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James Finlay and Co. Ltd. Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata High Court
Decided On
Case NumberIncome-tax Reference No. 102 of 1979
Judge
Reported in[1983]144ITR423(Cal)
ActsIncome Tax Act, 1961 - Section 271(1)
AppellantJames Finlay and Co. Ltd.
RespondentCommissioner of Income-tax
Appellant AdvocateD. Pal, ;Manisha Seal and ;J. Ghosh, Advs.
Respondent AdvocateAjit Sengupta and ;A.N. Bhattacharya, Advs.
Cases ReferredIndia Ltd. v. Asst. Commr. of
Excerpt:
- sabyasachi mukharji, j. 1. this reference relates to the assessmentyears 1970-71 and 1971-72. this reference arises out of certain ordersfor the imposition of penalty for those two assessment years. in the proceedings for assessment to tax for those years, the assessee did not disclose the interest receivable from speciality papers ltd, and m/s. bags &cartons; for which the ito started penalty proceedings and as theminimum penalty leviable exceeded rs. 1,000, he referred the cases to theiac under section 274(2) of the i.t. act, 1961. when the iac took up thepenalty proceedings, he held that the assessee had concealed the particularsof the income. he further held that till december 31, 1967, interestincome was shown on accrual basis though it was not received and theloans were advanced as.....
Judgment:

Sabyasachi Mukharji, J.

1. This reference relates to the assessmentyears 1970-71 and 1971-72. This reference arises out of certain ordersfor the imposition of penalty for those two assessment years. In the proceedings for assessment to tax for those years, the assessee did not disclose the interest receivable from Speciality Papers Ltd, and M/s. Bags &Cartons; for which the ITO started penalty proceedings and as theminimum penalty leviable exceeded Rs. 1,000, he referred the cases to theIAC under Section 274(2) of the I.T. Act, 1961. When the IAC took up thepenalty proceedings, he held that the assessee had concealed the particularsof the income. He further held that till December 31, 1967, interestincome was shown on accrual basis though it was not received and theloans were advanced as early as 1963 in the case of Speciality PapersLtd. and in 1966 in the case of M/s. Bags & Cartons. He also mentionedthat there was no indication that the assessee had changed the methodof accounting in respect of these two items alone. The IAC held thatthe assessee must have concealed the particulars of income for the following reasons:

'Though the assessee might have reversed the entries of interest accrued from 1968-69 onwards, on 31st December, 1971, yet the fact remains that as late as 28th September, 1973, the Speciality Papers Ltd.in their letter to the assessee confirmed that, apart from the principal loan, a sum of Rs. 8,56,066 by way of accrued interest up to 31st March, 1973, was due to them. In this letter, Speciality Papers Ltd. further stated that if they commit any default in the payment of any instalment of the principal loan, the assessee shall have the right to recover the interest and enforce his right under the second mortgage as mentioned in the letter. This would clearly show that the assessee had a right to recover the interest under the second mortgage in case there was a default in the payment of instalments by Speciality Papers Ltd, Similarly, regarding the other amount, some instalments commencing from 1st August, 1972, for the repayment of the principal amount were agreed to and it was provided that in the event of default of any instalment, the assessee shall have the right to recover the entire interest also.

The assessee was asked to state as to why the debit and credit entries in respect of interest were at all passed in the books if it was considered that this would not be recoverable and even the principal amount would be recoverable with difficulty. It was stated by the aulhorised representative that they did not want to give up their claim for interest and in case a necessity arose they could file a suit for recovery. As it is, the claim for this interest admits of revival if the instalments are not paid and the assessee could recover the same as the debtor parties are existing in good financial condition.

Having considered the entire circumstances, I feel satisfied that the assessee has been guilty of default such as is contemplated u/s. 271(1)(c) of the I.T. Act, 1961. I, therefore, do hereby direct that the assessee shall pay by way of penalty and in addition to any taxes payable by him, a sum of Rs. 64,200.'

2. As would be apparent from the aforesaid, the IAC had referred to the letter dated 31st March, 1973. It may not be inappropriate to refer to that letter which appears in the supplementary paper book in the instant reference. The said letter dated 28th September, 1973, from the Speciality Papers Ltd., inter alia, stated as under ;

'We refer to the second mortgage dated 30th March, 1969, executed by us in your favour as and by way of security for repayment of the loan of Rs. 11,65,000 and the correspondence which has passed between us and your solicitors, M/s. Crawford Bayley & Co, in connection therewith.

