SARUPCHAND HUKAMCHAND PRVATE LIMITED Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) BY this reference under Section 256(1) of the I.T. Act, 1961, hereinafter called "the Act", the Income-tax Appellate Tribunal, Indore Bench, has referred the following question of law to this court for its opinion :

(2.) THE material facts giving rise to this reference, as set out in the statement of case, briefly are as follows : THE assessee is a private limited company registered under the Companies Act. THE assessee carried on the business of money-lending and ginning and pressing of cotton. THE assessee had advanced an interest bearing loan to the Hira Mills Ltd., hereinafter referred to as the Mills, but in the returns filed by the assessee for the assessment years 1969-70 to 1972-73, the assessee did not include the amount of interest due from the Mills. It was contended on behalf of the assessee before the ITO that the Mills had run into losses, that its management was taken over by the Authorised Controller on 5th March, 1966, and that under the provisions of the M. P. Sahayata Upakram Vishesh Upband) Adhiniyam, 1965 (Act No. 25 of 1965), no suit for recovery of interest or loan could be filed against the Mills and, hence, the assessee had not debited the account of the Mills in its account books with any interest amount. THE ITO did not accept the contention advanced on behalf of the assessee. On appeal, the AAC affirmed the order passed by the ITO. THE assessee then filed an appeal before the Tribunal. THE Tribunal held that the assessee followed the mercantile system of accounting, i. e., the assessee computed its income on accrual basis as opposed to receipt basis and that the financial position of the Mills or the bar placed by the provisions of Section 4(1) of the Act No. 25 of 1965 on the commencement of any legal proceeding for effecting recovery of interest would not have the effect of postponing the accrual of interest income. THE Tribunal, therefore, dismissed the appeal. Hence, at the instance of the assessee, the Tribunal has referred the aforesaid question of law to this court for its opinion.

(3.) IT is thus clear that in Morvi Industries Ltd. v. CIT [1971] 82 ITR 835 (SC), there was no legal bar to claim the amount of commission when it had become due. But the question for consideration in the instant case is if there is a legal bar to recover any amount, can it be said that the assessee is vested with the right to claim that amount.