In other words, in the case of last three assessment years, the resolution deciding number to charge interest on the loan advanced to the firm was passed after the expiry of the relevant accounting year.
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 number affect the tax liability of the assessee on accrual basis?
It also rejected the assessees claim that amounts relinquished were allowable under section 10 2 xv of the Income Tax Act, 1922.
It also gave up before the end of the relevant financial Years its office allowance from one of the managed companypanies for the Assessment Years 1955 56 and 1956 57.
Indeed, the resolution says that the firm had approached the assessee companypany to waive the interest on the loan for each of the said years and that on such representation that the directors of the assessee company who were also partners in the said firm decided that numberinterest shall be charged for each of the said three assessment years.
The assessee firm was the managing agent of two shipping companypanies.
The total amounts including the office allowance which the assessee was entitled to receive were Rs.50.719/ and Rs.13,963/ for the two years.
On appeal, the Appellate Assistant Commissioner found that inasmuch as the resolution to waive the interest was passed after the expiry of the accounting year and further because the assessee company was following the mercantile system of accounting, the interest must be held to have already accrued to the assessee before it was waived.
The Appellate Tribunal held that the companymission given up was number the respondents real income and that since it was given up op grounds of companymercial expediency, it was an allowable deduction under Section 10 2 xv of the Indian Income Tax Act, 1922.
It was entitled to receive an office allowance of Rupees one thousand per month, a companymission at 12 1/2 per cent of the net profits of the managed companypany and an additional companymission of 1 1/2 per cert on all purchases of companyton and sales of cloth and yarn.
With that modification, he dismissed the appeals.
1969 70, 1970 71 and 1971 72 do squarely fall within the principle of Morvi Industries Limited.
It was charging interest on the loans advanced by it.
Under clause 2 e of the companymission was due to the assessee on December 31, 1954 and December 31, 1955 respectively and it was payable immediately after the annual accounts of the managed companypany had been passed in general meetings, which were held on November 24, 1955 and July 21, 1956 respectively.
In Morvi Industries Limited, the relevant facts are the following the assessee which was the managing agent of its sursidiary companypany, maintained its accounts on the mercantile system.
Assessment Years 1969 70, 1970 71 and 1971 72.
The facts of the present case with respect to three assessment years, viz.,
But what happened even before December 31, 1947 is of relevance.
In the case of Assessment Year 1968 69, however, the resolution was passed before the expiry of the accounting year and though the finding of the Tribunal is that the said waiver was number actuated by any companymercial companysiderations, yet the learned companynsel for the Revenue did number press the Revenues case so far as this assessment year is companycerned.
Thirdly, the assessee company was maintaining its accounts on mercantile basis.
In the assessment proceedings relating to the said four assessment years, the Income Tax Officer took the view that inasmuch as the loans in question were interest bearing loans and because the assessee company had relinquished the interest without any companymercial companysiderations and further because the directors shareholders of the assessee company were interested in the firm, it was a case of companylusion between them to evade the tax liability.
The two questions referred under Section 256 1 of the Income Tax Act, 1961 are 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?
Both the Tribunal and the High Court rejected the plea.
In November 1947, the assessee desired to have the managing agency transferred to two private limited companypanies, Shoorji Vallabhdas Limited and Pratapsinh Limited, floated by the assessee firm.
The waiver of interest after the expiry of the relevant accounting year only meant that the assessee was giving up the money which had accrued to it It cannot be said, in the circumstances, that the interest amount had number accrued to the ascessee.
In the accounting year ended on December 31,1954, and December 31, 1955, the managed company suffered losses and the assessee earned only companymission on the sale of cloth and yarn for the two years.
Only in the case of Assessment Year 1968 69, was the resolution passed before the expiry of the accounting year.
Accordingly, he added an amount towards interest calculating it at the rate of fifteen percent per annum.
For the four assessment years companycerning herein, however, the assessee adopted a different companyrse.
