TMI Blog1983 (7) TMI 42X X X X Extracts X X X X X X X X Extracts X X X X ..... November 23, 1951. For the year 1951, no interest was charged on this account. Thereafter, for the years 1952, 1953, 1954, 1955 and 1956, interest was duly charged on this account at the rate of 6% p.a. During this period, there were small adjustments in the amount and on December 31, 1956, a balance of Rs. 6,16,109 remained outstanding. Thereafter, no interest was charged. Some adjustments were made up to December 31, 1963, which had brought the balance to Rs. 3,74,229 and this was carried forward from year to year till December 31, 1966. It appears that on December 31, 1957, the debtor had written to the assessee requesting it to exclude the amount of interest from the account as it was experiencing difficulty in the payment of the principal itself. On January 10, 1958, the directors decided not to charge any interest to this account till the principal amount was repaid. No formal resolution of the board of directors was, however, passed. It further appears that in 1961, the assessee had filed a suit against the debtor for the recovery of the amount due and a compromise was arrived at between the parties on the basis of which a decree was passed in favour of the assessee against ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts bad admittedly been committed. In these circumstances, interest must be taken to have accrued to the assessee for the relevant years. In support of his contention, he placed reliance upon Shiv Prasad Ram Sahai v. CIT [1966] 61. ITR 124 (All), CIT v. K.R.M.T.T. Thiagaraja Chetty Co. [1953] 24 ITR 525 (SC) and E. Al. Muthappa Chettiar v. ITO [1961] 41 ITR I (SC). Having given our careful consideration to the contentions of the learned counsel for the Department, we find considerable force in these contentions. Before referring to the authorities relied upon by the learned counsel, we would like to refer to E. D. Sassoon Co. Ltd. v. CIT [1954] 26 ITR 27 (SC), decided by their Lordships of the Supreme Court wherein the term " accrued " was considered after referring to a large number of Indian and English authorities. Their Lordships observed as tinder (p. 51): "It is clear, therefore, that income may accrue to an assessee without the actual receipt of the same. If the assessee acquires a right to receive the income the income can be said to have accrued to him though it may be received later on its being ascertained. The basic conception is that he must have acquired a righ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce of any direct authority but on first principles it is clear that, once the assessee has adopted the mercantile system of accounting, there is no alternative for the Income-tax Officer but to compute the assessee's income on that system, i.e., on the accrual and not on the receipt basis." They further observed as under (p. 130) : " It would be open to the assessee to vary the terms of a particular contract but the variation must be by mutual agreement. It is not open to him to keep alive the contract and his rights thereunder, but, for the, purposes of income-tax, to say that lie 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 other, then it would open the floodgates of evasion." Reference may also be made to E. M. Muthappa Chettiar's case [1961] 41 ITR 1 (SC), wherein their Lordships of the Supreme Court have observed as under (p. 9): "Before leaving the question of the validity of this order of assessme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Commissioner of Income-tax v. K. R. M. T. T. Thiagaraja Chetty Co. [1953] 24 ITR 525 (SC) and to the observations at p. 529. We consider that the decision far from supporting the appellant is really against him." In this view of the matter, there is no room for doubt that the interest for the two relevant years referred to above had accrued to the assessee and it was includible in his total income. The learned Tribunal appears to have read something which was not there in the decision of their Lordships of the Supreme Court in E. D. Sassoon Co. Ltd.'s case [1954] 26 ITR 27. They have observed as under : " This right to receive income must be a real and enforceable right against a sound and solvent debtor and the debt must be a good recoverable debt. Where there is no such right or where the right is against patently unsound debtor or where there are no reasonable chances of recovery, it was not possible to say that there was a right to receive any amount or that a debt in favour of the assessee was created." In our opinion, the fact that the financial position of the debtor was not at all sound and there was no reasonable chance of the recovery of the debt within a fores ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
