1998 (4) TMI 11 - HC - Income Tax

Summary

Issues Involved:
1. Accrual of interest on loan advanced by the assessee-company.
2. Jurisdiction of the Commissioner of Income-tax (Administration) u/s 263 of the Income-tax Act, 1961.
3. Merger of the Income-tax Officer's order with the Commissioner of Income-tax (Appeals) order.
4. Notional assessment of interest income.
5. Real income principle and its applicability.

Summary:

1. Accrual of Interest on Loan Advanced:
The Tribunal held that the accrual of interest on the loan advanced by the assessee-company to Shri Ambica Jute Mills Ltd. was not proper and deleted the accrued interest of Rs. 1,15,625 for the period from June 1, 1983, to August 31, 1983, from the total income of the assessee. The Tribunal also held that the interest accrued for the period from September 1, 1983, to March 31, 1984, should not be added to the assessee's income.

2. Jurisdiction u/s 263:
The Tribunal ruled that the Commissioner of Income-tax (Administration) had no basis for passing an order u/s 263 of the Income-tax Act, 1961, and that his order setting aside the assessment was not called for. The Tribunal found that there was no merger of the Income-tax Officer's order in the Commissioner of Income-tax (Appeals) order, and thus, the Commissioner of Income-tax (Administration) had jurisdiction under section 263 of the Act.

3. Merger of Orders:
The Tribunal rejected the assessee's contention that the order of the Income-tax Officer merged with the order of the Commissioner of Income-tax (Appeals). The Tribunal distinguished the decision in Oil India Ltd. v. CIT [1982] 138 ITR 836, stating that the issue before the appellate authority was whether interest could be assessed in respect of the dishonoured hundis.

4. Notional Assessment of Interest Income:
The Tribunal held that no notional interest income could be assessed for the period from September 1, 1983, to March 31, 1984, as there was no contract or agreement for paying any interest or giving any loan after the maturity of the hundis. The Tribunal cited the case of Ananta Lal Sen v. CIT [1992] 107 CTR 113 (Cal) to support its decision.

5. Real Income Principle:
The Tribunal ruled that no real income accrued to the assessee in respect of the sum of Rs. 1,15,625 and deleted the addition. It emphasized that the income must accrue in the real sense and cannot be taxed merely because the assessee follows the mercantile system of accounting. The Tribunal referenced the Supreme Court's decision in State Bank of Travancore v. CIT [1986] 158 ITR 102, which reiterated that real income must be judged in light of the reality of the situation.

Final Judgment:
The High Court affirmed the Tribunal's decision, answering all questions in favor of the assessee and against the Revenue. The court upheld that no notional interest income could be assessed and emphasized the principle of real income.