We also refer to our letter of 3rd February, 1971, agreeing to make payments of the loan by certain instalments in fulfilment of which you had agreed to waive the interest and also commission as therein mentioned, the said agreement of 3rd February, 1971, was and continued to be subsisting; according to you it was no longer binding on you on account of defaults in the instalment payments; the matter of the payment of the outstanding amount under the said mortgage was discussed between us and an agreement has been arrived at as follows :

We confirm that there is due and owing by us to you a sum of Rs. 8,15,000 as balance of the principal amount of the loan, a sum of Rs. 8,56,066 by way of accrued interest up to 31st March, 1973, making together the sum of Rs. 17,15,478.11.

We further confirm that we are liable to pay you interest from 1st April, 1973, on the outstanding amount of the loan for the time being at the bank overdraft rate which may be in force from time to time as also commission amounting to Rs. 44,412.11 as above, if we make defaults as stated hereafter.

We will, in the first instance, pay to you the sum of Rs. 8,15,000, being the balance amount outstanding on account of the principal amount of the loan, and a sum of Rs. 3,32,423, being interest on the outstanding amount of the loan, up to 31st December, 1967, making together the sum of Rs. 11,47,423 by the instalments as follows :'

3. Thereafter, certain instalments were mentioned with which we are not concerned. In the appeals relating to the quantum of tax payable for those years, the Tribunal had held that the interest income should have been shown in the return of income and the right to receive the amounts accrued to the assessee during the years under reference. The assessee thereafter from the order of the IAC went to the Tribunal on the question of penalty and contended that no penalty should be levied on the facts and circumstances of the case. The Tribunal, after considering the rival contentions, observed as follows :

'6. On enquiry it appears that the principal amounts realisable from Speciality Papers Ltd. were being realised by the assessee in instalments and that no evidence has been produced by the assessee that it had forgone the claims regarding interest. It may be that interest had not been received as yet, but that does not mean that the assessee's right to receive interest had ceased to exist for ever. The decision of the Tribunal for the assessment year 1969-70 relates to assessment by holding that provisions of section 147(b) of the Act are not applicable. The observations of the Tribunal in deciding the issue not being germane for the applicability of the provisions of section 147(b) cannot be a guiding factor for holding that the interest was not to be received and that the assessee had no right to receive the amounts. If that was so the assessee could have produced some evidence in the penalty proceedings which are independent proceedings that the assessee will not get the interest and that there wasan agreement not to charge interest by the assessee while getting back the principal from the parties concerned.'

4. Upon this, on an application being made, the following question has been referred to us :

'Whether, on the facts and in the circumstances of the case, the Tribunal was right in confirming the levy of penalty by the Inspecting Assistant Commissioner under Section 271(1)(c) read with section 274(2) of the Income-tax Act, 1961, relating to the assessment years 1970-71 and 1971-72?'

