73. The assessee is following the mercantile system of accounting and the amount of the interest which has accrued has been shown as income of the assessee on accrual basis. No payment, however, was received by the assessee from the Central Government by way of interest in respect of the claim up to 1975-76 which was to the tune of Rs. 2,24,428. The assessee has written back the said amount in the profit and loss account for the financial year 1976-77 (assessment year 1977-78). The interest accrued for the assessment year 1977-78 of Rs. 1,32,065 was not taken into account in the profit and loss account on the ground that even the interest which has accumulated from 1972-73 to 1975-76 has itself been written back as the Government of India has refused the claim to pay the interest on the delayed reimbursement of subsidy for the period of delay. The Income-tax Officer held that the assessee has not received any written communication from the Government of India rejecting the claim for the interest and there was no refusal on the part of the Government of India not to make the payment of interest. It was submitted by the assessee that a note was recorded by Shri K. B. Singh, secretary of the assessee-company, after his discussion with the Joint Secretary to the Government of India, according to which the Joint Secretary had informed him that the assessee's claim for interest has been rejected. It was also submitted that certain changes were made in the Scheme which were communicated by the Department of Industrial Development to the assessee and the condition regarding payment of interest on the amount of claim from the date of disbursement by the disbursing agencies to the date of reimbursement by the Department of Industrial Development had been deleted in the manual as it was not a normally accepted practice. It was also stated that the revised instructions and procedures of the Scheme should be implemented with effect from January 1, 1977. The Income-tax Officer was not satisfied with the submissions made on behalf of the assessee and the amount of Rs. 2,24,428 and the amount of Rs. 1,32,065 were added in the taxable income of the assessee. The assessee challenged the order of the assessing authority before the Commissioner of Income-tax (Appeals) who deleted the addition on the ground that there was no prospect of the assessee receiving the interest from the Government of India. The action of the assessee in not charging further interest for the period April 1, 1976, to December 31, 1976, was also upheld. It was mentioned that there was no prospect of the appellant receiving the interest that was envisaged in the original scheme.
(3.) THE Revenue has taken up this matter before the Income-tax Appellate Tribunal and the order of the Commissioner of Income-tax (Appeals) was upheld. The submission of learned counsel for the Revenue is that the original scheme contemplated payment of interest and there was no written communication from the Government of India regarding non-payment of interest and as such it should be deemed that the interest has accrued and the action of the assessee in writing off the amount of Rs. 2,24,428 or in not charging the interest in the previous year is not correct. We have considered the matter. Normally, we would have agreed with the submission of learned counsel for the Revenue that, in the absence of written communication, the interest will be deemed to have accrued irrespective of the fact that it has not been received. The assessee has produced the copy of the minutes which was recorded by the secretary of the assessee with regard to his discussion with the Joint Secretary, Government of India, in which the Joint Secretary had informed him that the assessee's claim for interest had been rejected. The said minutes have been recorded in the regular course of business by the assessee-company and have not been disbelieved. It is mentioned in the order that there was a change in the policy of the Government of India with regard to the payment of interest subsequently which covers even the period under dispute. In these circumstances, the Tribunal was justified in upholding the order of the Commissioner of Income-tax with regard to deletion of the amount of Rs. 5,64,493 which was added by the Income-tax Officer as interest accrued to the income of the company. ;