1978 (4) TMI 61

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.... The assessee-company had adopted the mercantile system of accounting. Up to the assessment year 1963-64, the interest receivable by the assessee from Messrs. New Bhopal Textiles Co. Ltd., was duly shown as credited to the debtor-company's account in the assessee's books on mercantile basis. For the assessment year 1964-65, the assessee did not credit the debtor's account with the receipt of any interest or commission. On enquiry by the ITO, it took up the plea that since it had not actually received interest or commission even for the year 1962, it felt that its loan was in jeopardy and hence for purposes of this transaction of loan, it adopted cash system of accounting for the assessment year 1964-65 onwards. This plea was repelled by ....

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....n received by the assessee would be duly reflected in the books of account and naturally will be brought to tax as income." On this view, the addition was deleted by the Tribunal. At the instance of the department, the following question of law was referred to this court for the assessment year 1964-65 : " Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the sum of Rs. 46,567 representing interest and commission in relation to the loan made by the assessee to the New Bhopal Textiles Co. Ltd. could not be included in the total income of the assessee for that year ?" A Bench of this court in I.T.R. No. 179 of 1973, decided on 2-1-78 [CIT v. Cosmopolitan Trading Co. held that th....

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....at no interest or commission accrued to the assessee on the outstanding debt of Rs. 3 lakhs against the New Bhopal Textiles Co. Ltd., during the previous years relevant to the assessment years 1965-66 and 1966-67 ? " For these two years, the Tribunal has followed its earlier decision and has held that the assessee was justified in changing over to cash system. The question as referred to us does not appropriately bring out the controversy between the parties. We, therefore, reframe the question as follows " Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the sum of Rs. 46,567 representing interest and commission in relation to loan made by Messrs. New Bhopal Textiles Co. Ltd. c....