5. It appears that in the subsequent year, that is to say, the assessment year 1972-73, the Appellate Tribunal, on the question of imposition of penalty, had taken a different view and our attention was drawn to that decision of the Tribunal in aid of the proposition that the assessee was not guilty of any concealment of income because the assessee was contending, according to the learned advocate for the assessee, that there was a change of the method of accounting on account of the interest due from Speciality Papers Ltd. and on that account the assessee legitimately did not disclose the interest income. In so doing it was contended that the assessee could not be held to be guilty of concealment which requires a deliberate mental element and as such no penalty was leviable. This aspect was further supported by the plea that in a subsequent year, another judicial body has taken this view and where two views were not only possible but in fact had been taken by the two judicial bodies, viz., the Tribunal, in such a case, the assessee could not be held guilty of concealment for the purpose of imposition of penalty. It appears that for the assessment year 1970-71, the quantum appeal had come up in reference before this court in Income-tax Reference No. 60 of 1977, (James Finlay & Co. v. CIT) and the judgment was delivered on the 22nd and 23rd December, 1980, The said judgment is reported in [1981] 22 CTR CAL 28, Calcutta, page 28 (since reported in) : [1982]137ITR698(Cal) . In the relevant previous year, the assessee was following the mercantile system of accounting. We held in that reference, Income-tax Reference No. 60 of 1977 : [1982]137ITR698(Cal) , that there was no claim before the Tribunal that there was any change of method of accounting from mercantile system to cash system, was made. The only claim was that the realisation of the claim of interest was postponed. In that case, in the assesssee-company's books of account for the relevant year 1970-71, for the year ending 31st December, 1969, two amounts receivable as interest on advances from two parties were credited in suspense account. The assessee was following the mercantile system of accounting. The ITO treated both the items of interest as the assessee's incomefor the assessment year 1970-71. According to the assessee there was an extreme unlikelihood of the loan being recovered. Further, it was urged that the Board of Direct Taxes had issued a circular dated 6th October, 1952, which made the interest not includible. It was suggested alternatively that interest credited to the suspense account could not form the assessee's real income. The assessee-company did not succeed before the Tribunal and the reference came up before this court. Before the High Court it was submitted for the assessee that it had decided to change the method of accounting with effect from the 1st January, 1968. It was held that if only the realisation of interest or the claim for the interest was being postponed until the year in which the interest was received, it could not be said that there was any change from the mercantile to the cash system of accounting. Therefore, it was rightly held by the Tribunal that in fact there was no change in the method of accounting. There might have been a change in the method of keeping or writing its accounts. The accounts used the expression 'amounts credited in the suspense account as interest'. Therefore, it was apparent that there was really no contention or claim on behalf of the assessee that there was any change in the method of accounting in respect of any particular source of income, if any amount was credited to the suspense account. As a matter of fact in the letter, upon which reliance was sought to be placed on behalf of the assessee, it used the expression 'accrued interest' as we have set out hereinbefore. Therefore, the parties proceeded on the basis that the interest had accrued and thereafter the negotiations were being made as to the giving up of the accrued interest. In those circumstances, it was held by this court that there was really no claim made before the Tribunal that there was any change of the basis or method of accounting. It was observed that the principle of real income was not to be so subordinated as to amount virtually to a negation of it, when a surrender or concession or rebate in respect of managing agency commission (interest in the present case) was made, accrued to or given up on grounds of commercial expediency, simply because it took place some time after the close of the accounting year. In examining any transaction and situation of this nature the court should have more regard to the reality and speciality of the situation rather than the purely theoretical or doctrinaire aspect of it. The court should lay greater emphasis on the business aspect of the matter viewed as a whole when that can be done without disregarding statutory language. In considering the concept of real income, the main basis was, the factors of the accrual of the commission or interest, making of the accounts, legal obligation to give up a part of the commission and the forgoing of the commission at the time of making of accounts werenot disjointed facts and there was a dovetailing about these facts which should not be ignored. Therefore, simply because after the close of the accounting year, certain income was given up in a mercantile system of accounting, it would not by itself disentitle the assessee to ask for an application of the concept of real income. It is well settled, however, that in the concept of the real income the fact that the assessee had not obtained the income was the predominant factor and the substance of the matter had to be looked into and it is well settled by numerous authorities that whether the accrual took place after the relevant year or not was not the decisive factor. The decisive factor was that in the agreement, which made the income not to accrue or arise, something was there, which entitled the recipient or the person in whose hands the income accrued, to receive the income or to claim the income after the end of the relevant accounting year. It would also be applicable in cases where the original agreement was subsequently replaced or exchanged in view of another agreement subsequently entered into. Within these two limits normally unless the germ of subsequent conduct which brought about the income was embodied in the relevant year, the theory of real income could not be invoked to defeat the consequence of accrual of income. The real principle appears to be that the root or germ as to the accrual of income for the relevant year must be in the accounting year and if such a root or germ fructified in the subsequent years that could be taken into account, and not otherwise. We further held that, in that case also, there had been no agreement for giving up the interest. The interest was not given up before the right to get the interest accrued in the relevant year. On the other hand, interest was given up long after the accrual, though the bona fides or the commercial expediency for giving up the interest was (not?) there. In fact, there was no clear assertion on the part of the assessee to give up the interest. What was done was that the interest that had accrued was credited in the suspense account. The assessee was very much keeping alive the claim for interest. In view of the fact that there was no agreement replacing the claim for interest under which the interest accrued in the year of account and the fact that interest was purported to be not realised but kept in the suspense account long after the expiry of the accounting year, though there, was some trouble in the year of account about the realisation, correspondingly the germ or root had not been transplanted under which there might be either a fresh agreement waiving interest or any clause for keeping it in the suspense account during the year of account, the aforesaid conduct was not preventing the accrual of income. We found that there was no claim for waiver of interest at all. The Tribunal was not right in coming to the conclusion that the amounts in question werenot includible to the assessment year 1970-71 as income of the previous year.

