1993 (9) TMI 91 - HC - Income Tax

Summary

Issues Involved:
1. Whether the sum of Rs. 1,30,233 was rightly assessed as income of the assessee in the assessment year 1974-75.
2. Whether the Tribunal was right in holding that interest amounting to Rs. 1,30,233 can be waived only in the previous year relevant for the assessment year for the purpose of the business of the assessee, otherwise such interest is subject to tax.

Summary:

Issue 1: Assessment of Rs. 1,30,233 as Income
The assessee, a company maintaining accounts on a mercantile system, claimed a deduction of Rs. 1,30,233 representing interest due from two companies, which was subsequently waived. The Income-tax Officer allowed this deduction, but the Commissioner of Income-tax found this allowance erroneous and prejudicial to the interests of the Revenue. The Commissioner initiated proceedings u/s 263 and held that the interest had accrued by December 31, 1973, and the subsequent waiver did not affect this accrual. The Commissioner relied on the Supreme Court decision in Morvi Industries Ltd. v. CIT [1971] 82 ITR 835. The Tribunal upheld the Commissioner's order. The court, referencing the Supreme Court decisions in CIT v. Shoorji Vallabhdas and Co. [1962] 46 ITR 144 and State Bank of Travancore v. CIT [1986] 158 ITR 102, concluded that the interest income had indeed accrued during the previous year and the subsequent waiver did not alter this fact. Thus, the sum of Rs. 1,30,233 was rightly assessed as income for the assessment year 1974-75.

Issue 2: Timing of Interest Waiver
The court held that the interest amounting to Rs. 1,30,233 could only be waived in the previous year relevant for the assessment year. The waiver in the subsequent year did not affect the income that had already accrued. The court emphasized that once the accrual of income takes place, subsequent conduct cannot render the accrued income as "non-income." Therefore, the Tribunal was correct in its holding, and the second question was answered in the affirmative, in favor of the Revenue.

Conclusion:
Both questions were answered in the affirmative, favoring the Revenue and against the assessee. No order as to costs was made.