HANUMANTHA RAO B V Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE question to be answered by us in this reference under s. 66(2) of the Indian IT Act is :

(2.) THE relevant assessment year is 1953-54, the corresponding accounting year being the official year 1952-53. In the accounting year, the assessee claimed a sum of Rs. 4,631, as interest paid to the vendors of a baling press, he having purchased the press belonging to the Godavari Baling Society for Rs. 43,500 on credit, agreeing to pay interest at 12 per cent in regard to the same. He did not pay interest either in the prior accounting year or in the present accounting year. Though he claimed the interest due for that year as an expenditure, since he did not pay the amount in question in the present accounting year and did not make any adjustment of interest in the account of the baling press, as he had no accounts at all, the ITO disallowed the interest claimed amounting to Rs. 4,631.

(3.) DISSATISFIED with the conclusion of the AAC, the ITO took the matter in appeal to the Tribunal. The Tribunal reversed the order of the AAC in the view that in a case where no accounts were kept, the system that should be deemed to have been adopted is "cash" and, therefore, since no payment of interest was actually made by the assessee during the relevant year of account, he could not claim any allowance thereof on the ground that liability for the payment had accrued during the year.