6. We had occasion to discuss several authorities to which our attention was drawn by the learned advocates appearing for the respective parties in that case. The said decisions were also relied on in this case in respect of their respective contentions. In this year, it may be noted that the following facts should be borne from the said judgment regarding the previous year. (1) In this year with which we are concerned there was no claim of any change in the method of accounting; (2) there was also no transaction which fructified and stopped the accrual. No germ was transplanted in the year in question; (3) our attention was drawn to the letter dated 1st December, 1969, which we have set out in the said judgment referred to hereinbefore; (4) thereafter, Mr. Kaliachand, a director of the Speciality Papers Ltd., wrote to the assessee offering to settle the outstanding loan of Rs. 11,65,000 on payment of Rs. 10,00,000 to be paid in one instalment and the creditor agreed to forgo all interest accrued up to 31st December, 1969; (5) it appears that in that very year before the close of the accounting year ended on 15th December, 1969, the assessee wrote to the Speciality Papers Ltd. that in waiving the outstanding interest, commission, etc., sufficient concession had already been made and that they were not agreeable to a further whittling down of the amount of the loan; (6) thereafter, there was no further correspondence for a period of two years; (7) on 3rd February, 1971, there was a fresh letter written by Sri Kaliachand offering to pay certain instalments with which we are not concerned in the relevant year, that is, subsequent to the year with which we are concerned. Therefore, the letter of 28th September, 1973, and the previous correspondence mentioned hereinbefore, indicate that in the year with which we are concerned, the assessee had not waived any claim for interest nor there was any agreement or any negotiation between the parties nor was there any settlement for the payment of interest in instalments. In that background if there was no change in the method of accounting as it must be held in the previous year and the Tribunal has also so held and the assessee not even claimed that there was any change in the method of accounting, there is also no claim that the assessee had given up any interest in the year in question. In that background there was no bona fide justification for not showing the income which had accrued to an assessee and which accrued in the mercantile system of accounting. In view of the fact that there was no germ transplanted in the year which could have been said to have fructified later by paying interest in instalments the concept of real income could also not be invoked in the light of the view we have taken in the previousjudgment in the facts of the instant year. If that is the position, then legally there was no justification, or no ground, for the assessee not showing the income in his return. If, also, that is the position, then the assessee must be held to have concealed the particulars of the income because the assessee did not disclose the income, which the assessee was under the law liable to disclose, for no justifiable reasons.

