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Issues involved:
The judgment involves a reference under section 256(1) of the Income Tax Act, 1961, regarding the chargeability of certain amounts to income tax and the proper deductions for the assessment years 1970-71 to 1972-73. Details of the Judgment: Chargeability of Amounts to Income Tax: The assessee, a registered firm dealing in cloth, took over assets and liabilities from another firm and claimed deductions for interest amounts due to creditors. The Income-tax Officer disallowed the interest claimed as deductions and estimated interest on accrual basis, leading to reassessment. The Appellate Assistant Commissioner upheld the reassessment, but the Tribunal ruled that interest payable to creditors and receivable from debtors constituted business expenditure and income. The Tribunal also held that the interest payable to certain creditors was part of the capital account and allowed the deductions. The High Court affirmed the Tribunal's decision, stating that the amounts were chargeable to income tax due to the mercantile system of accounting adopted by the assessee. Proper Deductions for Assessment Years: The Tribunal referred the second part of the question for the opinion of the court, even though it was not part of the original reference application. The High Court held that the Tribunal erred in referring the second part of the question and returned it unanswered. The first part of the question regarding chargeability of amounts to income tax was answered in the affirmative against the assessee. The High Court emphasized the importance of following the correct procedure for seeking references under section 256(1) of the Act. In conclusion, the High Court affirmed the chargeability of the amounts to income tax based on the mercantile system of accounting and highlighted the importance of adhering to the proper procedure for seeking references in tax matters.
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