1978 (1) TMI 25 - HC - Income Tax

Summary

Issues:
1. Accrual of interest income in money-lending business.
2. Forgone interest considered as income.
3. Commercial expediency in relinquishing interest.
4. Applicability of legal precedents on forgone income.
5. Tribunal's decision on interest accrual and commercial expediency.

Analysis:
The judgment by the High Court of ALLAHABAD involved a case where an assessee-firm engaged in money-lending had advanced a loan to a company, resulting in accrued interest income. The debtor company requested to forgo the interest due to financial difficulties. The Income Tax Officer (ITO) and the Appellate Authority Commission (AAC) considered the interest as accrued income. The Tribunal, however, determined that the interest was relinquished as a gesture of grace, not commercial expediency, after it had accrued. The Tribunal also rejected the claim under section 10(2)(xv) of the Act, stating no benefit accrued to the assessee by forgoing the interest.

Regarding the legal precedents cited, the court distinguished the present case from H. M. Kashiparekh & Co. Ltd. v. CIT and CIT v. Shoorji Vallabhdas & Co., emphasizing the absence of commercial expediency and the timing of the agreement to forgo interest. The court also referenced CIT v. Birla Gwalior (P.) Ltd., where the surrender of commission was deemed allowable due to commercial expediency, which was not present in the current case. Additionally, the court highlighted Poona Electric Supply Co. Ltd. v. CIT, where amounts were not considered as real profits due to specific circumstances, contrasting it with the present case.

The court affirmed the Tribunal's findings that the interest income had accrued to the assessee during the relevant year and that the relinquishment was not based on commercial expediency. The court held that the Tribunal was justified in rejecting the plea of commercial expediency, as it was not raised earlier and was not supported by the facts. Consequently, all three questions posed by the Tribunal were answered in favor of the department, and costs were awarded to the Commissioner.