Calcutta H.C : Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the interest on loan to M/s Central Cotton Mills Ltd., was liable to be included in the assessment on the due basis and not on the basis of realisation and was, therefore, right in sustaining the addition of Rs. 55,000, being interest on the said loan calculated on the due basis.

Counsel Appeared

Sukumar Bhattacharjee with R. N. Dutt, for the Assessee : A. N. Bhattacharjee, for the Revenue

SUHAS CHANDRA SEN, J.:

The question referred in this case is as follows: “Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the interest on loan to M/s Central Cotton Mills Ltd., was liable to be included in the assessment on the due basis and not on the basis of realisation and was, therefore, right in sustaining the addition of Rs. 55,000, being interest on the said loan calculated on the due basis.”

2. The facts relevant to this case and as found by the Tribunal are as follows: The assessee claimed before the ITO that a sum of Rs. 55,000 was not taken into account by it as it considered realisation of the loan doubtful. The ITO rejected the assessee’s claim on the ground that the assessee was maintaining the accounts on mercantile basis and that the interest could not escape assessment on the only ground that the debt was doubtful. Therefore, following his decision for earlier years, the ITO included Rs. 55,000 in the total income of the assessee.

3. In appeal, following the decision of his predecessor as well as of the Tribunal in the assessee’s own case, the AAC upheld the action of the ITO.

4. In further appeal before the Tribunal, the Tribunal also relied on its earlier decision in the assessee’s own case and upheld the addition of Rs. 55,000.

5. The Tribunal, in its order for the asst. yr. 1971-72, has stated as follows: “The next controversy centres round the sum of Rs. 55,000, being the interest on the loans advanced by the assessee to the Central Cotton Mills Ltd., which the assessee did not bring into the account of the year, but which the lower authorities added in computing the total income. The stand of the assessee was that the financial position of the debtor company was so bad that there was no prospect of realisation of the principal and the interest and that it was hence decided that the interest that accrued need be brought into account only when realised. Our attention was invited to the fact that the condition of the debtor company continued to be so bad that some time in 1972 the Government by notification took it over and all its liabilities were kept under suspension. We find it difficult to accept the assessee’s contention. The assessee is following the mercantile system of accounting. The accounting period relevant to the assessment year in hand was the calendar year that ended on 31st December, 1970. Hence the Government notifications of 1972 cannot be of any avail to the assessee in respect of the claim made for this assessment year. Undoubtedly, the interest had accrued during the year. There is no case that the assessee had demanded the interest during the period or had given it up. Nor had the debtor company asked the assessee for any remission or suspension of liability. Nor is there any evidence that the debtor company had switched over to a system of accounting other than mercantile. In the circumstances, the unilateral decision taken by the assessee to bring the accrued interest in the accounts only on realisation cannot have any effect. We, therefore, uphold the view of the lower authorities and confirm this addition.”

6. In this year we are concerned with the asst. yr. 1974-75 and the relevant accounting year is the calendar year 1973.

7. The Government has taken over the management of the company by an order dated January 28, 1972. The company was declared to be a relief undertaking by a notification dated May 18, 1972, under the provisions of the West Bengal Relief Undertakings (Special Provisions) Act, 1972. The operation of all contracts including obligations and liabilities accruing thereunder were stopped altogether by the aforesaid notification.

In view of this fact it cannot be said that the interest on the loan continued to accrue even in this year. In fact, the Tribunal in its order in the earlier year has disallowed the assessee’s claim on the ground that the Government notification was published only in 1972.

On behalf of the Revenue reliance has been placed on the decision of the assessee’s case in the earlier assessment years ; but the facts in those assessment years were entirely different. The Government notification had come into force only in 1972.

The question referred to in this reference is to be answered in the negative and in favour of the assessee. In the facts and circumstances of the case, each party will pay and bear his own costs.

SABYASACHI MUKHARJI, J.:

I agree.

[Citation : 142 ITR 120]