TMI Blog2008 (1) TMI 263X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee. Vinay and Vandana Kuthiala for the Commissioner. JUDGMENT The judgment of the court was delivered by DEEPAK GUPTA J.— The following question of law has been referred for the opinion of this court under section 256(2) of the Income-tax Act, 1961: "Whether, in the facts and in the circumstances of the case, the Tribunal was right in upholding the addition of interest of Rs. 15 lakhs on accrual basis"? 2. The brief facts giving rise to this question are that the assessee M/s. H. P. Mineral and Industrial Development Corporation, Shimla, is a Government owned Corporation. It had a number of subsidiary companies, i.e., M/s. Fertilizers Ltd., Himachal Wool Processors Ltd. and Himachal Worsted Mills Ltd. It had advanced t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Revenue. A number of authorities have been cited before us. 5. In CIT v. Shoorji Vallabhdas and Co. [1962] 46 ITR 144, the apex court held as follows (page 148) "Income-tax is a levy on income. No doubt, the Income-tax Act takes into account two points of time at which the liability to tax is attracted, viz., the accrual of the income or its receipt; but the substance of the matter is the income. If income does not result at all, there cannot be a tax, even though in book-keeping, an entry is made about a 'hypothetical income', which does not materialize. Where income has, in fact, been received and is subsequently given up in such circumstances that it remains the income of the recipient, even though given up, the tax may ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns emerge (1) It is the income which has really accrued or arisen to the assessee that is taxable. 'Whether the income has really accrued or arisen to the assessee must be judged in the light of the reality of the situation. (2) The concept of real income would apply where there has been a surrender of income which in theory may have accrued but in the reality of the situation no income had resulted because the income did not really accrue. (3) Where a debt has become bad deduction in compliance with the provisions of the Act should be claimed and allowed. (4) Where the Act applies the concept of real income should not be so read as to defeat the provisions of the Act. (5) If there is any diversion of income at source under any st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t to import the concept of real income so as to whittle down, qualify or defeat the provisions of the Act and the Rules. The court held that the decision to waive off the interest must be taken prior to the accrual of the same. 9. Shri Vishal Mohan has placed reliance on the judgment of the apex court in Godhra Electricity Co. Ltd. v. CIT [1997] 225 ITR 746. In our opinion, the facts of the said case are not applicable to the present case since in that case the assessee had enhanced the rates of electricity and these rates were being shown in its books of account. However, due to litigation the assessee was prevented by court orders from recovering these amounts and subsequently the assessee-company was taken over by the Government. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SCC 530 the decision to waive off loan or interest should be taken on the basis of commercial expediency and should be taken before the end of the accounting year. 13. Section 36 of the Income-tax Act deals with other deductions. Bad debts can be written off in terms of section 36(1) (vii) which at the relevant time read as follows "subject to the provisions of sub-section (2), the amount of any debt, or part thereof, which is established to have become a bad debt in the previous year." 14. It is obvious that the decision must be taken immediately after the previous year. In this case the decision to waive off the loan was taken at a much later stage. The resolution to waive off the loan was passed after the income had already acc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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