TMI Blog1977 (9) TMI 31X X X X Extracts X X X X X X X X Extracts X X X X ..... o as the assessee-company "), the Income-tax Appellate Tribunal, vide its order dated October 7, 1974, referred the following questions of law under section 256(1) of the Income-tax Act, 1961 (hereinafter called "the Act"), for our opinion : " (i) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the interest for the assessment year 1971-72, had already accrued to the assessee on October 31, 1970, under the mercantile system of accountancy ? (ii) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the subsequent relinquishment of interest by a resolution dated November 24, 1970, did not affect the tax liability of the assessee on accrual basi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee-company were interested in the firm, it was a case of collusion to evade the tax liability. He, therefore, added a sum of Rs. 31,565 to the income of the assessee-company under the head " Interest " at the rate of 15% per annum. On appeal, the Appellate Assistant Commissioner observed that the resolution to waive the interest was passed on November 24, 1970, i.e., after the end of the accounting period and since the assessee-company followed the mercantile system of accountancy, the interest had already accrued to the assessee before it was waived. On this basis, he upheld the addition of Rs. 18,941 to the income of the assessee-company under the head " Interest " at 9% per annum. Feeling aggrieved, the assessee-company filed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndulge in charities at the cost of the revenue. Further, the interest accrues from day to day and in any case it accrues at the end of the year of accounting. In this context, the fact that the assessee-company adopted the mercantile system of accounting was relevant for determining whether the interest had accrued to it or not. In support of his submissions, Mr. Awasthy relied upon Morvi Industries Ltd. v. Commissioner of Income-tax [1971] 82 ITR 835, 840 (SC), in which it was observed as under : The income can thus be said to accrue when it becomes due. The postponement of the date of payment has a bearing only in so far as the time of payment is concerned, but it does not affect the accrual of income. The moment the income accrues, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hy are not wholly without force but we are of the view that the decision of the case stands concluded against the revenue by a recent judgment of their Lordships of the Supreme Court in Commissioner of Income-tax v. Birla Gwalior (P.) Ltd. [1973] 89 ITR 266 (SC). In that case, the assessee-respondent was a managing agent of the National Bearing Co. Ltd. and Gwalior Rayon Silk Manufacturing Co. As managing agent of the former company it was entitled to receive a commission of 12 1/2% per cent. on the net profits of the managed company together with a sum of Rs. 18,000 as office allowance. In the case of the latter company it was entitled to get an office allowance of Rs. 30,000 per year in addition to the agreed managing agency commission. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s correct. As mentioned earlier, no due date was fixed for the payment of the commission under the managing agency agreements. The commission receivable could have been ascertained only after the managed company made up its accounts. The assessee had given up the commission even before the managed company made up its accounts. Hence, the mere fact that the assessee-company was maintaining its accounts on the basis of the mercantile system cannot lead to the conclusion that the commission had accrued to it by the end of the relevant accounting year." As observed earlier, no interest had actually been paid to the assessee-company nor had it made any debit entries in its account books. No date was fixed in the agreement of loan regarding the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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