TaxTMI 
TaxTMI 
TaxTMI 
2006 (2) TMI 112
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....e system of mercantile accounts followed by it?" 2. For the assessment year 1988-89 only: "Whether, on the facts and circumstances of the case, the Tribunal was correct in law in holding that the return filed by the assessee in response to the notice under section 142(1) was a return filed under section 139(4) and therefore the provisions applicable for determining time limit for completion of assessment was section 153(1) (b) as amended from April 1, 1989?" The facts arising out of the first question of law are as under: The relevant assessment years are 1986-87 to 1989-90. The assessee is engaged in the business of distribution of films. The assessee-company advanced a loan of Rs. 2,59,50,000 to one Sri K.L. Srihari. The borrower repaid Rs. 1,51,00,000 on March 22,1984 reducing the balance outstanding to Rs. 1,08,50,000. On February 21, 1985, the Income-tax Department served a notice under section 281B of the Act prohibiting the said Sri K.L. Srihari from paying the loan amount and the interest thereon to the assessee and directing him to pay the same to the Income-tax Department towards the tax arrears of the assessee. Later on, the prohibitory order under section 281B was s....
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.... would be paid to the assessee till such time the prohibitory orders were in force. As a result, the assessee had not received any interest from Sri K.L. Srihari till date and hence it was not taxable. Learned counsel for the Revenue submitted that the attachment did not make any difference in respect of accrual of interest. The attachment was for a short period and the assessee had not forgone the right to receive principal as well as interest from Sri K.L. Srihari. We heard counsel. We have perused the materials and also the letter written by Sri K.L. Srihari on March 8,1985, to the assessee which reads as under: "M/s. Sujatha Films Private Ltd., 27, Wallace Garden, III Street, Madras-600 006. Dear Sirs, Sub: Loan taken from you and interest payable thereon-reg. Ref: Letter from Income-tax Officer, Company Circle IV(1), Madras dated February 25, 1985 Your letter dated March 1, 1985- Please refer to your letter cited above. In continuation of the discussion I had with you on the above subject, this is to confirm that henceforth no interest is payable by me on the balances due to you from March 1, 1985, and you will not be charging any interest. Thanking you, Yours fai....
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....moment the interest accrues, the assessee gets a vested right with the right to claim that amount even though it may not have been immediately received. The fact that the amount is not subsequently received would also not depart from the fact of accrual. Once the assessee follows the mercantile system of accounting, the interest accrues on day to day basis. It is clear that interest on loan or advance to Sri K.L. Srihari had accrued to the assessee even if the amount payable by Sri K.L. Srihari had been attached by the Income-tax Department under section 226(3) of the Act. The attachment under section 226(3) by the Income-tax Department did not prohibit accrual of income to the assessee. As and when the amount is realized by the Income-tax Department from Sri K.L. Srihari, the assessee will get credit for that amount in respect of taxes paid by the assessee. Hence there was accrual of interest and the same is taxable. The second question of law is only for the assessment year 1988-89. In respect of question No. 2, the facts are as follows: For the said assessment year, the assessee was served notice under section 139(2) on October 7, 1988, but no return was filed in compliance th....
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....ed under sub-section (4) or sub-section (5) of section 139, whichever is later. The provisions of section 153 have been amended by the Finance Act, 1989 and as per the amended provision, the time limit is one year from the end of the financial year in which the return of income or a revised return of income is filed by the assessee. We heard counsel. The assessee had filed the return of income on August 13, 1990, which was relevant to the financial year ending March 31, 1991. The time limit for completion of the assessment expired on March 31, 1992, i.e., one year from the end of the financial year March 31, 1991. In this case, the assessee had filed the return of income on August 13, 1990, which was relevant for the financial year April 1, 1990 to March 31, 1991. Since the assessee had filed the return of income on August 13, 1990, the Assessing Officer could complete the assessment up to March 31, 1992, and since the assessment order in this case was passed on March 18, 1992, the same was not barred by limitation. The provisions of section 153(1)(b) are reproduced below: "153.(1) No order of assessment shall be made under section 143 or section 144 at any time after the expiry....