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Issues Involved:
1. Entitlement to claim interest as a deduction. 2. Timing of the liability for payment of interest. 3. Ascertainability of the quantum of interest. Summary of Judgment: Issue 1: Entitlement to Claim Interest as a Deduction - The court examined whether the assessee was entitled to claim Rs. 75,83,183 as interest payable on loans as a deduction from its income for the assessment year 1957-58. - The assessee followed the mercantile system of accounting and claimed the interest as an allowable deduction in the financial year 1956-57. - The Income-tax Officer disallowed Rs. 57,75,365, allowing only Rs. 18,07,819 for the year 1956-57. - The Appellate Assistant Commissioner allowed the entire amount, stating the liability was determined during the assessment year. - The Tribunal directed further examination, leading to this reference. Issue 2: Timing of the Liability for Payment of Interest - The court considered whether the liability arose only on May 14, 1957, when the State Government informed the assessee of the interest rates. - The correspondence between the assessee and the Government indicated ongoing negotiations and no settled rate of interest until May 14, 1957. - The court found that the liability remained unascertained and contingent until the Government's final decision communicated on May 14, 1957. Issue 3: Ascertainability of the Quantum of Interest - The court examined whether the quantum of interest payable became ascertainable only on May 14, 1957. - The Government's letter dated February 28, 1952, proposed rates, but the assessee did not accept these terms, leading to continued negotiations. - The court concluded that the interest liability crystallized and became enforceable only on May 14, 1957, when the Government's decision was communicated. Conclusion: - The court answered all questions in the affirmative and in favor of the assessee. - The assessee was entitled to claim the entire amount of Rs. 75,80,183 as a deduction for the assessment year 1957-58. - The liability for payment of interest arose and became ascertainable only on May 14, 1957. - No order as to costs was made.
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