Interest accrual suspended after relief undertaking notification, so loan interest was assessable only on realisation basis.

Interest on a loan to a debtor company was not treated as accruing on the due basis for the relevant year where the company had been taken over and declared a relief undertaking under the West Bengal Relief Undertakings (Special Provisions) Act, 1972. The notification suspended the operation of contracts and the liabilities arising under them, so interest could not be said to continue accruing during that year despite the assessee following the mercantile system. The interest was therefore assessable only on realisation basis for that assessment year.

---

---

Issues: Whether interest on a loan to a debtor company was liable to be assessed on the due basis or only on realisation basis for the relevant assessment year after the company had been taken over and declared a relief undertaking.

Analysis: The assessee followed the mercantile system of accounting, but the relevant accounting year fell after the Government had taken over the management of the debtor company and issued a notification declaring it a relief undertaking under the West Bengal Relief Undertakings (Special Provisions) Act, 1972. That notification stopped the operation of contracts and suspended the liabilities accruing thereunder. In that situation, it could not be said that the interest continued to accrue during the year in question, and the earlier view taken for a different assessment year could not govern the present facts.

Conclusion: The interest was not assessable on the due basis for the relevant year and was to be considered on realisation basis, in favour of the assessee.

---