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TMI Blog1972 (9) TMI 18X X X X Extracts X X X X X X X X Extracts X X X X ..... thod of accounting was mercantile, the interest of Rs. 13,033 for the assessment year 1960-61 was liable to inclusion in the assessee's total income having regard to the provisions of sections 10 and 13 of the Indian Income-tax Act? " " The questions that arise for determination for these two years are identical. The assessee is a limited company which is mainly carrying on money-lending and banking business. Its method of accounting is mercantile. For the accounting year ending March 31, 1959, in the balance-sheet of the company, the loans and advances due to the company were shown as Rs. 2,80,095.62. This was the amount due from five debtors of the company. A note was put up at the foot of the profit and loss account to the effect that " ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e balance of Rs. 9,275 was brought to tax as balance of interest in respect of the amount due by the remaining debtors. On the same footing for the assessment year 1960-61, after taking into account the interest charged to New Prahlad Mills, the balance of the amount of Rs. 13,033 was brought to tax in respect of the interest payable by the other debtors of the company. The order passed by the Income-tax Officer was confirmed by the Appellate Assistant Commissioner. It was reversed by the Tribunal. In its order, the Tribunal, pointed out that, looking at the matter from the accrued interest and mercantile method angle, it is not denied that the advances in question originated as business advances, so that if in fact interest is receivable, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yed by the assessee. Relying upon the Full Bench decision of the Allahabad High Court in Commissioner of Income-tax v. Shrimati Singari Bai, it was urged that where an assessee, who carries on a money-lending business and keeps the accounts according to the mercantile accountancy system, the Income-tax Officer for the purpose of section 10 of the Act is entitled and bound under section 13 to compute the profits and gains of the assessee in accordance with the method of accounting notwithstanding that, as a result of such computation, profits and gains of the assessee's business would or might subject to any allowances proper to be made under the Act, become chargeable to income-tax without having been actually received, or deemed by the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e or arise or to be received. Receipt, either actual or deemed, as such is not made by income-tax law a condition precedent to taxability. Under the head of source " business ", what are charged are the profits and gains of the business ; and that profit and those gains do not escape tax by reason only of the fact that they are not received in the accounting year in money or the equivalent of money, or are not deemed to be so received. They are taxable, if they have arisen or accrued, or are under the Act deemed to have arisen or accrued to the assessee in the accounting year, just as much as if they had been received or were deemed to have been received in that year. A similar view has been taken by the Bombay High Court in Ramkumar Kedar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the balance of the amount forgone, viz., Rs. 57,785, in the taxable income. The Tribunal, however, found that the sum of Rs. 57,785 was also given up for reasons of commercial expediency. Upon a reference to this court, this court took the view that it was the real income of the assessee-company for the accounting year that was liable to tax and that the real income could not be arrived at without taking into account the amount forgone by the assessee. In ascertaining the real income the fact that the assessee followed the mercantile system of accounting did not have any bearing. The accrual of the commission, the making of the accounts, the legal obligation to give up part of the commission, and the forgoing of the commission at the time ..... X X X X Extracts X X X X X X X X Extracts X X X X
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