TMI Blog1980 (5) TMI 29X X X X Extracts X X X X X X X X Extracts X X X X ..... ordered to be officially wound up under the orders of this court. For the assessment year 1969-70, the assessee filed a return declaring a loss. of Rs. 2,60,322. During the. course of assessment, the ITO noticed that there was an account in the name of Shri. B. K. Bedi showing a sum of Rs. 10,81,931 due from him as on 1st April, 1968, which was reduced to Rs.10,17,981 as on 31st March, 1969, but no interest was charged on this account. The ITO called for the explanation of the assessee for not charging any interest on the amount due from Shri B. K. Bedi. The assessee's explanation was that the financial position of Shri Bedi was bad and there, was no hope of recovery even of the principal amount and, therefore, it was not considered neces ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of income-tax for the following three years as detailed below : Rs. 1961-62 26,374 1962-63 43,318 1963-64 1,01,481 The Tribunal also noticed that Shri B. K. Bedi had filed appeals before the Tribunal relating to penalties under s. 221 for non-payment of the taxes due. From all the facts and circumstances of the case, the Tribunal concluded on facts that they definitely indicate that Shri Bedi's financial position was not good and it was with that knowledge that the assessee followed the method of not charging interest in cases of those debtors whose financial position was weak, which method was accepted by the Tribunal for the year 1964-65 and, therefore, no income on account of interest in Shri Bedi's account should have been add ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . N. Awasthy, appearing for the revenue, has urged that the assessee was following the mercantile system of accounting and, therefore, on the outstanding amount due from Shri Bedi, the interest accrued to the assessee and the ITO was right in adding the same and the Tribunal was in error in deleting the addition. The other submission raised is that proper procedure was not followed by the assessee in taking a decision for not charging interest from Shri Bedi as there was no resolution passed by the board of directors in that respect. In support of his argument, he has placed reliance on a decision of the Bombay High Court in CIT v. Confinance Ltd. [1973] 89 ITR 292 and particularly on the following observations (p. 295) : " Receipt, eithe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i Bedi it is urged that it is proved on the record that by sale of all immovable properties and shares he was able to make a payment of Rs. 1,00,000 to the assessee and that there was no other asset available for payment of the balance amount due to the assessee or to pay off the arrears of income-tax for the years 1961-62 to 1963-64 due to non-payment of which penalties were being imposed on him. It is further urged on behalf of the assessee that the decision of the Bombay High Court in CIT v. Confinance Ltd. [1973] 89 ITR 292, relied upon by Shri Awasthy, does not lay down the correct law and runs directly counter to the two Supreme Court decisions and two earlier decisions of the Bombay High Court which are as follows : 1. Shoorji Vall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sh basis. If income does not result at all, there cannot be levy of tax. It was further held that even if an entry of hypothetical income is made in the books of account, but if the income does not result at all, when there is neither accrual nor receipt of income, no tax can be levied. A similar view was taken by the Supreme Court in Chamanlal Mangaldas Co.'s case [1960] 39 ITR 8. The following guidelines were laid down which deserve to be reproduced? " (i) that the agreement was one integrated and indivisible whole and that the managing agent's commission was only determinable and accrued when the year was over; (ii) that the fact that the amounts of commission were credited in the books of the managed company every six months onl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iable 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 of the making of the accounts were not disjointed facts: there was a dovetailing about them which could not be ignored. The real income of the assessee was Rs. 27,644 and the amount of Rs. 97,000 forgone by the assessee could not be included in the real income of the assessee for the accounting year. " In the aforesaid case, the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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