TMI Blog1973 (2) TMI 34X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of Rs. 33,747.09 is not agricultural income for the assessment year 1964-65?" The assessees, seven in number, have the status of tenants-in-common. They owned an estate from which they derived agricultural income liable to be assessed in the year 1963-64. The assessees then claimed that a sum of Rs. 33,747.09 was payable towards interest on a loan of Rs. 4 lakhs taken by them from M/s. Associated Planters Ltd., Calicut. In computing the agricultural income liable to be assessed to tax in the year 1963-64, this sum was allowed to be deducted. In the accounting period relating to the assessment year 1964-65, M/s. Associated Planters Ltd. waived the claim for interest and, therefore, the amount was credited to the revenue accounts of the assessees. The assessees were admittedly following the mercantile system of accounting. The question that arose for decision before the Tribunal was whether this sum of Rs. 33,747.09 credited towards interest in the relevant previous year could be assessed in the year 1964-65. The Tribunal, by a majority, held that it was not agricultural income. The question to be decided is whether the view of the Tribunal is correct. The departmental member ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is a case where the assessee followed the mercantile system of accounting and since there was no actual receipt of the amount or constructive receipt of the amount but only remission, the decision in Commissioner of Income-tax v. Rohtas Industries Ltd. must be followed by this court and the question referred answered in the assessee's favour. It appears to us, with great respect to the elaborate judgment in Commissioner of Income-tax v. Lakshmamma, that the question cannot be made to depend either on the system of accounting or on the basis whether there was actual or constructive receipt of the cash or there was only remission. Even in the mercantile system of accounting no deductions can be claimed unless the deduction claimed related to a liability that had accrued. Similarly in the case of entries relating to receipts there can be no entry in a mercantile system of accounting unless the amount covered be the entry had actually become due to the assessee. The difference between the cash system and the mercantile system is only that a particular assessee considered it convenient for the purpose of his business to include in his accounts expenditure and income as soon as the lia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y unsound, in my opinion. I am unable to see how the release from a liability, which liability has been finally dealt with in the preceding account, can form a trading receipt in the account for the year in which it is granted." In this view Viscount Dunedin and Lord Atkin agreed. Lord Macmillan expressed himself slightly differently: "I say so for the short and simple reason that the appellant-company did not, in those eighteen months, either receive payment of that sum or acquire any right to receive payment of it. I cannot see how the extent to which a debt is forgiven can become a credit item in the trading account for the period within which the concession is made. " These observations mean that the benefits resulting from a remission will not amount to a trade receipt and will not, therefore, give rise to income for the purpose of income-tax assessment. It appears to us that there will be no distinction between a release or a remission on the one hand or a receipt, actual or constructive, on the other; for a receipt, we conceive, will also not be a trading receipt. We have been confronted with a decision of the Bombay High Court in In re Union Bank of Bijapur and Shol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... leum Co. v. Jackson. In such cases the money received is not the income of the assessee; we think that it is to cover cases of this nature that sub-section (2A) of section 10 was introduced in the Indian Income-tax Act of 1922 and reintroduced in the form of section 41 of the Income-tax Act, 1961. The learned judges of the Mysore High Court, on a very exhaustive survey of the decision in Commissioner of Income-tax v. Lakshmamma, came to the conclusion that the general law even before section 10 was amended by introducing sub-section (2A) was such as to enable the benefit accruing from remissions or benefit accruing from payment made by a creditor being taxed. With very great respect we do not think this is a correct statement of the law. Some of the decisions that have been referred to proceeded on an entirely different basis, which had been noticed by Rowlatt J. in his judgment in British Mexican Petroleum Co. v. Jackson, that in cases where either the price of goods delivered had not been finally settled or the amount payable towards remuneration for services rendered had not been finally agreed upon and, therefore, negotiations were in progress and it was finally settled only ..... X X X X Extracts X X X X X X X X Extracts X X X X
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