COMMISSIONER OF INCOME TAX, AMRITSAR versus M/S SHIV PRAKASH JANAK RAJ AND CO. PVT. LTD.

Citation: [1996] SUPP. 7 S.C.R. 81 · Decided: 30-09-1996 · Supreme Court of India · Bench: B.P. JEEVAN REDDY · Disposal: Case Partly allowed

Judgment (excerpt)

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. 
) 
COMMISSIONER OF INCOME TAX, AMRITSAR 
v. 
MIS SHIV PRAKASH JANAK RAJ AND CO. PVT. LTD. 
SEPTEMBER 30, 1996 
[B.P. JEEV AN REDDY AND SUHAS C. SEN, JJ.] 
Income Tax Act, 1961-Sectiqns 5(1)(b), 36, 37(1) and 145-Accrnal 
A 
B 
of interest-Mercantile System of Accountin15Assessment Years 1968-69, 
1969-70, 1970-71 and 1971- 72-Interest bearing loan advanced by assessee 
Company to firm-Waiver of interest before expiry of Accounting year with C 
respect to Assessment Year 1968-69 but after expiry of accounting year for the 
subsequent three Assessment Years-No entries in accounts of company or 
firm-Held, for later three years interest had already accrned before waiver 
and concept of real income cannot be imported so as to whittle down, qualify 
or def eat the provisions of the statute. 
D 
The assessment years involved were Assessment Years 1968-69, 1969-
70, 1970-71 and 1971-72. The assessee company (respondent) had advanced 
a loan to firms whose partners were also the shareholders/directors of the 
assessee company. The assessee company was maintaining accounts on 
mercantile basis and the accounting year adopted was the year ending 31st E 
October of the year. For the accounting years relevant to the assessment 
years 1966-67 and 1967-68, interest of Rs. 25,048 and Rs. 25,843 respective-
ly were charged on the loans so advanced. In respect of assessment year 
1968-69, a resolution was passed by company, before the expiry of the 
accounting year, on October 9, 1967 waiving charge of interest. In respect F 
of the other three assessment years, similar resolutions were passed after 
the expiry of the relevant accounting years. 
The Tribunal affirmed the view of ITO and Appellate Asst. Commis-
sioner, inter-alia observing, that the relinquishment of interest, was not 
for any commercial reasons and that interest had already accrued to the G 
assessee before it was waived irrespective of absence of entries in the books 
of the firm or of the company to this effect. 
The High Court however took a contrary view following the decision 
of this Court in Bir/a Gwalior case and holding that the principle in Morvi H 
81 
82 
SUPREME COURT REPORTS [1996] SUPP. 7S.C.R. 
A Industries case was not applicable. 
B 
c 
It was contended by the assessee that applying the real income 
theory, no interest had really accrued or had been received by it for the 3 
years viz. 1969-70, 1970-71 and 1971-72 and that, in the absence of any 
entries in its books, it cannot be asked to pay tax on income which had not 
been received by it. 
Allowing the appeal relating to assessment years 1969-70, 1970-
71 and 1971-72 and dismissing the appeal relating to assessment year 
1968-69, this Court 
HELD : 1. For assessment years 1966-67 and 1967-68, interest was 
charged on the loan advanced which shows that the loan was an interest 
bearing loan, and it is liable to tax. [85-D] 
2.1 With respect to assessment year 1968-69, where the resolution 
D was passed before the expiry of the accounting year, the appeal, is not 
pressed and hence no finding given. [94-A] 
2.2. In respect of the subsequent three assessment years it cannot be 
said that interest had not accrued to the assessee. The waiver of interest 
E after the expiry of relevant assessment years only meant that the assessee 
was giving up money which had accrued to it. [85-F] 
Morvi Industries, (1971) 82 ITR 835, followed. 
C.l.T. v. Bir/a Gwalior Pvt. Ltd., (1973) 89 ITR 266, explained and 
F 
distinguished. 
G 
H 
Indennani Jatia v. C.l. T., (1959) 35 ITR 298; C.l. T. v. Chaman/al 
Mangaldas, (1960) 39 ITR 8 and C./. T. v. Shoorji Vallabhdas & Co., (1962) 
46 ITR 144, referred to. 
3. The concept of real income cannot be employed so as to define the 
provisions of the Act and Rules. There is 
no room nor would it be 
permissible for the Court to import the concept of real income so as to 
whittle down, qualify or defeat the provisions of the Act and Rules. [93-G] 
C.l. T. v. State Bank of Travancore, (1986) 158 ITR 102, applied. 
CI.T. v. SHIV PRAKASH JANAK RAJ AND CO.PVT.LTD. (JEEVANREDDY,J.) 83 
CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 1906-18 A 
of 1979. 
From the Judgment and Order dated 27.9.77 of the Punjab & 
Haryana High Court in I.T.R. Nos. 5, 68, 93, 94/75, 53/75, 3-6 of 1976 and 
16, 17, 109 and 110 of 1975. 
J. Ramamurthy, B.S. Ahuja and S.N. Terdol for the Appellant. 
G.C. Sharma, S.Rajappa and K.B. Rohtagi for the Respondents. 
The Judgment of the Court was deliver

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