9911796707
TMI Blog1965 (9) TMI 1X X X X Extracts X X X X X X X X Extracts X X X X ..... d on, inter alia, money-lending business and in the course of its money-lending business it had advanced a sum of Rs. 71,010, some time in 1948-49, to another registered firm of M/s. Gwalior Glass Industries (hereinafter called the debtor firm). There were four partners of the debtor firm, two of whom were also partners of the assessee-firm. The two other partners were Sri Ram Prasad and Sri Jagdish Prasad. The assessee admittedly adopted the mercantile system of accounting. For the assessment years 1948-49 to 1956-57, the assessee had returned the interest income from the aforesaid loan to the debtor firm on the mercantile system of accounting, i.e., on the accrual basis. In the relevant year of accounting, however, the sum of Rs. 20,400, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... restored that of the Income-tax officer. In doing so, the following findings of facts were given: 1. That the assessee had been following the mercantile system of accounting and interest from the debtor firm was being assessed in the past on the accrual basis. 2. There was no variation, change or innovation of the contract in respect of the income for the relevant year of account. 3. That the material placed on record was insufficient to establish that the debtor firm was not able to pay the interest for the relevant year of account, and 4. That both the partners of the assessee-firm, who were also partners of the debtor firm, had not been shown to be financially embarrassed in any manner. On these findings the Tribunal came to the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for including it in the profits or receipts of an earlier year. If the present Act is found to admit of extensive evasion in India, the remedy, in my opinion, is to be found in an alteration of the law." It was as a result of these observations and to prevent the excessive evasion of tax, which was resulting from the absence of a provision as to the system of accounting, that section 13 of the Income-tax Act was inserted in the Income-tax Act (Act No. XI of 1922). Section 13 provides : " Income, profits and gains shall be computed for the purposes of sections 10 and 12 in accordance with the method of accounting regularly employed by the assessee." There was thus, under the Act of 1922, an obligation placed upon the Income-tax Officer t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the account of the assessee but had carried it to the suspense account by a resolution of the directors, would not make the commission which had accrued any the less the income of the assessee, as the system of accounting followed was mercantile system and the commission had accrued. In Commissioner of Income-tax v. Shoorji Vallabhdas & Co. the Supreme Court was again called upon to consider whether the rate of commission which had been agreed upon could be given up by the managing agent and as such what would be the income which could be said to have accrued to the managing agents ? Affirming the decision of the Bombay High Court, it was held that, as the agreement between the managing agents and the managed company within the previous ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any reason whatsoever. This is the very evil on account of which section 13 in the Act of 1922 was brought on the statute book. If the assessee could at any moment of time say that he will not debit the interest because of some reason or the other, then it would open the floodgates of evasion. There is also no hardship as the legislature has expressly provided that, if the income on the accrual basis has been included in the assessee's total income and tax paid thereon but subsequently it is found that that income was not received or could not be received, then in the year when such debt was found to have become irrecoverable or bad, it could be claimed as a bad debt. This provision is to be found in section 10(2)(xi) of the Act. This prov ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