7. It was contended that when the income of the assessee was not includible for one reason or the other and such a view was a plausible or possible view, in such a case, the assessee could not be held to be guilty of concealment and as a principle of law it must be accepted. But there must be a contention on the part of the assessee which is legally plausible or possible for the non-inclusion of the income in a particular year ; we have found in this case there was no such contention raised or could have been raised in view of the facts found. Our attention was drawn to several authorities, which of course decided the cases on particular facts. We first refer to the decision of the Supreme Court in the case of CIT v. Khoday Eswarsa and Sons : [1972]83ITR369(SC) , where the Supreme Court emphasised that penalty proceedings being penal in character, the Revenue must establish that the receipt of the amount in dispute constituted income of the assessee. Apart from the falsity of the explanation given by the assessee, the Revenue must have before it, before levying penalty, cogent material or evidence from which it could be inferred that the assessee had consciously concealed the particulars of his income or had deliberately furnished inaccurate particulars in respect of the same and that the disputed amount was revenue receipt. No doubt, the original assessment proceedings for computing the tax might be a good item of evidence in the penalty proceedings ; but penalty could not be levied solely on the basis of the reasons given in the original order of assessment. With respect, this proposition can be fairly applied to this case ; if, however, any plausible explanation could have been found for not disclosing the income, then, of course, the assessee would have been in a better position in view of the principles enunciated by the Supreme Court and on the facts, as it is apparent here, and as we have found that the assessee had no ground for not disclosing the income. Here, as the assessee had treated this income as 'accrued income', and had offered no legally plausible or possible explanation for not including it in the income, the assessee must, as a matter of fact, be held to have concealed deliberately the particulars of his income. If that is the position then the principles enunciated by the Supreme Court would also (not?) be applicable to the facts of this case. Reliance was also placed on certain observations of the Supreme Court in the case of Cement Marketing Co. of. India Ltd. v. Asst. Commr. of ST : [1980]124ITR15(SC) . There the SupremeCourt was dealing with the Madhya Pradesh General Sales Tax Act, 1958, and observed that a return could not be said to be false unless there was an element of deliberateness in it. It was possible that even when the incorrectness of the return was claimed to be due for want of care on the part of the assessee and there was no reasonable explanation forthcoming from the assessee for such want of care, the court might, in a given case, infer deliberateness and the return might be liable to be branded as a false return. But where the assessee did not include a particular item in the taxable turnover under a bona fide belief that he was not liable so to include it, it would not be right to condemn the return as a false return inviting an imposition of penalty. It was also held that where the assessee did not include in its return of turnover the amount of freight included in the price of sugar in the bona fide belief that it was not liable to be included in the taxable turnover, the assessee could not be said to have filed a false return and penalty could not be imposed on the assessee under Section 43 of the Madhya Pradesh General Sales Tax Act, 1958, and Section 9(2) of the Central Sales Tax Act, 1956. It appears that the assessee was contending throughout that on a proper construction of the definition of 'sale price' in Section 2(o) of the Madhya Pradesh General Sales Tax Act, 1958, and Section 2(h) of the Central Sales Tax Act, 1956, the amount of freight did not fall within the definition and was not liable to be included in the taxable turnover. That was the reason why the assessee did not include the amount of freight in the taxable turnover. The facts of that case would indicate the line that where there is a genuine claim for the inclusion of an item as income then it might be liable to tax. In the instant case, that the amount was received and it was income was not disputed. The only dispute in the instant reference before us is in which year, the income would be taxable That also depends on the system of accounting, and at least, there is also no dispute that the assesses in this case followed the mercantile system of accounting. There is also no dispute as to the legal agreement between the parties. That interest did not accrue in the year, is the only contention that could possibly have been raised and that (too) on the basis that the assessee had changed its method of accounting, and, as we have mentioned hereinbefore, it was not a contention raised before the ITO and that was not the contention of the assessee. The contention of the assessee, on the other hand, was that the assessee treated the interest, as having accrued and kept the interest in the suspense account. There is also, as we have mentioned hereinbefore, no provision that there was any agreement entered into which prevented the accrual happening and no such arrangement was planted in the year in question. In such background it could not be said that there was any bona fide claim for not including the income in thereturn. If that is the position then the principle as enunciated by the Supreme Court, in our opinion, would not be attracted in aid of the submission made on behalf of the assessee. There were certain observations made regarding the fact that the IAC in his order had noted that the directors in their report had also not noted about the change in the method of accounting. On behalf of the assessee it was contended that normally in the directors' report such change was not included and it is not necessary that in a directors' report it would be so indicated. There was no opinion in the auditors' report that there was any change in the system of accounting either in respect of interest or in respect of income. If there was such a change after following the mercantile system of accounting then such a fact normally would have found mention in the auditors' report which would be reflected in the directors' report.

