1978 (3) TMI 80 - HC - Income Tax

Summary

Issues Involved:
The issue involves the determination of whether the interest on a loan should be included in the assessment for a specific assessment year.

Summary:

The case pertains to a reference u/s 256(1) of the Income-tax Act, 1961, concerning the inclusion of interest on a loan in the assessment for the year 1970-71. The assessee, a company, had advanced a loan to another party and decided not to credit the interest on the loan until realized. The Income-tax Officer included the interest in the assessment for the relevant year, following earlier decisions. The Tribunal upheld this decision, leading to the current reference.

Arguments Presented:

The advocate for the assessee argued that the company was entitled to change its method of accounting for the income source, citing relevant case laws. On the other hand, the revenue's advocate contended that the assessee cannot unilaterally change the method of accounting for a specific transaction to avoid tax liability, supported by legal precedents.

Court's Analysis:

The Court examined section 145(1) of the Income-tax Act, which allows the computation of income based on the method of accounting regularly employed by the assessee. It emphasized that a taxpayer can adjust affairs to reduce tax burden and adopt lawful means for this purpose. The Court disagreed with the opinion that an assessee cannot unilaterally change the method of accounting, stating that the relevant facts were not properly appreciated by the authorities.

Decision:

The Court concluded that the Tribunal had overlooked crucial facts and circumstances of the accounting year in question. It directed the Tribunal to ascertain the material facts and determine whether the interest amount should be included in the assessment for the year 1970-71 based on the regular employment of the altered method of accounting. The reference was disposed of without answering the question, with no order as to costs.

This judgment highlights the importance of correctly interpreting the method of accounting and ensuring that tax assessments are based on accurate and relevant facts.