TaxTMI 
TaxTMI 
2017 (5) TMI 1221
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....satisfied that these two points involve substantial questions of law, and hence we admit the appeal on these two points: 2. The assessee is an incorporated company and at the material point of time, its income, inter alia, was from interest and commission. The present appeal is in relation to waiver of interest of two of its borrowers, Shroff Chemicals Pvt. Ltd. and Eastern Commercial Enterprises. Loans were advanced to these two borrowers during the financial year 1985-86. Admitted position is that the assessee maintains its accounts on mercantile basis. It is the assessee's case that these two borrowers had made request for not charging any interest at the material point of time and this request was acceded to by the assessee. 3. In a supplementary affidavit filed before us affirmed by one Ajoy Kr. Agarwal on 22nd June, 2001, the board resolutions of the company taken on 15th May, 1987 have been annexed. These resolutions relate to waiver of interest of these two borrowers and provide:- "RESOLVED that the petition received from M/s. Shroff Chemicals Pvt. Ltd. vide letter dated 04/04/87 for waiver of interest on loan due to acute financial stringency/crisis be and is hereby ac....
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....ter receiving a request, the assessee stopped this practice and did not credit the interest for the remaining period. But the fact remains that the assessee continues to receive back the principal amount from the said Company. For waiving the interest, no resolution was passed by the Board of Directors. It also reveals from the record that the said debt was not a bad-debt as time to time payment was received by the assessee-company. It is the business of the assessee to have the income from interest." Learned Counsel for the assessee apprises us that the assessee had brought a rectification proceeding under Section 254 of the 1961, Act seeking in substance deletion of the interest income from the assessment order in relation to the aforesaid to borrowers. It is his contention that in that proceeding, the assessee sought to bring on record that the Board had passed resolutions to that effect. The rectification application was registered as MA No.47 (Cal) of 2001 and was rejected by an order dated 8th June, 2001 in the following terms: "4. After hearing both the parties and on perusal of the record, we are of the view that the main grievance of the assessee is regarding the obser....
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....ould not be added to the income of the assessee for the relevant financial year. He has relied on the cases of Commissioner of Income Tax vs. Birla Gwalior Pvt. Ltd., reported in [1973] 089 ITR 0266 (SC). The Hon'ble Supreme Court in this decision has relied on two previous authorities being C.I.T. vs. Shoorji Vallabhdas & Co., [1962] 46 ITR 144 and Poona Electric Supply Co. Ltd. vs. CIT [1965] 57 ITR 521. 7. In the case of Shoorji Vallabhdas (Supra), the Supreme Court held:- "Income-tax is a levy on income. Though the Income-tax Act takes into account two points of time at which the liability to tax is attracted, viz., the accrual of the income or its receipt, yet the substance of the matter is the income. If income does not result at all, there cannot be a tax, even though in book-keeping, an entry is made about a 'hypothetical income', which does not materialise. Where income has, in fact, been received and is subsequently given up in such circumstances that it remains the income of the recipient, even though given up, the tax may be payable. Where, however, the income can be said not to have resulted at all, there is obviously neither accrual nor receipt of income, even thou....
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....er 24, 1970, did not affect the tax liability of the assessee on accrual basis?" 10. As would be evident from the questions framed in that appeal, the resolutions relinquishing interest were taken subsequent to accrual of interest in the financial years in question. The Hon'ble Supreme Court recorded the following facts as being involved in that decision, distinguishing the applicability of the ratios of the judgments in the case of Birla Gwalior (supra) and Poona Electric (supra) and Shoorji Vallabhdas (supra):- "Before we refer to the decisions of this Court, it is necessary to reiterate the basic facts of the case. For the previous two assessment years, viz., 1966-67 and 1967-68, the assessee-company did charge interest on the loan advanced by it to the firm which shows that the loan was an interest bearing loan. The second circumstance to be noticed is that the resolution waiving interest was passed after the expiry of the relevant accounting year in the case of the three subsequent assessment years, viz., the assessment years 1969-70, 1970-71 and 1971-72. Only in the case of the assessment year 1968- 69, was the resolution passed before the expiry of the accounting year. T....