TMI Blog1993 (9) TMI 91X X X X Extracts X X X X X X X X Extracts X X X X ..... counting. The controversy pertains to the assessment year 1974-75, the corresponding previous year being the accounting period ending on December 31, 1973. The assessee submitted its return of income for the above assessment year showing income of ₹ 2,08,700. In the computation of its income, the assessee claimed deduction of a sum of ₹ 1,30,233 which represented the amount of interest due to the assessee from Messrs. Hindustan Organisers Pvt. Ltd. and Messrs. Naranbhai P. Patel (I.) Pvt. Ltd. on the amounts advanced to them which were subsequently waived by the assessee. The claim of the assessee for deduction of the said amount of ₹ 1,30,233 was allowed by the Income-tax Officer. The Commissioner of Income-tax ( the Commissioner ), on perusal of the assessment records, found that the order of the Income-tax Officer, in so far as it related to the allowance of deduction of the above amount in the computation of income of the assessee, was erroneous and prejudicial to the interests of the Revenue. He, therefore, initiated proceedings under section 963 of the Act for suo motu revision of the order of the Income-tax Officer. He issued a show-cause notice to the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Shoorji Vallabhdas and Co. [1962] 46 ITR 144, CIT v. Birla Gwalior (P.) Ltd. [1973] 89 ITR 266 and the decision of the Allahabad High Court in CIT v. U. B. S. Publishers and Distributors [1984] 147 ITR 114. Counsel further submits that events taking place subsequent to the end of the previous year can be taken into account for deciding whether a particular income had accrued or not. According to him, in the instant case, the subsequent agreement between the assessee and the borrowers to waive the interest had the effect of modifying the earlier agreement resulting in non-accrual of any interest to the assessee. We have carefully considered the above submission in the light of the facts and circumstances of this case. We find that, in the present case, the following facts are undisputed : (i) The assessee was maintaining its accounts on mercantile basis and year after year it was accounting for interest accrued on the loans to the two companies on mercantile basis. At the time of advancing the amounts to the said two companies, there was a specific agreement to the effect that interest would be charged every year on the outstanding amounts at the rate of 7.5 per cent. per ann ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry of the amount in the next assessment year. The assessee wanted to recover the amount to get better dividend by investing the amount elsewhere. It is in that light only that the borrowers were asked, if they so liked, instead of returning the amount, to raise the rate of interest from 7 1/2 per cent. to 14 per cent. per annum. This correspondence between the assessee and the borrowers and the ultimate acceptance by the assessee of the lesser amount than the amount due to it cannot in any manner affect the accrual of the interest in the year ending on December 31, 1973. The concept of accrual is a well-known concept in income-tax law. It is also a well-known concept in accounting. Section 5 of the Income tax Act provides for levy of income-tax on income accruing to an assessee. Evidently, in the instant case, the interest income amounting to ₹ 1,30,233 accrued to the assessee during the previous year which ended on December 31, 1973. The only question that arises is whether the subsequent conduct of the assessee in the instant case in waiving the interest did have the effect of making the accrual of income non-income . The contention of the assessee is that subse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... really accrued to the assessee has to be found out and what has accrued must be considered from the point of view of real income taking the probability or improbability Of realisation in a realistic manner and dovetailing of these factors together but once the accrual takes place, on the conduct of the parties subsequent to the year of closing, an income which has accrued cannot be made 'no income'. (emphasis supplied). It was, however, made clear (at page 154): The extension of such a value judgment to such a field is pregnant with the possibility of misuse and should be treated with caution; otherwise one would be on sticky ground. One should proceed cautiously and not fall a prey to the shifting sands of time. The court also gave the following note of caution against too wide an application of the real income concept (at page 155): We were invited to abandon legal fundamentalism. With a problem like the present one, it is better to adhere to the basic fundamentals of the law with clarity and consistency than to be carried away by common cliches. The concept of real income certainly is a well-accepted one and must be applied in appropriate cases but with ..... X X X X Extracts X X X X X X X X Extracts X X X X
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