8. Our attention was drawn to several decisions of this court. We will briefly note the same. In the case of Burmah-Shell Oil Storage and Distributing Co. of India Ltd. v. ITO : [1978]112ITR592(Cal) , A. N. Sen J. (as his Lordship then was), observed that the assessee had disclosed all the particulars and, therefore, in that case the assessee could not have held to be guilty for non-disclosure and liable, because the bona fide discrepancy between the income assessed by the ITO and the income returned arose because the contention of the assessee regarding the claim for devaluation loss, increased depreciation and development rebate was rejected by the ITO. At the time of initiation of the penalty proceedings, the authority concerned entirely proceeded on the basis of Section 271(1)(c) of the Act and did not rely on the explanation at all. We may incidentally mention that in the instant reference before us also the Revenue has not proceeded on the explanation. The learned judge observed that even if the deeming provision in the Explanation could be invoked in justification of the penalty proceedings, the Explanation would have no application in the absence of any fraud or gross or wilful neglect on the part of the assessee. The act of raising the legal contention which the assessee raised before the ITO and which according to the assessee was sound and tenable and was still being pursued by the assessee in appropriate proceedings/ could not constitute fraud or gross or wilful negligence. As there was no-fraud or gross or wilful negligence on the part of the assessee, the provisions contained in the Explanation to Section 271(1)(c) of the Act could not be attracted, even if it could be otherwise said that the said Explanation applied because of the discrepancy between the income returned by the assessee and the income assessed by the ITO. The conditions which were required to be fulfilled for exercising the powers for imposing penalty under Section 271 of the Act didnot exist in that case and the authority concerned was not competent to exercise the power of imposing penalty on the assessee. In the facts and circumstances of that case, it was held that it would not be proper for the court to refuse to exercise its discretion to interfere in the proceedings. This case was followed in the case of Jeewanlal (1929) Ltd. v. ITO : [1978]112ITR906(Cal) where, at p. 909 of the report, it was dealt with as the first case, i.e., in the case of Burmah-Shell Co, : [1978]112ITR592(Cal) , that the assessee had disclosed all the particulars in Part IV of the return and then it was contended that the assessee was not liable to tax. The facts of the instant case are entirely different from the facts of that case. Reliance was also placed on the decision in the case of Kashmir Agencies Pvt. Ltd. v. ITO : [1978]112ITR563(Cal) , where the assessee-company was the managing agent of another company. The managing agency agreement was placed before the ITO. The fact that the managed company had not done any business during the relevant years was also brought to the notice of the ITO. The agreement provided that in the absence or 'inadequacy of profits in any year the assessee would be entitled to a minimum remuneration of Rs. 50,000. The managed company in their accounts debited the minimum remuneration in each of the assessment years 1964-65 to 1967-68, but actually nothing was paid to the assessee. In August, 1968, the assessee voluntarily agreed to forgo the minimum remuneration from the assessment year 1964-65 onwards. The ITO issued a notice to the assessee-company under Section 147(a) in respect of the assessment years 1964-65 to 1967-68. It was held that the primary and relevant facts for determining whether the minimum remuneration had accrued to the assessee were the terms and conditions of the agreement and whether the managed company had earned any profit. These had been disclosed. Therefore, it was held that there was no failure to disclose primary facts and the notice for reassessment'should be set aside and quashed. Where in a particular case certain income had accrued or earned like the commission in the managing agency and if the primary facts were disclosed then the assessee could not have said to be either guilty of concealment or liable to penalty for non-disclosure of document and the assessment was not liable to be reopened. In this case no such contention is possible. There was no controversy that the accrual of interest depended on the construction of any document or the conr struction of any correspondence between the parties. This was the income of the assessee. There was no dispute. Our attention was also drawn to another decision of the Supreme Court in the case of CIT v. Jai Parkash Om Parkash Co. Ltd. : [1964]52ITR23(SC) . There the Supreme Court reiterated that the question whether, on the facts as ascertained, certain income could be said to have accrued to the assessee, was a question oflaw and, therefore, the question raised by the Commissioner ought to have been referred. So, the assessee, which kept its accounts on the mercantile basis, entered into a forward contract on February 5, 1952, for the sale of certain quantity of mustard at Rs. 27-8-0 per maund, the due date being June 7, The price fell soon thereafter and the purchaser purported to cancel the contract before the due date but the assessee refused to accept the cancellation. On February 28, the assessee sent a telegram to the purchaser to the effect that if the purchaser did not inform it within four hours the acceptance of settlement of the contract at Rs. 16-14-6 per maund, it would presume that the purchaser had accepted a settlement at that rate. There was no response to the telegram. On the basis of this settlement the assessee instituted a suit for the recovery of Rs. 74,253 after giving credit for Rs. 20,000 due from the assessee. The trial court decreed the amount and at the date of the assessment order, an appeal was pending before the High Court. The ITO included the sum of Rs. 94,253 in the total income of the assessee for the accounting year 1952-53, but the Appellate Tribunal excluded the amount from the assessment on the ground that the liability of the other party still being in dispute, the sum of Rs. 94,253 could not be said to have accrued. The Tribunal further declined to state a case to the High Court. The Commissioner thereupon moved the High Court under Section 66(2) of the Indian I.T. Act, 1922, for an order directing the Tribunal to state a case and refer the question whether the sum of Rs. 94,253 or any part thereof had accrued or arose or could be deemed to have accrued or arisen to the assessee during the relevant accounting year. In a particular case because of certain agreement between the parties if any question or contention arises on the transactions between the parties so that it did not make the income accrue in a particular year then in such a background it could be said that a question of law arose and if two possible views could possibly be taken on the question of law, then a question of law will arise. In the instant case, this is not the position before us; The circumstances in respect of which a penalty could be imposed was examined by this court in the case of CIT v. Rupabani Theatres P. Ltd. : [1981]130ITR747(Cal) . It is not necessary for us to deal with the said decision in detail. Learned advocate for the assessee, however, drew our attention to the observations made by us at p. 755 of the said report, where it was observed that the gist of the offence under that section was that the assessee had concealed the particulars of his income or deliberately furnished inaccurate particulars of such income. The mere fact that the explanation of the assessee, it was observed, was false did not necessarily give rise to the inference that the disputed amount represented an income. Here, thereis no question or no dispute that the amount in question was the income of the assessee. There was no dispute as to the quality of the receipt. The only dispute was in which year it could be taxed. There was no proper explanation from the assessee which could be said to be either bona fide or legal or tenable or possible that it was not taxable in the year in question. Therefore, the observations made in this decision do not help the assessee.

