1972 (10) TMI 34 - HC - Income Tax

Assessee had advanced certain loans to a private limited company known as Virmani Refrigeration and Cold Storage Company Ltd. He was being assessed to tax on interest accruing on these loans from year to year. However, for the two assessment years 1953-54 and 1954-55, the assessee did not include any income from this source in its return. The Income-tax Officer estimated the income from interest on these two loans at Rs. 12,000 for the first year and Rs. 6,000 for the second year and taxed the assessee on interest which had accrued to him, even if it was not received, during the assessment years in question - When assessee follows mercantile system of accounting whether interest accrued but not received can be included in the income

Summary

The High Court of Allahabad ruled in favor of the Income-tax Department in a case involving the accrual of interest income on loans advanced by the assessee to a private limited company. The court found that the assessee was following the mercantile system of accounting, where income is assessable when it accrues, even if not received. Therefore, the assessee was liable to include the accrued income in the tax return. The Income-tax Officer was deemed correct in taxing the accrued interest. The department was awarded costs of Rs. 100.