Skip to content


Commissioner of Income-tax Vs. Jatia Manufacturing Investment Co. Pvt. Ltd. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata High Court
Decided On
Case NumberIncome-tax Reference No. 320 of 1979
Judge
Reported in(1982)30CTR(Cal)44,[1983]142ITR536(Cal)
AppellantCommissioner of Income-tax
RespondentJatia Manufacturing Investment Co. Pvt. Ltd.
Appellant AdvocateSukumar Bhattacharji, ;R.N. Saha and ;Nisanath Mukherji, Advs.
Respondent AdvocateA.N. Bhattacharji, Adv.
Excerpt:
- .....the liability for thepayment of interest amounting to rs. 16,080 did not accrue during theprevious year relevant to the assessment year 1969-70, and accrued onlyduring the previous year relevant to the year under consideration? 2. whether, on the facts and in the circumstances of the case, and having regard to the fact that the assessee was following mercantile method of accounting, the tribunal was correct in holding that the interest of rs. 16,080 which was due in respect of the assessment year 1969-70, could be allowed as a deduction for the assessment year 1970-71 ?' 2. this reference relates to the assessment year 1970-71, the corresponding previous year being the year ended 30th april, 1969. the asses-see is a company. the ito had disallowed interest for a sum of rs. 16,080 on the.....
Judgment:

Sabyasachi Mukharji, J.

1. Under Section 256(2) of the I.T. Act, 1961, as directed by this court, the Tribunal has referred to us the following two questions :

' 1. Whether, on the facts and in the circumstances of the case, theTribunal misdirected itself in law in holding that the liability for thepayment of interest amounting to Rs. 16,080 did not accrue during theprevious year relevant to the assessment year 1969-70, and accrued onlyduring the previous year relevant to the year under consideration?

2. Whether, on the facts and in the circumstances of the case, and having regard to the fact that the assessee was following mercantile method of accounting, the Tribunal was correct in holding that the interest of Rs. 16,080 which was due in respect of the assessment year 1969-70, could be allowed as a deduction for the assessment year 1970-71 ?'

2. This reference relates to the assessment year 1970-71, the corresponding previous year being the year ended 30th April, 1969. The asses-see is a company. The ITO had disallowed interest for a sum of Rs. 16,080 on the ground that the expenditure was not pertaining to the relevant previous year. Being aggrieved by the said decision, the assessee went up in appeal before the AAC. He deleted the addition. According to him, the amount was allowable since the copy of the account along with the computation of interest was received by the assessee-company from the creditor during the relevant previous year.

3. Revenue felt aggrieved by the said decision of the AAC and took the matter up in appeal before the Tribunal. It was submitted on behalf of the Revenue that the assessee-company which -had been maintaining accounts according to the mercantile system had provided for interest in the accounts of the year in which the liability accrued and, therefore, the assessee-company should not have waited for the creditors' bills putting forward the claim for interest. On the other hand, on behalf of the assessee-company, it had submitted the correspondence between the creditor, M/s. Howrah Soap Company Ltd , and the assessee-company on the 29th September. 1967, 23rd September, 1968, and 27th December, 1968, the balance-sheet of the assessee-company for the relevant previous year and the balance-sheets for the years ended 30th April, 1968, and 30th April, 1969, and on this basis it was contended before the Appellate Tribunal that in view of its incurring losses for which waiver of interest was asked from the creditor-company, no entries were made in the accounts of the preceding year but whenever the creditor-company finally submitted its bills rejecting the assessee's representation necessary entries were made in the accounts. After considering the rival contentions, the Tribunal held as follows :