9. Reliance was also placed on certain observations made by this court in the case of CIT v. Raigharh Jute Mills Ltd. : [1981]132ITR702(Cal) . There, the court observed that in a case where a suit had been filed, the right to get interest for the period subsequent to the institution of the suit would depend not on the bargain between the parties but on the discretion of the court as contemplated by Section 34 of the CPC. The Tribunal had found that there was no chance of interest being recovered and, therefore, the assessee was not charging interest. Whether there was accrual of interest or not should be judged from a realistic point of view. The Tribunal further found that the principal amount had become a bad debt and that finding was not challenged as perverse in that reference. Therefore, it was held, the sum of Rs. 3,37,725 did not accrue to the assessee by way of interest on the loan advanced by the assessee-company. There, as we have mentioned before, the Tribunal had found on facts that there was no chance of realising interest and, as such, the assessee was treating it as not recoverable. But the court did not rest its decision even on this aspect, because a suit was pending there and, therefore, under Section 34 of the CPC, the accrual of interest depended not on the bargain between the parties but on the discretion of the court in granting such interest. Reliance was also placed on certain observations of the court in the case of CIT v. Jagabandhu Prasanna Kumar Ruplal Sen Poddar : [1982]133ITR156(Cal) . There, the finding of fact by the Tribunal was not disturbed because there was no question of challenging the finding of the Tribunal as perverse or based on no evidence. There the facts of the case were entirely different and it is not necessary for us to refer to the said decision in detail as the observations made in this case would not be of any assistance to the assessee.

10. Reliance was also placed on certain observations of the Supreme Court in the case of CIT v. Ashoka Marketing Ltd. : [1976]103ITR543(SC) , where the Supreme Court on the facts held that whether or not the assessee had concealed his income was a question to be decided on the facts of the case and since in that case the decision was based on the assessee's agreement with D. J. & Co., which the Tribunal had accepted as true, no question of law arose from the order of the Tribunal. It is true that no question of law arose on the finding of the Tribunal. Here, there was nodispute as to the quality of receipt as income. There the only question was whether the income accrued in that year, there being no claim for change in the method of accounting. It is undisputed that on the mercantile system the income would have accrued in the year. In our opinion, the principle of the said decision also cannot help the assessee.

11. In that view of the matter, we are of the opinion that the Tribunal, in the facts and circumstances of the case, came to a conclusion which could not be said to be either incorrect or improper in law.

12. For the aforesaid reasons, the question is answered in the affirmativeand in favour of the Revenue.

13. In the facts and circumstances of the case, the parties will pay andbear their own costs.

Suhas Chandra Sen, J.

14. I agree.


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