TMI Blog1965 (9) TMI 1X X X X Extracts X X X X X X X X Extracts X X X X ..... red partnership firm consisting of two persons, Sri Shiv Prasad and Sri Ram Sahai, having equal shares in the profits and losses. The assessee-firm carried on, inter alia, money-lending business and in the course of its money-lending business it had advanced a sum of Rs. 71,010, some time in 1948-49, to another registered firm of M/s. Gwalior Glass Industries (hereinafter called the debtor firm). There were four partners of the debtor firm, two of whom were also partners of the assessee-firm. The two other partners were Sri Ram Prasad and Sri Jagdish Prasad. The assessee admittedly adopted the mercantile system of accounting. For the assessment years 1948-49 to 1956-57, the assessee had returned the interest income from the aforesaid loan t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l income of the assessee. The department carried the matter in appeal to the Tribunal which reversed the decision of the Appellate Assistant Commissioner and restored that of the Income-tax officer. In doing so, the following findings of facts were given: 1. That the assessee had been following the mercantile system of accounting and interest from the debtor firm was being assessed in the past on the accrual basis. 2. There was no variation, change or innovation of the contract in respect of the income for the relevant year of account. 3. That the material placed on record was insufficient to establish that the debtor firm was not able to pay the interest for the relevant year of account, and 4. That both the partners of the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atural and legal sense. Such interest, when it is paid, will necessarily form part of the profits or receipts of the year in which it is paid and I can see no reason for including it in the profits or receipts of an earlier year. If the present Act is found to admit of extensive evasion in India, the remedy, in my opinion, is to be found in an alteration of the law." It was as a result of these observations and to prevent the excessive evasion of tax, which was resulting from the absence of a provision as to the system of accounting, that section 13 of the Income-tax Act was inserted in the Income-tax Act (Act No. XI of 1922). Section 13 provides : " Income, profits and gains shall be computed for the purposes of sections 10 and 12 in a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , held that merely because the agent of a limited company was entitled to a commission and it had accrued and at its request the company had not credited such commission to the account of the assessee but had carried it to the suspense account by a resolution of the directors, would not make the commission which had accrued any the less the income of the assessee, as the system of accounting followed was mercantile system and the commission had accrued. In Commissioner of Income-tax v. Shoorji Vallabhdas Co. the Supreme Court was again called upon to consider whether the rate of commission which had been agreed upon could be given up by the managing agent and as such what would be the income which could be said to have accrued to the mana ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the contract and his rights thereunder, but, for the purposes of income-tax, to say that he will not debit the interest which may have accrued as a debt in its accounts for any reason whatsoever. This is the very evil on account of which section 13 in the Act of 1922 was brought on the statute book. If the assessee could at any moment of time say that he will not debit the interest because of some reason or the other, then it would open the floodgates of evasion. There is also no hardship as the legislature has expressly provided that, if the income on the accrual basis has been included in the assessee's total income and tax paid thereon but subsequently it is found that that income was not received or could not be received, then in the y ..... X X X X Extracts X X X X X X X X Extracts X X X X
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