Real income doctrine and crystallised acquisition loss barred notional interest tax and allowed deduction on receipt basis.

Notional interest on an old business advance to a group company was not taxable because the advance arose from commercial business purposes, no interest had been charged in earlier years, and no real income had accrued. Loss from compulsory acquisition of land was deductible in the year the compensation was received and the land cost was written off, because the claim crystallised only on completion of the legal formalities and the compensation had been offered to tax in that year. The Revenue's challenge therefore failed on both issues and the relief granted to the assessee was sustained.

---

---

Issues: (i) Whether notional interest could be brought to tax on an old business advance made to a group company on which no interest was charged. (ii) Whether loss arising from compulsory acquisition of land was deductible in the year in which compensation was received and the land cost was written off.

Issue (i): Whether notional interest could be brought to tax on an old business advance made to a group company on which no interest was charged.

Analysis: The advance was found to be an old business advance originating from earlier years and transferred to the assessee on amalgamation of the original advancing companies. It was held to have been made for acquisition of land in the course of business and not out of interest-bearing funds. The absence of any notional interest charge in earlier assessments and the principle that only real income can be taxed supported the view that no income had actually accrued.

Conclusion: No notional interest could be added, and the deletion of the disallowance was upheld in favour of the assessee.

Issue (ii): Whether loss arising from compulsory acquisition of land was deductible in the year in which compensation was received and the land cost was written off.

Analysis: The compensation for acquired land was received in the relevant year after completion of the necessary legal formalities, and the claim was crystallized only then. The corresponding cost of the land was written off in the same year, and the compensation income had also been offered to tax in that year. On these facts, the loss was held to have arisen and been accounted for in the year under appeal, consistent with the receipt-based treatment of compensation under the governing tax principles.

Conclusion: The loss on compulsory acquisition was allowable in the year under appeal, and the disallowance was correctly deleted in favour of the assessee.

Final Conclusion: The Revenue's appeal failed on both issues, and the relief granted by the first appellate authority was sustained.

Ratio Decidendi: A notional interest addition cannot be made on an old business advance made for commercial expediency where no real income has accrued, and a loss relating to compulsory acquisition is deductible in the year in which the compensation claim crystallizes and is accounted for on receipt basis.

---