Accrual of interest on loans continues absent proof of valid modification, and shareholding control does not end debtor-creditor status.

Interest on outstanding loans remains taxable where no valid modification of the lending arrangement is proved, and book entries alone are insufficient to show that accrual stopped. The fact that the debtor company held controlling shares in the assessee did not extinguish the debtor-creditor relationship between two separate corporate entities, and there was no basis for apportioning the debt by reference to shareholding. On those facts, the entire interest of Rs. 6,000 was assessable as income in the assessee-company's hands.

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Issues: Whether the entire interest of Rs. 6,000 on the assessee's loans was assessable as income for the assessment year 1961-62.

Analysis: The reference was confined to the taxability of the interest claimed to have accrued on the outstanding loan. The mere fact that the debtor company had acquired controlling shareholding in the assessee did not destroy the debtor-creditor relationship between two separate corporate entities, and there was no legal basis for apportioning the debt or limiting taxability to the shares not held by the debtor company. The contention that the loan terms had been varied so that no interest accrued after 31 August 1960 was rejected because no material such as correspondence or corporate resolutions proved any such modification; the book entries alone were insufficient to establish cessation of accrual.

Conclusion: The entire interest of Rs. 6,000 was assessable in the hands of the assessee-company.

Ratio Decidendi: In the absence of proof of a valid modification of the lending arrangement, interest continues to accrue under the original contract, and control of one company over another does not extinguish the debtor-creditor relationship between distinct corporate entities.

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