Satish Chandra, J.
1. The assessee-firm carries on money-lending business. It had some time back advanced a sum of Rs. 2 lakhs to Messrs. Kapoor Hosiery Factory (Pvt.) Ltd., Calcutta. In the previous year relevant to the assessment year 1969-70, a sum of Rs. 18,191 accrued as interest due on this loan. The accounting period of the debtor-company ended on January 31, each year. On January 31, 1968, it credited the account of the assessee with the aforesaid amount of interest. On February 2, 1968, the debtor-company addressed a letter to the assessee stating that the company was undergoing great difficulty and was not in a position to pay the interest. It requested the assessee to forgo the interest charges for that year. On February 8, 1968, the assessee replied :
'We appreciate your difficulty in payment of interest for the year ending January 31, 1968, in view of the continued losses suffered by your firm and considering our old relations we agree to forgo the interest amounting to Rs. 18,191.22 for the year ending January 31, 1968. Please note that it will not be possible to accommodate you in future.'
2. On receiving this reply, the debtor-company made a reverse entry adjusting the amount of interest.
3. The ITO rejected the plea that the interest did not accrue to the assessee as its income. He remarked that the assessee was maintaining accounts on the mercantile system and the amount had accrued as income from interest. The same view was taken by the AAC. The assessee went up in appeal to the Tribunal.
4. The Tribunal held that on facts it was clear that the assessee-company had relinquished or forgone the payment of the interest as a matter of grace or bounty. The Tribunal further held that the assessee had never taken up the plea that the assessee had forgone the interest on grounds of commercial expediency and so it was not permissible for it to raise such a plea for the first time in second appeal. In the next place, it was held by the Tribunal that there was no evidence to show that any commercial considerations were involved. On a review of the facts and circumstances of the case, the Tribunal came to the conclusion that the relinquishment of the interest was made after it had accrued due to the assessee without it being based on any commercial considerations. The interest had actually accrued due before the debtor-company made the request that it should be relinquished. It also disallowed the claim put forward by the assessee for the first time that this amount was deductible from the income under Section 10(2)(xv) of the Act because no benefit in fact accrued to the assessee-company by forgoing the interest. The Tribunal repelled the submission that if the assessee-firm had not forgone the claim of interest, its principal amount of Rs. 2 lakhs would have been in jeopardy, as a farfetched argument. Ultimately, it was held that the claim for interest was not forgone by way of commercial expediency but as a matter of grace only. The appeal was dismissed.
5. At the instance of the assessee, the Tribunal has referred the following questions of law for the opinion of this court:
'(1) Whether, on the facts and in the circumstances of the case, the interest income of Rs. 18,191 on the loan advanced by the assessee to Messrs. Kapoor Hosiery Factory (Private) Ltd. about twenty years back, accrued to the assessee during the previous year ?
2. If the answer to the first question is in the affirmative, whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the assessee was not entitled to urge the argument that the interest was forgone for considerations of commercial expediency before it ?
3. If the answer to the second question is in the negative, then whether the Tribunal, on the facts and in the circumstances of the case, was justified in holding that the interest was forgone by the assessee not by way of commercial expediency but as a matter of grace ?'
6. On the findings of fact that the letter dated February 2, 1968, was an after-thought, written only after the interest had, in fact, accrued, no different view in law could be taken except to hold that the income had, in fact, accrued to the assessee during the relevant previous year. Learned counsel for the assessee has invited our attention to several decided cases. In H. M. Kashiparekh & Co. Ltd. v. CIT : 39ITR706(Bom) , the crucial finding is as follows (p. 720):
'...if it be remembered that the surrender was made at the time of ascertaining the quantum of the commission payable to the assessee-company and further if it be remembered, as now found by the Tribunal, that the surrender was made bona fide and on grounds solely of commercial expediency, it seems very difficult to us to see how the revenue is justified in contending that the real income of the assessee was something different than the amount ofRs. 20,000,...'
7. Here, the finding is that there was no ground of commercial expediency. Secondly, the agreement to forgo was not made at the time of ascertainment of the quantum of interest. This case is clearly inapplicable.
8. The next case relied upon was CIT v. Shoorji Vallabhdas & Co. : 46ITR144(SC) . This case is equally irrelevant. In that case the agreement in question under which the rate of commission was reduced, took place in the year of account. The transaction was genuine and it reduced the income receivable by the assessee. On facts, the Tribunal has, in our case, found that the whole case was an after-thought because the interest had already accrued.
9. In CIT v. Birla Gwalior (P.) Ltd. : 89ITR266(SC) , the finding of fact was that the commission was given up on grounds of commercial expediency and, therefore, it was an allowable deduction.
10. The case of Poona Electric Supply Co. Ltd. v. CIT : 57ITR521(SC) is entirely different. There it was held that the amounts in question were credited by the appellant during the accounting year to the 'consumers' benefit reserve account' on the footing that it was part of the excess amount paid to it and was to be returned to the consumers and so it did not form part of the appellant's real profits.
11. On the findings of fact recorded by the Tribunal, it is clear that the answer to question No. 1 has to be in the affirmative, in favour of the department and against the assessee.
12. In respect of the second question, the position is that the submission that the relinquishment of interest was based on commercial expediencywas one of fact and since the assessee did not raise this plea either before the ITO or before the AAC, it was legitimately open to the Tribunal torefuse to allow this plea for the first time. In the second place, the Tribunal did go into the merits of this plea and negatived it. On facts and onthe materials on record, no other conclusion was legitimately possible.
13. In the result, we answer all the three questions in favour of the department and against the assessse. The Commissioner will be entitled to costs which are assessed at Rs. 200 (Rupees two hundred only).