9911796707
TMI Blog1984 (7) TMI 113X X X X Extracts X X X X X X X X Extracts X X X X ..... -1974 with Kamani Metallic Oxide (P.) Ltd. ('Kamanis'). The agreement is for a period of three years with a provision for renewal on mutual agreement. Clause 13 provides for termination of the agreement by giving four months' notice in writing by either party and clause 12 of the agreement provides for a deposit of Rs. 10 lakhs by the assessee or by its nominees with Kamanis, which is to carry an interest at the rate of 12 per cent per annum. The assessee had given a notice of termination of distributorship agreement to Kamanis on 18-7-1975 in terms of which the termination of the agreement became effective on and from 18-11-1975. By means of a letter, dated 29-10-1975, the assessee has requested Kamanis to refund the amounts deposited in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hange the position when the income has not accrued at all. For the assessment year 1977-78, the appeal came to be heard by the AAC, who has heard it on 9-12-1982 and disposed it by his order dated 16-12-1982. Since the order of the Commissioner (Appeals) for the assessment year 1978-79 was available to him, the AAC has also following the order of the Commissioner (Appeals) deleted the addition by way of assumed interest income for the assessment year 1977-78. 5. It is submitted before us by Shri Mahadeshwar, the senior departmental representative, that the Commissioner (Appeals) for the assessment year 1978-79 and the AAC for the assessment year 1977-78 have failed to appreciate the facts correctly. In this context, he has invited our att ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the Kamanis account. The last credit note, it is stated was received on 5-7-1975 for the half year ending on 30-6-1975. Accordingly, the amount mentioned in the credit note was credited to the profit and loss account. The assessee having given the notice of termination of agreement soon thereafter, i.e., on 18-7-1975, in terms of which the termination of the agreement became effective from 18-11-1975, the question of receiving any credit note thereafter, did not arise. In this manner, it is submitted by the counsel that technically speaking, the assessee was not actually following the mercantile system in respect of this transaction. It is submitted that when instead of refunding the amounts deposited, the Kamanis filed a counter claim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al representative has relied on the comments of the learned commentator Shri Palkhivala, in his treatise at page 872, for the purpose of showing that the change in the method of accountancy can be allowed if it is a bona fide change and that too if it is not too frequent. As regards real income theory propounded by the assessee's counsel, the departmental representative has relied on the Gujarat High Court decision in the case of Udayan Chinubhai v. CIT [1978] 111 ITR 584 and the Rajasthan High Court decision in CIT. v. Vijay Laxmi Trading Co. Ltd. [1984] 147 ITR 372, where a contrary view is stated to have been taken. 8. We have heard the parties and have gone through the facts and relevant material on record and the cases relied upon by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... three equal monthly instalments. On a plain reading of the agreement, we are of the view that there is no stipulation whether the amount of deposit will carry any interest after the date of the termination of the agreement. We also find that section 34 of the Civil Procedure Code provides for three situations as regards the interest to be decreed, viz., (i) interest prior to suit, (ii) interest pending during the suit, i.e., up to the date of the decree, and (iii) future interest, i.e., interest after the decree. While the interest prior to the suit is governed as per the contract, if any, the interest for the period during which the suit is pending is to be awarded in the discretion of the Court and so is the case with regard to the futur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ces, it is reasonable to hold that interest has not accrued to the assessee even for this period. It may not be out of place to mention that we also find substance in the assessee's submissions, viz., that strictly speaking, the assessee was not following the mercantile system of accountancy in respect of this transaction. These entries in the books have been made not at the end of the year, which would be a case if a person is following the mercantile system of accountancy scrupulously. In the case of the assessee's interest, entries are made on the receipt of credit notes which have been received half yearly as stipulated in clause 12. Therefore, the interest will not accrue to the assessee even on this score. For these and other reasons ..... X X X X Extracts X X X X X X X X Extracts X X X X
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