Tribunal rules on income inclusion, rejects accounting change, real income concept.

The Tribunal upheld the inclusion of Rs. 8,264 and Rs. 55,920 as income for the assessment year 1970-71, rejecting claims of a change in accounting method, the concept of "real income," and waiver of interest on grounds of commercial expediency. The decision favored the Revenue, emphasizing accrual basis assessment and the necessity of actual income accrual.

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Issues Involved:
1. Inclusion of Rs. 8,264 as income for the assessment year 1970-71.
2. Inclusion of Rs. 55,920 as income for the assessment year 1970-71.
3. Change in the method of accounting.
4. Application of the concept of "real income."
5. Waiver of interest on grounds of commercial expediency.

Detailed Analysis:

1. Inclusion of Rs. 8,264 as Income for the Assessment Year 1970-71:
The Tribunal upheld the inclusion of Rs. 8,264 as income for the assessment year 1970-71. The interest was charged to M/s. Bags & Cartons, New Delhi, and credited to a suspense account due to non-payment. Despite the debtor's financial difficulties, the assessee did not abandon its claim for the interest before the closing of the books for the relevant accounting year. This interest was thus assessable on an accrual basis.

2. Inclusion of Rs. 55,920 as Income for the Assessment Year 1970-71:
The Tribunal initially deleted the inclusion of Rs. 55,920 representing interest due from M/s. Speciality Papers Ltd. The assessee argued that due to the debtor's financial instability and a winding-up petition filed against the debtor, the interest was credited to a suspense account instead of the profit & loss account. The Revenue contended that the assessee followed the mercantile system of accounting, and any income due in a particular accounting year should be included in the total income irrespective of its credit to a suspense account. The Tribunal concluded that the interest was assessable on an accrual basis since the assessee had not abandoned its claim before the closing of the books.

3. Change in the Method of Accounting:
The assessee claimed a change in the method of accounting effective January 1, 1968, for interest doubtful of recovery, crediting such interest to a suspense account instead of the profit & loss account. The Tribunal found no evidence of a change in the method of accounting. The assessee's action was deemed a change in bookkeeping rather than a change in the accounting method. The Tribunal held that the income credited to the suspense account was assessable on an accrual basis.

4. Application of the Concept of "Real Income":
The assessee argued that the interest credited to the suspense account could not form part of its "real income." The Tribunal noted that the concept of real income must consider the actual accrual or receipt of income. The Tribunal referred to various judicial precedents, including the Supreme Court's decision in Poona Electric Supply Co. Ltd. v. CIT and CIT v. Shoorji Vallabhdas & Co., emphasizing that real income is determined by the actual accrual of income rather than hypothetical entries in the books.

5. Waiver of Interest on Grounds of Commercial Expediency:
The assessee contended that the waiver of interest was made on grounds of commercial expediency and should not be treated as income. The Tribunal observed that the assessee had not given up its claim for interest before the closing of the books for the relevant accounting year. The Tribunal concluded that there was no waiver of interest, as the assessee continued to keep the claim alive by crediting the interest to a suspense account.

Conclusion:
The Tribunal's decision to include both sums of Rs. 8,264 and Rs. 55,920 as income for the assessment year 1970-71 was upheld. The Tribunal found no change in the method of accounting and rejected the application of the concept of real income and the waiver of interest as grounds for exclusion. Both questions were answered in the affirmative and in favor of the Revenue.

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