1983 (8) TMI 43 - HC - Income Tax

Summary

Issues Involved:
1. Determination of the situs of accrual of interest income.
2. Applicability of the principle that the debtor should find the creditor.
3. Interpretation of territorial connection in money-lending transactions.

Summary:

1. Determination of the situs of accrual of interest income:
The primary issue was whether the interest income of Rs. 35,302 accrued in Part 'B' State or Part 'C' State. The Tribunal initially held that the income accrued in Part 'C' State, but upon further appeals and inquiries, it was contended that the income should be considered as accrued in Part 'B' State where the assessee's head office was located.

2. Applicability of the principle that the debtor should find the creditor:
The court examined whether the principle that the debtor should seek the creditor applied in this case. It was argued that in the absence of a specific agreement regarding the place of repayment, the debtor is obligated to repay the loan at the creditor's place of business, which in this case was Bhilwara in Part 'B' State. The court found this principle applicable, stating that the right to receive repayment of the loan, including interest, accrued to the assessee at Bhilwara.

3. Interpretation of territorial connection in money-lending transactions:
The court considered various factors to determine the territorial connection of the interest income, such as the place of agreement, the place where the money was lent, and the place where the money was to be repaid. It was found that the loans were actually advanced at Bhilwara through the purchasing agents of the debtor-companies, establishing a substantial territorial link to Bhilwara. The court also referred to the case of C. G. Krishnaswami Naidu v. CIT [1966] 62 ITR 686 (Mad), which emphasized the place of actual lending as a decisive factor in determining the situs of accrual of interest.

Conclusion:
The court concluded that the income of interest amounting to Rs. 35,302 accrued to the assessee in Part 'B' State and not in Part 'C' State. The reference was answered accordingly, and the parties were directed to bear their own costs of the reference.