'5. We have given our careful consideration to the rival submissions with reference to the documents placed before us on behalf of the asses-see-company. Two bills bearing No. 9282 dated 30th April, 1967, for Rs. 3,760-98 and No. 9400 dated 30th September, 1967, for Rs. 12,31897 were re-presented before the assessee-company by the creditor-company along with the letter dated 27th December, 1968, which fell within the previous year relevant to the instant assessment year under appeal before us. The assessee represented to the creditor-company by its letter dated 29th September, 1967, for waiving the claim for interest, as it had been suffering losses. The creditor-company by its letter dated 29th March, 1968, intimated the assessee-company that the matter was under consideration and final decision of the board of directors would be communicated. The matter was set at rest by their letter dated 27th December, 1968. The Revenue had not doubted the bona fide nature of the asses-see's claim. The claim for interest was not finally settled till 27th December, 1968 and, therefore, the assessee had been entertaining certain hopes regarding its representation for waiving the claim of interest. In this context we are of the opinion, keeping in view the principle of commercial expediency that the assessee-company had not in any manner violated the principle of mercantile system of accounting by debiting the interest in the accounts of the relevant previous year and, therefore, the Appellate Assistant Commissioner was justified in the decision deleting the disallowance from the instant assessment. In this regard we rely upon the ratio of the decision of the Gauhati High Court in CIT v. Nathmal Tolaram [1973] 88 ITR 234 (Gauhati), where the assessee who was maintaining its accounts under the mercantile system did not make any provision for payment of sales tax in its accounts in respect of business transacted by it during periods falling during 1949 and 1950 but made a debit entry in its accounts in the accounting year 1957-58 subsequent to the receipt of demand for sales tax in that year. The expenditure was claimed in the assessment for the assessment year 1958-59 and the same was allowed. Therefore, we are of the opinion that in the instant case before us the Appellate Assistant Commissioner was right in his decision.'

4. Upon this an application was made for a reference to this court which was rejected under Section 256(1) of the I.T. Act, 1961. Thereupon, an application was moved before this court and, as directed by this court, the Tribunal has referred to us the questions as indicated hereinbefore.

5. The following facts are important to bear in mind : (1) Negotiations for settlement or waiver of interest had started before the end of the relevant previous year, (2) no bills were actually received prior to the relevant previous year, (3) the assessee-company had not entered this amount in its accounts as due in the relevant previous year, and (4) theassessee had suffered loss during the relevant previous year and represented to the creditor-company for remission to which no final intimation was received prior to the relevant previous year. If on these facts, transactions and on the evidence, the Tribunal, in view of the nature of the dealings between the parties, has come to a conclusion that the interest had accrued in the relevant previous year, then, in our opinion, it cannot be said that the Tribunal has misdirected itself in law, or has come to a finding which was not possible either on law or facts. It is well settled that according to the mercantile system of accounting, in a year or the date, when the liability or debt arose from that date, an amount became due and not from the date when the amount was actually paid. But, whether in a particular transaction, the amount had become due or not would depend upon the nature of the transactions or dealings between the parties. The principles upon which the mercantile system of accounting should be judged were discussed in the decision of the Division Bench of the Patna High Court in the case of CIT v. S. K. G. Sugar Ltd. : [1974]96ITR194(Patna) , to which our attention was drawn. In that decision the Patna High Court had noted that if after the debt amount had become due or accrued any amount was given up thereafter, then, of course a different consideration would apply. If before the end of the previous year, negotiations had been entered into for giving up any amount, then there was stoppage of accrual of debt due in the previous year. In that view of the matter, we are of the opinion that the Tribunal has arrived at a correct conclusion. In the premises, question No. 1 is answered in the negative and in favour of the assessee.

6. So far as question No. 2 is concerned, it is slightly misleading, because the Tribunal held that the interest of Rs. 16,080 did not become due until the assessment year 1970-71. Therefore, we must answer the question by saying that the Tribunal was correct in holding that the interest of Rs. 16,080 became due during the assessment year 1970-71 and, as such, was allowable as a deduction. This question is, therefore, answered also in favour of the assessee.

7. In the facts and circumstances of this case, the parties will pay and bear their own costs.

Suhas Chandra Sen, J.

8. I agree.


Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //