Situs of accrual of interest on loans depends on where money is lent and repayment rights arise, not a different claimed nexus.

Interest on loans advanced to debtor-companies was treated as accruing where the money was actually lent and where the corresponding right to repayment and liability to pay interest arose. In the absence of any agreed place of repayment, the debtor-seeks-creditor principle applied, and the territorial nexus at Bhilwara was accepted as substantial because the loans were advanced there through purchasing agents. The Tribunal's view that the connection was illusory was rejected on the facts found, and the income was held to have accrued in Part B State rather than Part C State for taxability and concessional treatment.

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Issues: Whether interest income on money lent to debtor-companies accrued in Part B State or Part C State for the purpose of taxability and concessional treatment.

Analysis: The decisive factors were the place where the loan was actually advanced and the place where the right to repayment, with corresponding liability to pay interest, arose. In the absence of any agreement fixing a different place of repayment, the principle that the debtor must seek the creditor was applied. The Court also treated the territorial links at Bhilwara as substantial, since the loans were found to have been advanced there through the purchasing agents and the right to recover the loan and interest arose there. The Tribunal's contrary view that the nexus was illusory was not accepted on the facts found.

Conclusion: The interest income accrued to the assessee in Part B State and not in Part C State.

Final Conclusion: The reference was answered in favour of the assessee on the basis that the situs of accrual of interest was Bhilwara, giving the income a Part B State nexus.

Ratio Decidendi: In a money-lending transaction, where no contrary place of repayment is agreed, the situs of accrual of interest is determined by the place where the money is actually lent and where the corresponding right to repayment and liability to pay arise, applying the debtor-seeks-creditor principle.

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