TMI Blog1989 (6) TMI 23X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee had advanced a loan of over Rs.2 lakhs in 1959 to his father, Sri Manik Chand Bagri, who was carrying on business in export of gunny bags. The loan amount had touched the figure of Rs. 3,45,400 in the year 1965. At the beginning of, the present year, i.e., 1st January 1972, the debit balance in the account of Sri Manik Chand Bagri was Rs. 1,27,444. The assessee had charged interest in this account up to the year 1970 but from January 1, 1971, the assessee did not charge any interest in this account. In the return of income filed for the assessment year 1973-74, for which the relevant accounting period ended on December 31, 1972, the assessee had not shown any interest income received or receivable from Sri Manik Chand Bagri In respon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngly, he included a sum of Rs. 14,868 being interest at 12 per cent. The assessee went up in appeal and the Appellate Assistant Commissioner accepting the contentions of the assessee, deleted the addition of Rs. 14,868. The Appellate Tribunal, however, accepted the appeal of the Department and restored the order of the Income-tax Officer, thereby confirming the addition of Rs. 14,868. It has been contended by Mr. Roy Chowdhury, learned advocate appearing on behalf of the assessee, that there was no expectation of receiving any interest from the father, The genuineness of the transaction has not been disputed in this case either. The undisputed facts of this case are that there was no agreement for payment of interest by and between the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... int of time at which tax liability is attracted and whether the income has accrued or not. It cannot be relied on to determine whether the income has, in fact, resulted or materialised in favour of the assessee. It is true that the assessee has been maintaining his accounts on the basis of the mercantile system of accounting. The interest income may have accrued according to the mercantile system. In our view, this issue has to be viewed in the context of commercial and business realities of the situation. Reference may be made to the decision of the Supreme Court in Poona Electric Supply Co. Ltd. v. CIT [1965] 57 ITR 521, where the Supreme Court observed (at page 529): "The principle of real income is not to be so subordinated as to amou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... though an entry to that effect might, in certain circumstances, have been made in the books of account." The fact in this reference remains that from the year 1970 onwards, the assessee did not receive any interest as the debtor was unable to pay any interest. Income by way Of interest was not, in fact, realised by the debtor and has not become his income in the real sense. Our attention has been drawn to a decision of the Madras High Court in the case of CIT v. Motor Credit Co. P. Ltd. [1981] 127 ITR 572. There, -the assessee, a private company, which was carrying on business as financiers for purchase of motor vehicles on hire purchase, advanced under hire purchase agreements, monies to two firms which were plying buses. The routes of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rmine or affect the range of taxable income or the ambit of taxation. Where no income has resulted, it cannot be said that income has accrued merely on the ground that the assessee had been following the mercantile system of accounting. Even if the assessee makes debit entry to that effect, still no income can be said to have accrued to the assessee. If no income has materialised, there can be no liability to tax on hypothetical income. It is not the hypothetical accrual of income based on the mercantile system of accounting followed by the assessee that has to be taken into account, but what should be considered is whether the income has really materialised or resulted to the assessee. The question whether real income has materialised to t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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