TaxTMI 
TaxTMI 
1983 (1) TMI 59
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....ount of the assessee the following interests Period Amounts Rs. A 1-10-1959 to 31-12-1959 2,42,606.69 B 1-1-1960 to 30-10-1960 7,20,571.84 C 1-10-1960 to 31-12-1960 2,41,943.84 The assessee took credit of these interests in its accounts. The previous years relevant to the assessment years under reference respectively ended on 31st December, 1959, and 3lst December, 1960. Item " A " of the above interest fell within the assessment year 1960-61, and remaining two items within the assessment year 1961-62. These two latter items aggregated to Rs. 9,62,515. The assessee exercised its option in February, 1961, for the transfer of the shares by its India....
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....an subsidiary was that the assessee was to advance the amount in shares of the ACCI and the assessee retained the right to acquire the shares at the purchase price from the Indian subsidiary and that the arrangement envisaged a payment of interest by the Indian subsidiary to the assessee at the rate of 1 1/2% above the bank rate, subject to the condition that the interest rate at no time should exceed the rate of dividend paid by the company on its ordinary shares. The AAC was of the view that the entries in the accounts of the assessee were made at the time when the assessee had not decided to get the shares transferred to it and placing reliance on the decision in the case of CIT v. Shoorji Vallabhdas & Co. [1962] 46 ITR 144 (SC), he was of the view that making of the entries in the accounts did not create a right to receive interest from the Indian subsidiary. He deleted the addition made by the ITO in both the years under reference. Aggrieved by the order of the AAC, the Department went up in appeal before the Tribunal. It was urged by the learned representative of the Department that the matter of interpretation of the terms of the advancing of the loan by the assessee to t....
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....he years under reference from the assessments of the assessee. The Tribunal accordingly dismissed the departmental appeals. At the instance of the Commissioner of Income-tax, the following questions of law have been referred under s. 256(1) of the I.T. Act, 1961: " 1. Whether, on a proper reading of the letters referred to in its order, the Tribunal was justified in holding that interest was to be charged only if I.C.I. India actually received dividend from the ACCI ? 2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the sum of Rs. 2,42,607 and Rs. 9,62,515 respectively did not accrue as interest to the assessee for the previous year ending on the 31st December, 1959, and 31st December, 1960, respectively ? " The case of the Revenue before us is that a loan was given by the Imperial Chemical Industries, London, to the Imperial Chemical Industries (India) Private Limited which is the Indian subsidiary of the London company. This loan was to carry interest and the interest accrued at the end of the accounting year. It has been argued that subsequent conduct or transaction of the parties after the end of the accounting ye....
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....letter dated 29th September, 1958, written by ICI (India) Pvt. Ltd. to the Reserve Bank of India. Some of the facts are very clear from these correspondence and are not in dispute before us. ICI, London, was giving a loan of approximately Rs. 1,80,00,000 to ICI (India) Pvt. Ltd. The loan was for the purpose of financing another company, the Alkali and Chemical Corporation of India Limited. ICI (India) Pvt. Ltd. was to invest this amount in the shares of Alkali and Chemical Corporation of India Limited; and when called upon to do so, ICI (India) Pvt. Ltd. had to transfer these shares to ICI, London, in settlement of the loan that was taken. It was made quite clear in the correspondence that the loan was to be given only for the purpose of buying the shares in Alkali and Chemical Corporation of India Limited. The first instalment of the loan was to be advanced in March, 1957, and the balance as and when calls were made on the shares sold by Alkali and Chemical Corporation of India Limited. Interest was to be paid at the rate of 1 1/2% above the bank rate but this rate was not to exceed the rate of dividend paid by Alkali and Chemical Corporation of India Limited in any year. The o....
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....0 lakhs from the London company, it was categorically stated that : " In order to provide finance for the above transaction, ICI Ltd., London have undertaken to make a loan of Rs. 180 lakhs payable in two instalments, the first instalment being paid in March, 1957, and the balance as and when calls are made on the shares. ICI Ltd., London, have notified us of their intention to charge interest at the rate of l 1/2% above the bank rate on this loan until such time as the loan is repaid, with the proviso that this rate shall at no time exceed the rate of dividend paid by the company on its ordinary shares." It appears from this correspondence that the clear understanding of the parties was that the Indian company was to invest the loan of Rs. 1,80,00,000 given by the London company in the purchase of shares of ACCI which was going to embark upon a polythene project and which was likely to give dividend at about 6% almost immediately. The Indian company was to retain the dividend and to pay an amount to the London company which should not exceed the amount of dividend received by it on its ACCI shareholding. It is quite clear that it was not the intention of the parties to tr....
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....ade their intention quite clear in the correspondence that passed between them. The loan was really meant for ACCI Limited. ICI (India) Private Limited was made the agency through which the loan was given. ICI (India) Pvt. Ltd. was entitled to retain the dividend that was paid by ACCI Limited but, in its turn, ICI (India) Pvt. Ltd. had to pay an interest to the London company. The amount of interest was to be a fluctuating figure and depended on the amount of dividend that was received by the Indian company and was not to exceed the amount of dividend under any circumstances. Therefore, in our opinion, the Tribunal was not wrong in this case in holding that there has been no accrual of interest to the assessee for the previous year ending on the 31st December, 1959, and 31st December, 1960, respectively. A large number of cases have been cited in which the principle of accrual of income and mercantile system of accounting has been explained. Reliance has been placed on the decisions of the Supreme Court in the cases of CIT v. K.R.M.T.T. Thiagaraja Chetty & Co. (1953] 24 ITR 525, CIT v. A. Gajapathy Naidu [1964] 53 ITR 114 and also E.D. Sassoon & Company Ltd. v. CIT [1954] 26 ITR....