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1. Assessment of interest income in the case of a debtor-creditor relationship between two companies. Analysis: The case involved a dispute regarding the assessment of interest income in the context of a debtor-creditor relationship between two companies. The primary issue was whether the entire interest amount of Rs. 6,000 should be considered as income of the assessee-company for the assessment year 1961-62. The assessee had advanced a sum to another company, and the interest on this advance was in question. The Income Tax Officer (ITO) contended that the entire interest on the outstandings up to December 31, 1960, was taxable as the income of the assessee. The Appellate Authority Commission (AAC) upheld this decision, but the Tribunal took a different stance. The Tribunal opined that interest should only be calculated on the proportionate value of the debt, considering the relationship between the two companies. However, the High Court disagreed with the Tribunal's approach, emphasizing that the two companies were separate entities, and there was no legal basis for the apportionment of interest as suggested by the Tribunal. The High Court further addressed the argument presented by the counsel for the assessee, who contended that no part of the interest should be assessable due to a variation in the agreement between the companies. The counsel argued that after a certain date, no interest accrued to the assessee-company, characterizing post-August 31, 1960, interest as notional income. The Court, however, found this argument beyond the scope of the reference and emphasized that the Tribunal had already determined that a portion of the income was taxable. The Court highlighted that any modification in the original agreement needed to be proven by the assessee with concrete evidence, such as correspondence or resolutions, which were lacking in this case. Therefore, the Court concluded that the entire interest amount of Rs. 6,000 was indeed assessable as the income of the assessee-company. In conclusion, the judgment clarified the assessment of interest income in a debtor-creditor relationship between two companies, emphasizing the separate legal identities of the entities involved. It underscored the importance of concrete evidence to support claims of agreement modifications and upheld the taxability of the entire interest amount in question.
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