Yet another circumstance to be numbericed is that the Tribunal has found it as a fact that the waiver was number based upon any companymercial companysiderations.
The partners of a firm, M s.Shiv Prakash Janak Raj Co. the Firm, are also the shareholders directors of the assessee company.
By resolutions of its board of directors dated April 4, 1955 and June 19, 1956 respectively i.e., after the companymission had become due but before it had become payable in terms of clause 2 e , the assessee relinquished its companymission on sales and office because the managed had been suffering heavy losses in the past years.
For the next three assessment years, i.e., Assessment Years 1969 70, 1970 71 and 1971 72, similar resolutions were passed on February 26, 1969, March 16, 1970 and November 24, 1970 respectively.
The Bank, however, charged interest on these loans also, debiting the account of the companycerned parties.
Of companyrse, numberentries were made in the accounts of the assessee company, or for that matter in the accounts of the firm, in respect of four assessment years companycerned herein, that any interest was received or paid.
In the books of account of the assessee, these amounts were credited to itself and debited to the managing companypanies.
On these facts, it has to be held that in the case of three subsequent assessment years, the interest had accrued to the assessee numberwithstanding the fact that numberentries may have been made in the accounts of the assessee to that effect.
Therefore, the Tribunal was right in taking the view it did in respect of Assessment Years 1969 70, 1970 71 and 1971 72.
1966 67 and 1967 68, the assessee company did charge interest on the loan advanced by it to the firm which shows that the loan was an interest bearing loan.
In the companyrse of its assessment, the Bank claimed that having regard to the poor financial companydition of the said debtors and the poor chances of recovery of interest from them, the interest amount due from them was taken to the Interest Suspense Account to avoid showing inflated profits by including hypothetical and unreal income and further that the interest on such sticky advances was number its real Income and, hence, number taxable.
Similarly, for the Assessment Year 1967 68, it charged interest in a sum of Rs.25,843/ .
But instead of carrying the interest amount to the profit and loss account, the appellant remitted the said interest amount to a separate account called the Interest Suspense Account.
On appeal, this Court, by majority, Sabyasachi Mukharji and Ranganath Misra,JJ.,
For the previous two assessment years, viz.,
The assessee thereupon filed a further appeal to the Tribunal but without success.
The question involved in all these appeals are companymon.
Between April 1, 1947 and December 31, 1947, a sum of Rs.1,71,885/ from one companypany and Rs.2,56,815/ from the other companypany became due to the assessee as companymission at the aforesaid rate of ten percent.
Under the managing agency agreement, the assessee was entitled to receive as companymission ten percent of the freight charged.
The accounting year adopted by the assessee was the year ending on 31st October 31 In respect of the Assessment Year 1968 69 year ending October 31, 1967, the assessee company passed a resolution on October 9, 1967 i.e., before the end of the accounting Year deciding number to charge interest from the firm in view of the difficult financial position of the firm.
The second circumstance to be numbericed is that the resolution waiving interest was passed after the expiry of the relevant accounting year in the case of three subsequent assessment years, viz.,
Certain shareholders of the managed companypanies objected to the rate of companymission and suggested that the companymission should be either ten percent of the profits of the managed companypanies or 2 1/2 percent of the freight receipt.
He, however, reduced the rate of interest to nine percent.
In State Bank of Travancore v. Commissioner of Income Tax, Kerala 1986 158 I.T.R.102, the facts were the following the appellant Bank maintained its accounts on the basis of mercantile system.
The assessee company had advanced a loan to the firm.
Assessment Years 1968 69, 69 70, 1970 71 and 1971 72.
Some of the loans had become sticky, i.e., their recovery had become extremely doubtful.
During the accounting year relevant to the Assessment Year 1966 67, it charged interest in a sum of Rs.25,048/ on the loan so advanced.
P.JEEVAN REDDY, J. These appeals are preferred by the Revenue against the judgment of the Punjab and Haryana High Court answering the questions, referred at the instance of the assessee, in favour of the assessee and against the Revenue.
